chapter 6 smart book

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 Reason: Cost of Goods Sold of $23,000 = Beginning Inventory of $5,000 + Purchases of $25,000 - $7,000 of Ending Inventory.

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals ______.

$30,000 Reason: Goods available for sale equals $30,000 (= beginning inventory of $5,000 plus purchases of $25,000).

On October 25, Yacht Doc received $210,000 for a yacht valued at $190,000 and a service contract to be performed evenly from November through February. During November, the yacht was delivered and 1 month of the service contract was performed. The remaining services are to be performed evenly over the next 3 months. In which month(s) should the service contract be recognized as revenue?

$5,000 in each month from November to February Reason: The service contract is performed over a 4- month period and thus 1/4 of the $20,000 will be recognized in November.

The Cost of Goods Sold equation is ______.

Beginning Inventory + Purchases - Ending Inventory

_______ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales _______

Blank 1: Net Blank 2: Discounts or discount

A ______ inventory system records the Cost of Goods Sold with a debit to Cost of Goods Sold and a credit to Inventory at the time of the sale. (Enter one word per blank.)

Blank 1: perpetual

Which step must happen first when determining Cost of Goods Sold using a periodic inventory system?

Count the number of units on hand.

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

What does FOB shipping point mean?

Goods are owned by the buyer when they leave the seller's place of business.

Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.)

Gross Profit Income from Operations

On May 1, Doormart 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 Doormart record the sale?

May 3

Which inventory system requires that the purchases of merchandise on account be debited to Purchases?

Periodic system Reason: In a periodic system, purchases are debited to Purchases. In a perpetual system, purchases are debited to Inventory.

Which inventory system requires that the inventory account be updated at the time merchandise is sold?

Perpetual system

Which of the following are reported on the income statement? (Check all that apply.)

Sales Revenue Cost of Goods Sold Gross Profit

In a periodic system, for Cost of Goods Sold to be updated, which of the following must occur? (Check all that apply.)

Take a physical count of inventory. Compute Cost of Goods Sold sold by subtracting Ending Inventory from Goods Available for Sale.

What are the two stages of accounting for a purchase discount using the gross method? (Check all that apply.)

The Inventory account is later reduced if payment is made within the discount period. The purchase is first recorded at full cost.

True or false: When a company sells different types of products, the income statement will report the Cost of Goods Sold for all of the products in one line item.

True

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.

The entry to record the purchase of inventory on account causes ______.

an increase in assets and liabilities Reason: The entry is a debit to Inventory (+A) and a credit to Accounts Payable (+L).

Berkley Company had a beginning inventory of $4,000 and purchases of $20,000. If half of its inventory is sold, Berkley's total goods available for sale for the period will ______.

be split between cost of goods sold and ending inventory

The Inventory balance on the balance sheet reports the ______.

cost of goods available for sale

The journal entry to record the payment for merchandise previously purchased on account includes a ______. (Select all that apply.)

credit to Cash debit to Accounts Payable

The gross profit percentage is the ratio to watch if you are worried about increased competition. If the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will ______.

decrease

Sales discounts should appear in the financial statements as a(n) ______.

deduction from sales

Accounts Payable ______. (Check all that apply.)

is debited when amounts owed are paid is credited for purchases made on account

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______.

received by the customer

Match the type of company with an example.

retailer---- Wal-Mart, Costco manufacturer ----- Mattel, Goodyear

When a seller fulfills its performance obligation, it credits ______.

revenue

A multistep income statement is useful to financial statement users because it ______. (Select all that apply.)

separates cost of goods sold from other operating expenses, which allows the calculation of gross profit separates income statement items into meaningful components

Match each type of company with the type of goods or services it sells. service companies ---- Merchandising companies ---- Manufacturing companies ----

service companies ---- selling 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

The purchaser of inventory pays for shipping if the shipping terms are FOB ______.

shipping point

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

there are product quality issues

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____. (Check all that apply.)

total liabilities to decrease total assets to decrease

Every merchandise sale has 2 components which require an entry in a perpetual inventory system. Select these two components given the sale was made on account to a customer.

-Debit Accounts Receivable and credit Sales Revenue in the amount of the selling price times the quantity sold -Debit Cost of Goods Sold and credit Inventory in the amount of the cost times the quantity sold

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 Reason: Net sales revenue - Cost of goods sold = Gross profit To solve for sales, rearrange the equation as Gross profit + Cost of goods sold = Net sales revenue (= $144,000 + 216,000 = $360,000).

FOB ______ is the term used when ownership of the goods transfers to a buyer when the goods arrive at the buyer's place of business.

destination

Alpha Company bought inventory from Omega Company, FOB shipping point. On December 31, the last day of the accounting year, the goods were on a truck owned by Theta, Inc., exactly half-way between Alpha and Omega. Which company should include these goods in its December 31 inventory?

Alpha

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory.

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

False Reason: Gross Profit is a subtotal, not an account, found on the income statement.

True or false: Both the periodic and perpetual systems require a credit to Accounts Payable when inventory is purchased on account.

True

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) ______. (Check all that apply.)

increase in assets increase in liabilities

A ______ inventory system records the Cost of Goods Sold with a debit to Cost of Goods Sold and a credit to Inventory (beginning) and credit to Purchases. (Enter one word per blank.)

periodic

Sales Revenue reports the ______.

sales price times the quantity of goods sold

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, ______. (Check all that apply.)

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

True or false: In a periodic inventory system, Cost of Goods Sold is recorded at the end of the accounting period.

True

ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage?

52% Reason: Cost of goods sold equals $77,000 (= $20,000 + 81,000 - 24,000). Gross profit percentage equals 52% (=$160,000 - $77,000)/$160,000.

In a perpetual inventory system, which of the following statements are true? (Check all that apply.)

-the seller should record freight-out as a selling expense. -The purchaser should record freight-in as an asset, Inventory.

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

1. Sales Revenue, gross 2. Sales Returns, Allowances and Discounts 3. Sales revenue, Net 4. Cost of Goods Sold 5. Gross Profit

Corporations with high sales volume, such as WalMart, usually have ______.

low gross profit percentages

Net Sales on an income statement equals Sales Revenue ______.

minus Sales Returns, Allowances and Discounts