ACC 250 Lecture Notes - Lecture 4: Current Asset, Income Statement, Financial Statement

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10 Jun 2018

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Accounting Procedures for a Merchandising Business

So far, you have learned the following facts about the periodic inventory system for a

merchandising business:

-The final inventory figure must be included on the balance sheet as a current asset

-The cost of goods sold figure must be included on the income statement

-Neither the inventory figure nor the cost of goods sold figure is known during the

accounting period

-The cost of goods sold figure can be calculated by means of the formula developed in the

previous section

The Merchandise Inventory Account

Under the periodic inventory system, the merchandise inventory of a business is kept in two

accounts. One of these is the merchandise inventory account. It shows the inventory figure

as of the beginning of the accounting period.

At the fiscal year end, the inventory is counted and valued at cost price to arrive at the

merchandise inventory is counted and valued at cost price to arrive at the merchandise

inventory grand total for the financial statements. The inventory account is adjusted to

equal the updated figure. This becomes the beginning inventory figure for the next fiscal

period. This periodic inventory adjustment is the only accounting entry made to the

merchandise inventory account.

You will now find a merchandise inventory account appearing in the assets section in most

of your trial balances. Remember that the account represents the balance that was updated

at the end of the preceding fiscal period. For your purposes, the balance of the merchandise

inventory account represents the beginning inventory for the current period.

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Document Summary

So far, you have learned the following facts about the periodic inventory system for a merchandising business: The final inventory figure must be included on the balance sheet as a current asset. The cost of goods sold figure must be included on the income statement. Neither the inventory figure nor the cost of goods sold figure is known during the accounting period. The cost of goods sold figure can be calculated by means of the formula developed in the previous section. Under the periodic inventory system, the merchandise inventory of a business is kept in two accounts. One of these is the merchandise inventory account. It shows the inventory figure as of the beginning of the accounting period. At the fiscal year end, the inventory is counted and valued at cost price to arrive at the merchandise inventory is counted and valued at cost price to arrive at the merchandise inventory grand total for the financial statements.

Related Questions

1. Inventory is classified on the balance sheet as a

a.current liability

b.long-term asset

c.current asset

d.long-term liability

2. What is the term applied to the excess of sales over the cost of goods sold?

a.net income

b.gross profit

c.operations

d.gross sales

3. The inventory system employing accounting records that continuously disclose the amount of inventory is called

a.periodic

b.retail

c.perpetual

d.physical

4. Calculate the gross profit for Jefferson Company based on the following:

Sales $764,000

Selling Expenses $42,500

Cost of Goods Sold $538,000

a.$183,500

b.$721,500

c.$495,500

d.$226,000

5. Calculate income from operations for Jonas Company based on the following data:

Sales $764,000

Selling Expenses $52,500

Cost of Goods Sold $538,000

a.$226,000

b.$711,500

c.$485,500

d.$173,500

6. The primary difference between the periodic and perpetual inventory systems is that a

a.periodic system keeps a record showing the inventory on hand at all times

b.periodic system determines the inventory on hand only at the end of the accounting period

c.periodic system records the cost of the sale on the date the sale is made

d.periodic system provides an easy means to determine inventory shrinkage

7. In credit terms of 3/15, n/45, the "3" represents the

a.percent of the cash discount

b.full amount of the invoice

c.number of days when the entire amount is due

d.number of days in the discount period

8. Which of the following accounts has a normal credit balance?

a.Inventory

b.Accounts Receivable

c.Sales

d.Delivery Expense

9. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

a.debit to Inventory

b.debit to Accounts Payable

c.credit to Sales

d.credit to Inventory

10. Which of the following accounts usually has a debit balance?

a.Sales

b.Inventory

c.Accounts Payable

d.Sales Tax Payable

11. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

a.n/30

b.consigned

c.FOB shipping point

d.FOB destination

12. When goods are shipped FOB destination and the seller pays the freight charges, the buyer

a.does not take a discount

b.journalizes a reduction for the cost of the merchandise

c.makes no journal entry for the freight

d.journalizes a reimbursement to the seller

13. When the perpetual inventory system is used, the inventory sold is debited to

a.Supplies Expense

b.Cost of Goods Sold

c.Sales

d.Inventory

14. Generally, the revenue account for a merchandising business is entitled

a.Gross Sales

b.Sales

c.Gross Profit

d.Fees Earned

lemonpug879

12 ACCOUNTING QUESTIONS

4. Using a perpetual inventory system, the buyer'sjournal entry to record the return of merchandise purchased onaccount includes a:

Select one:

A. Credit to Cost of Goods Sold

B. Credit to Accounts Payable

C. Credit to Purchase Returns

D. Credit to Inventory

6.Using a perpetual inventory system, the buyerâsjournal entry to record the payment for merchandise within thediscount period includes a:

Select one:

A. Debit to Accounts Payable

B. Debit to Cost of Goods Sold

C. Debit to Purchases

D. Debit to Inventory

7.Which of the following statements regarding cost flows istrue?

Select one:

Cost of goods available for sale is equal to beginning inventoryminus cost of goods purchased.

CGAS = beginning inventory minus ending inventory.

Cost of goods available for sale is equal to beginning inventoryplus cost of goods purchased.

CGAS = cost of goods sold minus cost of goods purchased.

10. Using a perpetual inventory system, the buyerâsjournal entry to record the purchase of merchandise on creditincludes a:

Select one:

A. Debit to Inventory

B. Debit to Freight In

C. Debit to Cost of Goods Sold

D. Debit to Purchases

11. Which of the following is not shown in thestatement of stockholder's equity?

Select one:

A. Unearned revenue

B. Common stock

C. Retained earnings

D. Dividends

13. Using a perpetual inventory system, the sellerâsjournal entry to record the sale of merchandise on account includesa:

Select one:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Credit to Purchases

D. Debit to Inventory

14. A merchandising company's multi-step income statementdiffers from that of a service company in what way?

Select one:

A service company does not include a line for cost of goodssold.

A service company has a line for selling expenses whereas amerchandising company does not.

There is no difference.

A merchandising company will have a line for income fromoperations whereas a service company will not.

16.Using a perpetual inventory system, the sellerâs journalentry to record the return, by the buyer, of merchandise purchasedon account includes a:

Select one:

A. Credit to Purchase Returns

B. Debit to Cost of Goods Sold

C. Debit to Accounts Receivable

D. Debit to Sales and Allowances

20. For a firm that uses the perpetual inventory system, theSales Returns and Allowances account:

Select one:

A. Is not a contra account

B. Is not used

C. Is debited by the firm receiving returned goods from acustomer

D. Has a normal credit balance

21. Current assets are cash and other assets that will beconverted into cash or used up within:

Select one:

A. One year

B. The normal operating cycle of the business

C. The normal operating cycle of the business or one year,whichever is longer

D. The normal operating cycle of the business or one year,whichever is shorter

22. The balance sheet format that reports assets first and then,beneath the assets, reports the liabilities and stockholders'equity is called the:

Select one:

A. Account form

B. Report form

C. Stack form

D. Classified form

23. Safari Monkey Company sold $2,400,000 worth of merchandise,had $200,000 returned, and then the balance was received during the2% discount period.

What were the companyâs net sales?

Select one:

A. $1,800,000

B. $1,760,000

C. $2,156,000

D. $2,040,000

turquoisesea-lion93

17 accounting 1 questions! HELP

9. The following amounts and costs of platters were availablefor sale by Corpus Christy Ceramics during 2016:

Beginning inventory	10 units at $41
First purchase	15 units at $55
Second purchase	30 units at $70
Third purchase	25 units at $65

Corpus Christy Ceramics has 35 platters on hand at the end ofthe year.

What is the dollar amount of inventory at the end of the yearaccording to the weighted-average cost method?

Select one:

A. $4,340

B. $9,920

C. $3,465

D. $6,200

32. Santa Fe Corporation uses the perpetual inventory method. OnMarch 1, it purchased $60,000 of merchandise inventory, terms 2/10,n/30. On March 3, Santa Fe returned goods (not damaged) that cost$6,000. On March 9, Santa Fe paid the supplier.

On March 9, Santa Fe should credit:

Select one:

A. Purchase discounts for $1,200

B. Purchase discounts for $1,080

C. Inventory for $1,080

D. Inventory for $1,200

33. Rocky Company has beginning equity of $600,000, net incomeof $100,000, dividends of $60,000 and investments by owners inexchange for stock of $20,000. Its ending equity is:

Select one:

A. $660,000

B. $480,000

C. $536,000

D. $446,000

35. On September 1, 2016, Chopper, Inc. reported RetainedEarnings of $272,000. During the month of September, Choppergenerated revenues of $40,000, incurred expenses of $24,000,purchased equipment for $10,000 and paid dividends of $12,000.

What is the balance in Retained Earnings on September 30,2016?

Select one:

A. $272,000 debit

B. $276,000 credit

C. $ 16,000 credit

D. $274,000 credit

36. Savannah Company purchases $120,000 of inventory during theperiod and sells $36,000 of it for $60,000. Beginning of the periodinventory was $6,000.

What is the companyâs inventory balance to be reported on itsbalance sheet at year end?

Select one:

A. $36,000

B. $90,000

C. $ 4,000

D. $ 6,000

37. Assuming rising prices, which method will give the highestdollar value for cost of goods sold on the income statement?

Select one:

A. FIFO

B. Average Cost

C. LIFO

D. All of these give equal values for cost of goods sold

38. Kali Company began the period with $20,000 in inventory. Thecompany also purchased an additional $20,000 of inventory andreturned $2,000 for a full credit. A physical count of theinventory at yearâend revealed an inventory on hand of $16,000.What was Kaliâs cost of goods sold for the period?

Select one:

a. $50,000

b. $22,000

c. $48,000

d. $16,000

39. The periodic inventory system differs from the perpetualinventory system:

Select one:

because the periodic system is not compatible with moderntechnology.

because the periodic system continually updates inventory, whilethe perpetual inventory system only updates inventory at the end ofthe period.

because the perpetual system continually updates inventory,while the periodic inventory system only updates inventory at theend of the period.

because the periodic system is more complex and costly.

40. Which one of the following is included in currentassets?

Select one:

A. Common stock

B. Accounts receivable

C. Taxes payable

D. Automobiles

41. For the balance sheet to be in balance, the following mustexist:

Select one:

Total assets must be less than total liabilities

Total assets must be greater than total liabilities

Total assets must equal total liabilities plus stockholders'equity

Total liabilities must equal total stockholders' equity

43. Using a perpetual inventory system, the buyerâs journalentry to record the freight costs includes a:

Select one:

A. Debit to Purchases

B. Debit to Inventory

C. Debit to Freight In

D. Debit to Cost of Goods Sold

44. Joshua records purchases at invoice price and uses theperpetual inventory system. On July 5, Joshua returned $6,000 ofgoods purchased on account to the seller.

How would Joshua record this transaction?

Select one:

Accounts Payable		6,000
	Purchases		6,000

Accounts Receivable		6,000
	Inventory		6,000

Accounts Payable		6,000
	Inventory		6,000

Cash		6,000
	Purchases		6,000

45. Smith & Sons purchased $5,000 of merchandise from theClaremont Company with terms of 3/10, n/30. How much discount isSmith & Sons entitled to take if it pays within the alloweddiscount period of 10 days?

Select one:

$100

$50

$300

$150

46. The accounting record for Max III Company reported thefollowing selected information:

Operating Expenses	$180,000
Sales Returns and Allowances	52,000
Sales Discounts	24,000
Sales Revenue	700,000
Cost of Goods Sold	268,000

Determine Max III Company's gross profit.

Select one:

A. $332,000

B. $280,000

C. $308,000

D. $356,000

48. Using a a perpetual inventory system, the sellerâs journalentry to record the payment for merchandise, received from thebuyer, within the discount period includes a:

Select one:

A. Debit to Accounts Receivable

B. Debit to Cost of Goods Sold

C. Credit to Sales Discounts

D. Debit to Sales Discounts

49.Geraldoâs Groceries purchased milk cartons at an invoiceprice of $6,000 and terms of 2/10, n/30. On arrival of the goods,Geraldoâs realized that half of the milk was past the expirationdate, and returned them immediately to the supplier.

If Geraldoâs pays the remaining amount of the invoice within thediscount period, the amount paid should be:

Select one:

A. $2,880

B. $5,880

C. $2,940

D. $6,000

50. Which one of the following is not a current liability?

Select one:

A. Wages payable

B. Accounts payable

C. Wage expense

D. Taxes payable

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ACC 250 Lecture Notes - Lecture 4: Current Asset, Income Statement, Financial Statement

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