Exam 2: Review

Montel Corporation had sales of $1,200,000, sales returns and allowances of $120,000, and sales discounts of $55,000. Montel Corporation has net sales of:

$1,025,000

A company purchased $2,000 of merchandise on November 2 with terms 2/10, n/30. On November 8, it returned $500 worth of merchandise. On November 10, it paid the invoice. The amount paid on November 10 equals.

$1,470

A company reported the following information for its most recent year of operation: purchases, $100,000; beginning inventory, $20,000; and cost of goods sold, $110,000. How much was the company's ending inventory?

$10,000

A company has sales of $800,000 and cost of goods sold of $690,000. Its gross profit equals:

$110,000

A company sells its product for $50 per unit. Due to a recent reduction in demand for the product the selling price has fallen to $42 per unit. Currently the company holds 500 units in inventory originally purchased for $30 per unit. The replacement cost is currently at $25 per unit. Determine the value of inventory after applying the lower of cost or market.

$12,500

A company purchased $5,000 worth of merchandise inventory. The company also paid transportation costs of $400. The company then later return damaged inventory for $380 and paid the invoice within a 2% discount period. What is the total amount paid for this merchandise inventory?

$4,927.60

Coleman Company has provided the following information: beginning inventory, $100,000; cost of goods sold, $450,000; and ending inventory, $80,000. How much were Coleman's inventory purchases?

$430,000

The Tuck Shop began the current month with inventory costing $10,000, then purchased inventory at a cost of $35,000. The perpetual inventory system indicates that inventory costing $30,000 was sold during the month for $40,000. If an inventory count shows that inventory costing $14,500 is actually on hand at month-end, what amount of shrinkage occurred during the month?

$500

The amount recorded in merchandise inventory includes all of the following except:

Freight costs paid by the seller

When the buyer pays for the shipping cost, the additional cost of transporting the goods is called:

Freight-in.

FOB destination means that title to goods purchases is transferred when the:

Goods reach the buyer's place of business.

Selling Expenses:

Includes costs to promote sales such as displaying and advertising goods.

FOB Shipping Point:

Indicates that the buyer accepts ownership of inventory when the goods depart the seller's place of business.

Which of the following bank reconciliation items would not result in an adjusting journal entry in the company's books? A. Service charge. B. Outstanding checks. C. A customer's check returned NSF. D. Interest earned on deposits.

Outstanding checks.

Which of the following situations would cause the balance per bank to be more than the balance per books? A. Deposits in transit. B. Service charges. C. Outstanding checks. D. Checks from customers returned as NSF.

Outstanding checks.

Debit Memorandum:

Prepared by a buyer to inform the seller of a debit made to the seller's account payable.

Credit Memorandum:

Prepared by as seller to confirm a buyers' return of goods.

Gross Margin Ratio:

Ratio of new sales less cost of goods sold to net sales.

Shrinkage:

Refers to the loss of inventory.

When applying the lower of cost or market method to inventory valuation, market value can be estimated with:

Replacement cost.

Segregation of duties means that a company assigns responsibilities so that:

Responsibilities for related activities are assigned to two or more people.

Your company purchases $50,000 of inventory from a wholesaler who allows you 45 days to pay. In addition, the wholesaler offers a 3% discount if payment is made within 12 days. These payment terms would be expressed as:

3/12, n/45.

Which of the following businesses would not be as likely to use the specific identification method of inventory valuation?

A grocery store

Retailer:

An intermediary that buys goods from manufacturers or wholesalers and sells them to customers.

Cost of goods sold equals:

Beginning inventory + net purchases - ending inventory.

Multi-step income statements:

Contain more detail than a single-step income statement.

Which of the following is not a component of net sales? A. Sales returns and allowances B. Sales discounts C. Cost of goods sold D. Sales revenue

Cost of goods sold

Cost of Goods Sold:

Costs to buy and prepare merchandise for sale

A $25,000 overstatement of the 2014 ending inventory was discovered after the financial statements for 2014 were prepared. Which of the following describes the effect of the inventory error on the 2014 financial statements?

Current assets were overstated and net income was overstated

Which of the following statements regarding inventory counts is (are) true? A. Only companies that use a periodic inventory system need to perform a physical count of their inventory. B. A periodic inventory system does not require a physical count to determine inventory levels during the accounting period. C. Both A) and B) above are true statements. D. Neither A) nor B) above is a true statement.

D. Neither A) nor B) above is a true statement.

Merchandise was sold on credit for $3,000, terms 1/10, n/30. The entry to record the cash collection should include a:

Debit Cash, $3,000, and credit Accounts Receivable, $3,000, if collected after the discount period.

When goods purchased from a supplier arrive in poor condition or fail to meet specifications, and are returned to the supplier, the effect is a(n):

Decrease in inventory.

Notification by the bank that a customer's deposited check was returned NSF requires that the company make the following adjusting journal entry:

Dr Accounts Receivable Cr Cash

Merchandiser:

Earns net income by buying and selling merchandise.

The buyer pays for shipping if the terms are:

FOB shipping point.

When a buyer purchases inventory on credit the two accounts affected are:

Inventory and Accounts Payable.

In a perpetual inventory system the purchase of inventory is recorded in:

Inventory.

Sales returns refer to:

Merchandise that customers return to the seller after the sale.

An income statement that separates Cost of Goods Sold from other expenses is a:

Multi-step income statement.

Which of the following accounts is not increased with a debit? A. Sales Discounts. B. Sales Returns and Allowances. C. Sales Revenue. D. Cost of goods sold.

Sales Revenue

Which of the following is a true statement for a company using a perpetual inventory system?

Sales returns and allowances is a contra-account to revenue.

The expense category that represents a variety of expenses such as wages, utilities, advertising and rent is known as:

Selling, General and Administrative Expenses.

Which inventory costing method is generally used to account for goods that are individually expensive and unique?

Specific Identification

Credit Items:

Specifies the amounts and timing of payments from a buyer to a seller

Inventory shrinkage represents:

The number of inventory items missing.

How many of the statements regarding bank reconciliations appearing below are true?

Two

When a company collects from a customer who pays within the discount period, the company:

debits a contra-revenue account.

All of the following bank reconciliation items would result in an adjusting journal entry on the company's books except: A. interest earned. B. deposits in transit. C. service charge. D. a customer's check returned NSF.

deposits in transit.

Deposits in transit:

have been recorded by the company but not yet by the bank.

Internal controls are concerned with:

protecting against theft of assets and enhancing the reliability of accounting information.

The internal control principle related to separating employees' duties so that the work of one person can be used to check the work of another person is called:

segregation of duties.