Chapter 6 - SmartBook
Which of the following costs should be added to the buyer's Inventory account?
Freight-in with terms FOB shipping point
Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) ____.
Increase in assets Increase in liabilities
The purchase of merchandise on account is recorded with a debit to ____ and a credit to _____.
Inventory Accounts Payable
A ____ income statement shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company.
Multistep
___ Sales on an income statement equals Sales Revenue (gross) minus Sales Returns and Allowances minus Sales ____.
Net Discount
Sales Revenue
Selling price times the quantity sold
The Inventory balance on the balance sheet reports the _____.
cost of goods available for sale
Net Sales on an income statement equals Sales Revenue ______.
minus Sales Returns, Allowances and Discounts
If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _____.
received by the customer
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
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 ______.
$23,000
Retailers
When they sell directly to individual consumers. Buys goods and sells them directly to individuals.
Boron Company has Net Sales of $60,000; Beginning Inventory of $7,000; Purchases of $35,000 and Ending Inventory of $5,000. The Cost of Goods Sold is _____.
$37,000
FOB destination means that goods are owned by the buyer as soon as ____.
they arrive at the buyer's place of business
Inventory began was $30,000. During the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue?
$115,000
What items are netted against Sales Revenue to arrive at Net Sales (Sales Revenue to net sales)?
Sales Discounts Sales Allowances Sales Returns
Which of the following are reported on the income statement?
Sales Revenue Gross Profit Cost of Goods Sold
The seller of inventory pays for shipping if the shipping terms are FOB _________.
destination
Which of these will require a credit to the inventory account in a perpetual inventory system?
Selling inventory for cash Selling inventory on account
Sales discounts should appear in the financial statements as a(n) ____
deduction from sales
Ace Electronics had Cost of Goods Sold of $20,000. If purchases of inventory were $23,000 and Ending Inventory was $6,000, Ace's Beginning Inventory must have been ____.
$3,000
Cost of Goods Sold
Cost times the quantity sold
In a perpetual system, the entry to record a purchase of merchandise on account includes a ____.
Credit to Accounts Payable Debit to Inventory
The journal entry to record the payment for merchandise previously purchased on account includes a _____.
Credit to Cash Debit to Accounts Payable
Service Company
A company that sells services rather than physical goods. Will typically not have Inventory on its balance sheet or Cost of Goods Sold on its income statement.
In which company would you rather invest?
A company with high gross profit percentage and high sales volume
Gross Profit
A subtotal on the income statement and is the amount earned from adding value to the inventory sold.
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
ABC Corp. sells a product for $1,000 cash that cost $600. The journal entry(ies) for this transaction using a perpetual inventory system include a debit to ______.
Cash of $1,000 and a credit to Sales Revenue of $1,000; a debit to Cost of Goods Sold of $600 and a credit to Inventory of $600
Put the income statement line items in the proper order from the top to bottom.
Sales Revenue, gross Sales Returns, Allowances and Discounts Sales Revenue, net Cost of Goods Sold Gross Profit
In a perpetual inventory system, which statements are true?
The seller should record freight-out as a selling expense. The purchaser should record freight-in as an asset, Inventory.
If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.
There are product quality issues
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, ______.
Total assets will be too high Net Income will be too high
Wholesaler
When they sell their inventory to retail businesses for resale to consumers. Buys goods and sells them to other companies that will then sell them to individuals.
Merchandisers record revenue when they ____.
fulfill their performance obligations by transferring control of the goods to customers.
If Accounts Payable is debited and Cash is credited, then the company is recording a ____.
payment of amounts owed for purchases made on account
In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ___.
add the transportation costs to its inventory account
Goods Available for Sale will ___ when sold.
become Cost of Goods Sold on the income statement
Inventory
Current asset on the balance sheet available for sale
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
If Inventory is debited and Accounts Payable is credited, then the company uses the ____.
perpetual inventory system and is recording a purchase on account
Manufacturing Company
A company that sells goods that have been obtained from a supplier. Makes the finished goods.
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
Surfshack Corp. buys surfboards, wetsuits, and surf wax from Rip to Shreds, Inc. for sale to consumers. What type of company is Surfshack Corp?
Retail merchandiser
A multistep income statement is useful to financial statement users because it ____.
Separates income statement items into meaningful components. Separates cost of goods sold from other operating expenses, which allows the calculation of gross profit.
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
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
Sales Revenue reports the _____.
sales price times the quantity of goods sold