Topic 5 and 6 Accounting

Flashcard maker : Lily Taylor
On the income? statement, a merchandising company reports the cost of merchandise inventory that has been sold to customers.
true
A purchase discount is the amount offered to the purchaser for delaying the payment to the seller.
false
Under the perpetual inventory? system, purchase returns or allowances are debited to the Merchandise Inventory account by the purchaser.
False
Owens Jewelers uses the perpetual inventory system. On April? 2, Owens sold merchandise with a cost of? $5,500 for? $7,000 to a customer on account with terms of? 1/15, n/30. Which of the following journal entries correctly records the sales? revenue?
B.
Accounts Receivable
?7,000
Sales Revenue
?7,000
A merchandiser sold merchandise inventory on account. The journal entry to record sales allowances in the books of the? merchandiser, using the perpetual inventory system would? be:
Sales Returns and Allowances
XX
Accounts Receivable
XX
When a company uses the perpetual inventory? system, there is no need to conduct a physical count of inventory.
False
A merchandiser had sales returns and allowances of? $300, sales discounts of? $700, cost of goods sold of? $14,000, and all other expenses of? $4,400. The merchandiser uses a perpetual inventory system. The second entry in the closing process would include? ________.
a debit to Income Summary for? $19,400
In a? multi-step income? statement, interest revenue and interest expense are included in operating income.
false
The gross profit percentage measures the profitability of each sales dollar above the cost of goods sold.
true
A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism? principle, it should choose to treat it a loss.
true
A company discovers that its cost of goods sold is understated by an insignificant amount. It does not need to correct the error because of the materiality concept.
true
Changing from the LIFO? (Last-In, First-Out) to the specific identification method of valuing inventory ignores the principle of? ________.
consistency
Which of the following is an application of? conservatism?
reporting inventory at the lower of cost or market
When a company uses the? first-in, first-out? (FIFO) method, the cost of goods sold correlates to the most recently purchased? goods, and the value of ending inventory correlates to the oldest goods in stock.
true
A company purchased 80 units for? $20 each on January 31. It purchased 190 units for? $25 each on February 28. It sold 190 units for? $80 each from March 1 through December 31. If the company uses the? first-in, first-out inventory costing? method, what is the amount of Cost of Goods Sold on the income statement for the year ending December? 31? (Assume that the company uses a perpetual inventory? system.)
$4350
A company that uses the perpetual inventory system sold goods for? $2,500 to a customer on account. The company had purchased the inventory for? $500. Which of the following journal entries correctly records the cost of goods? sold?
Cost of Goods Sold
500
Merchandise Inventory
500
A company purchased 100 units for? $30 each on January 31. It purchased 95 units for? $40 each on February 28. It sold 150 units for? $55 each from March 1 through December 31. If the company uses the? last-in, first-out inventory costing? method, what is the amount of Cost of Goods Sold on the income statement for the year ending December? 31? (Assume that the company uses a perpetual inventory? system.)
$5450
Given the same purchase and sales? data, and assuming the cost of inventory is? rising,the costing methods for inventory will result in different amounts for sales revenue.
false
When using the LIFO inventory costing? method, ending merchandise inventory will be the? lowest, as compared to FIFO and? weighted-average inventory costing? methods, when costs are increasing.
true
Best? Deals, Inc. has 10 units in ending merchandise inventory on December 31. The units were purchased in November for? $160 each. The price lists from suppliers indicate the current replacement cost of the item to be? $162 each. What would be the amount reported as Merchandise Inventory on the balance? sheet?
$1600
If the merchandise? inventory’s market value is greater than its? cost, then it must be adjusted for the difference.
False
?Murphy, Inc. had the following balances and transactions during 2017.
Beginning Inventory
10 units at? $72
June 10
Purchased 20 units at? $85
December 30
Sold 15 units
December 31
Replacement cost? $67
The company maintains its records of inventory on a perpetual basis using the? last-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory at December? 31, 2017 using the? lower-of-cost-or-market rule.
$1005
?Shipman, Inc. has 6 units in inventory on December 31. The units were purchased in November for? $200 each. The price lists from suppliers indicate the current replacement cost of the item to be? $198 each. What is the effect on gross profit if Shipman values its ending merchandise inventory using the? lower-of-cost-or-market rule?
The gross profit would decrease by? $12.
The ending merchandise inventory for the current year is overstated by? $25,000. What effect will this error have on the following? year’s net? income?
The net income will be understated by? $25,000.
Which of the following is the correct formula to calculate average merchandise? inventory?
Average merchandise inventory? = (Beginning merchandise inventory? + Ending merchandise? inventory) / 2
The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company then sells the inventory to a customer.
False
The Merchandise Inventory account is an expense account that is used only for goods purchased that the business owns and intends to resell to customers.
false
Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.
true
A reduction in the amount of cash received from a customer for early payment is known as a sales discount.
true
The normal balances of? Sales, Sales? Discounts, and Sales Returns and Allowances are? ________.
CREDIT, DEBIT, AND DEBIT, RESPECTIVELY
When a company uses the perpetual inventory? system, there is no need to conduct a physical count of inventory.
false
A merchandiser uses a perpetual inventory system. The beginning? Owner, Capital balance of the merchandiser was? $95,000. During the? year, Sales Revenue amounted to? $80,000, Sales Returns and Allowances were? $1,300, Sales Discounts were? $2,700, Cost of Goods Sold was? $40,000, and all other expenses totaled? $13,000. The company paid? $24,000 in withdrawals to the owner. The last step in the closing process would include? ________.
A DEBIT TO THE OWNER, CAPITAL ACCOUNT FOR $20,000
On a? multi-step income? statement, merchandisers report operating expenses in two categories
long dash
—selling expenses and administrative expenses.
true
A company made net sales revenue of? $540,000, and cost of goods sold totaled? $324,000. Calculate its gross profit percentage.
40%
The consistency principle states that a business should use the same accounting methods and procedures from period to period.
true
The consistency principle states that businesses should report the same amount of ending merchandise inventory from period to period.
false
Which of the following states that a company must perform strictly proper accounting only for items that are significant to the? business’s financial? statements?
MATERIALITY CONCEPT
Properly recording inventory when sold and removing the units sold from the inventory count will prevent a company from running out of inventory.
true
The specific identification method of inventory costing is recommended when a business deals in unique and? high-priced inventory items.
true
A company that uses the perpetual inventory system sold goods to a customer on account for? $4,000. The cost of the goods sold was? $2,000. Which of the following journal entries correctly records this? transaction?
Accounts Receivable ?4,000
Sales Revenue ?4,000
A company that uses the perpetual inventory system sold goods to a customer for cash for? $3,000. The cost of the goods sold was? $600. Which of the following journal entries correctly records this? transaction?
Cash ?3,000
Sales Revenue ?3,000
Cost of Goods Sold 600
Merchandise Inventory 600
Under the? last-in, first-out? (LIFO) method, the cost of goods sold is based on the oldest purchases.
false
In a period of rising? costs, the? last-in, first-out? (LIFO) method results in lower cost of goods sold and higher net income than the? first-in, first-out? (FIFO) method.
false
When using the LIFO inventory costing? method, ending merchandise inventory will be the? lowest, as compared to FIFO and? weighted-average inventory costing? methods, when costs are increasing.
true
Better? Buy, Inc. has 7 units in inventory on December 31. The units were purchased in November for? $160 each. The price lists from the suppliers indicate that the same items would now cost the company a total of? $1,155. What would be the amount reported as Ending Merchandise Inventory on the balance? sheet?
$1120
If the current replacement cost of inventory is less than its historical? cost, the business must adjust the inventory value.
true
The Cost of Goods Sold account is credited to write down the inventory as per the? lower-of-cost-or-market rule.
false
?Robyn’s Retail had 500 units of inventory on hand at the end of the year. These were recorded at a cost of? $19 each using the? last-in, first-out? (LIFO) method. The current replacement cost is? $17 per unit. The selling price charged by? Robyn’s Retail for each finished product is? $27. In order to record the adjusting entry needed under the? lower-of-cost-or-market rule, the Merchandise Inventory will be? ________.
CREDITED BY 1000
An overstatement of ending merchandise inventory in the current period results in an overstatement of cost of goods sold in the current period.
false
A high rate of inventory turnover indicates ease in selling inventory.
true
The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company collects cash from customers.
true
The Merchandise Inventory account is an expense account that is used only for goods purchased that the business owns and intends to resell to customers.
false
Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.
true

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