Chapter 5 and 6 Quiz review

2/10

2 percent cash discount pay within 10 days

Received credit for return on merchandise

Debit Accounts Payable - Company, Credit Merchandise Inventory

Paid for goods

Debit Accounts Payable, Credit Merchandise Inventory, Credit Cash

To record sale and cost of sale

Debit Accounts Receivable - Company, Credit Sales, Debit Cost of Goods Sold, Credit Merchandise Inventory

Received Payment within discount period

Debit Cash, Debit Sales Discount, Credit Accounts Receivable - Company

Purchase merchandise on credit

Debit Merchandise Inventory, Credit Accounts Payable - Company

FOB shipping point journal entry

Debit Merchandise Inventory, Credit Cash

To record Sales return

Debit Sales Return, Credit Accounts Receivable - Company, Debit Merchandise Inventory, Credit Cost of Goods Sold

net realizable value

Expected selling price (value) of an item minus the cost of making the sale.

Cost of Goods sold + Inventory Balance is equal to

Goods Purchased

Goods on Consignment

Goods shipped by the owner to the consignee who sells the goods for the owner

Homestead Crafts, a distributor of handmade gifts, operates out of owner Emma Finn's house. At the end of the current period, Emma looks over her inventory and finds that she has: 1,300 units (products) in her basement, 20 of which were damaged by water and cannot be sold. 350 units in her van, ready to deliver per a customer order, terms FOBdestination. 80 units out on consignment to a friend who owns a retailstore. How many units should Emma include in her company's period-end inventory?

Units in ending inventory Units stored in basement 1,300 units Less damaged (unsalable) units (20) units Plus units in transit (FOB destination) 350 units Plus units on consignment 80 units Total units in ending inventory 1,710, units

LIFO advantages

assigns an amount to cost of goods sold on the income statement that approximates its current cost; better matches current cost with revenues in computing gross profit

FIFO advantages

assigns an amount to inventory on the balance sheet that approximates its current cost; mimics actual flow of goods for most businesses

when purchase costs regularly rise (LIFO)

assigns the highest amount of cost of goods sold, yielding the lowest gross profit

when purchase costs regularly rise (FIFO)

assigns the lowest amount of cost of goods sold, yielding the highest gross profit and net income

FOB shipping point

buyer pays for shipping

Company ABC's has 10 units in its merchandise Inventory that was purchased at a cost of $100 per unit. The Market cost today is $75 per unit. Using Lower of Cost or Market (LCM), prepare the journal entry needed to adjust inventory to market? a. Debit Cash $750; Credit Merchandise Inventory $750 b. Debit Merchandise Inventory $750; Credit Cash $750 c. Debit Merchandise Inventory $250; Credit Cost of Goods Sold $250 d. Debit Cost of Goods Sold $250; Credit Merchandise Inventory $250 e. Debit Cash $250; Credit Merchandise Inventory $250

d

Goods Damaged or Obsolete

not counted in inventory if they cannot be sold. Cost should be reduced to net realizable value if they can be sold.

FOB destination

seller pays for shipping

FIFO method in periods of inflation, leads to higher net income and higher ending Merchandise Inventory. Weighted average method smoothing out erratic costs changes, LIFO method in periods of inflation, leads to a temporary tax advantage

true

Merchandise Inventory is a current asset

true

Sales less Sales return and allowance less sales discount equals Net Sales

true