chapter 6: merchandising operations and the multistep income statement

biopsies agin, the company's bookkeeper, recorded the purchase of merchandise on account with a debit to cost of goods sold and a credit to cash. as a result, _____

assets are understated liabilities are understated stockholders' equity is understated

Walmart sells a bike that cost $100 to a customer for $250 cash. using a perpetual inventory system, the entry to record the sale includes ad debit to _____ and credit to _____ for $250. the entry to record the cost of the sale includes a debit to cost of goods sold and a credit to _____ for $100.

cash; sales revenue; inventory

in a perpetual system, the entry to record a purchase of merchandise on account includes a _____

credit to accounts payable debit to inventory

inventory is reported as a(n) _____

current asset on the balance sheet

the journal entry to record the payment for merchandise previously purchased on account includes a _____

debit to accounts payable credit to cash

the entry to record the revenue recognized from the service portion of a bundle sale that was collected in advance is recorded with a debit to _____ and a credit to _____

deferred revenue; service revenue

merchandisers record revenue when they _____

fulfill their performance obligations by transferring control of the goods to customers

_____ companies sell goods that have been obtained from other companies

merchandising

a _____ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other times that are not core to the operations of the company

multistep

bijoux company uses a perpetual inventory system. its bookkeeper properly recorded a $5,000 sale on account, but forgot to record the related cost of the sale of $3,000. as a result of this error, _____

net income will be too high total assets will be too high

the _____ cycle is a series of activities that the company undertakes to generate sales and ultimately cash

operating

under the _____ inventory system, inventory records are updated only at the end of the accounting period

periodic

under the _____ inventory system, the inventory account is updated every time inventory is bought, sold, or returned

perpetual

the inventory account may be credited for _____

purchase returns and allowances

cost of goods sold equals beginning inventory plus _____ minus ending inventory

purchases

when a seller fulfills its performance obligation, it credits _____

revenue

which of these will require a credit to the inventory account in a perpetual inventory system?

selling inventory for cash selling inventory on account

the purchaser of inventory pays for shipping if the shipping terms are FOB _____

shipping point

what does the sales discount 2/10, n/30 mean?

you can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days

gotit inc. paid an invoice for $1,000 of merchandise plus shipping of $100. if the terms were 2/10, n/30, and the bill was paid within one week of receipt, how much cash was paid?

$1,080 =($1,000 x (100% - 2%)) + $100)

bijoux company has net sales of $40,000. beginning inventory of $5,000, purchases of $25,000 and ending inventory of $7,000. cost of goods sold equals _____

$23,000

inventory consists of the purchase price _____

plus freight-in

which of the following are found on the income statement of a merchandiser?

cost of goods sold gross profit sales revenue

in which of these situations would a merchandiser record revenue?

goods were sent FOB shipping point but have not yet arrived at the buyer's place of business the obligation has been fulfilled and control fo the goods has been transferred to the customer

any costs incurred to get the merchandise into a condition and location ready for sale should be debited to _____

inventory

in a perpetual system, the _____ account is debited when a company purchases merchandise on account

inventory

the gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. this ratio is used to:

make comparisons over time compare one company with another

on may 1, doormat received an order from a customer. the goods were shipped FOB shipping point on may 3 . the customer received the goods on may 5 and paid for the merchandise on June 1. when should doormat record the sale?

may 3

if accounts payable is debited and cash is credited, then the company is recording a _____

payment of amounts owed for purchases made on account

match each type of company with the type of goods or services it sells

service companies- sell services rather than physical goods merchandising companies- sell goods that have been obtained from a supplier manufacturing companies- sell goods that they have made themselves

FOB _____ is the term used when ownership of the goods transfers to a buyer as soon as the goods leave the seller's place of business

shipping point

place the income statement line items in the proper order from the top to the bottom

1. sales revenue, gross 2. sales returns, allowances and discounts 3. sales revenue, net 4. cost of goods sold 5. gross profit

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting inventory and crediting accounts payable. as a result of this entry, _____

assets will be overstated liabilities will be overstated

in a perpetual inventory system, the return of merchandize XYZ recently purchased on account will have the following effects on XYZ's accounting equation

assets will decrease liabilities will decrease

match the financial statement line item with the appropriate description

inventory- current asset on the balance sheet available for sale sales revenue- selling price times the quantity sold cost of goods sold- cost times the quantity sold gross profit- a subtotal on the income statement and is the amount earned form adding value to the inventory sold

which line item would be found on a merchandiser's income sheet and not on a service firm's?

sales revenue cost of goods sold

Breyer company bought inventory from solar company, FOB destination. on December 31, the last day of the accounting year, the goods were on a truck owned by common carrier, inc. and not expected to arrive until January 2. which company should include these goods in its December 31 inventory?

solar