MGAB01H3 Chapter 5.3: Chapter 5.3

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1 Nov 2010

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MGAB01H3 Full Course Notes

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To comply with the revenue recognition principle, sales revenue is recorded when it is earned, just as service revenue is. Two entries are made for each sale in a perpetual inventory system. (1) dr cash or a/r, cr sales (2) dr costs of goods sold, cr merchandise inventory. Sales taxes are collected when goods are sold. They are not however a part of revenue. The company simply acts as a tax agent collector for the government and must be periodically remitted to the government. When the selling terms indicates fob destination, the costs to transport the goods are debited to the operating expense account freight out or delivery expense. When customers are given discount or return goods, the seller will return cash or credit to the customer. Under perpetual system, there are two entries to record a sales returns and allowances. (1) dr sales returns and allowances, cr cash or a/r (2) dr merchandise inventory, cr cost of goods sold.

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Under the perpetual inventory? system, the adjusting journal entries to record estimated sales returns? (the original sales were on? account) would? be: A. Accounts Receivable XX ???????Sales Revenue XX Sales Revenue XX ???????Cost of Goods Sold XX B. Sales Returns and Allowances XX ???????Cost of Goods Sold XX Merchandise Inventory XX ???????Accounts Receivable XX C. Sales Revenue XX ???????Refunds Payable XX Estimated Returns Inventory XX ???????Cost of Goods Sold XX D. Sales Revenue XX ???????Merchandise Inventory XX Estimated Returns Inventory XX ???????Refunds Payable XX

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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

Use the following information toanswer the next 11 questions. SELECT ALL ANSWERS THATAPPLY.

On May I. Sam Company sold $5,000of inventory to Bob Company. The sale was made on account and Samgranted Bob credit terms of 2/10. n/30. The inventory cost SamCompany $3,000. On May 3, Bob returned $1,000 of the inventory toSam. (The inventory returned by Bob cost Sam $600.) On May 9, Bobpaid Sam in full for the amount due.

1. What account will Bob debit on May I if the periodicinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

c) Merchandise Inventory

D) Purchases

E) None of the above

2. What account will Bob debit on May I if the perpetualinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

3. What account will Sam debit on May l if the periodicinventory system, is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

4. What account will Sam debit on May I if the perpetualinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

5. What journal entry will Bob record on May 3 if the periodicinventory system is used?

A) debit Accounts Payable, $1,000; credit Merchandise Inventory,$1,000.

B) debit Accounts Payable, $1,000; credit Purchases, $1,000.

C) debit Accounts Payable, $1,000; credit Purchase Discounts,$1,000.

D) debit Accounts Payable, $1,000; credit Purchase Returns andAllowances, $1,000.

E) debit Merchandise Inventory; $600; credit Cost of Goods Sold,$600.

6. what journal entry will Bob record on May 3 if the perpetualinventory system is used?

A) debit Accounts Payable, $1,000; credit Merchandise Inventory,$1,000.

B) debit Accounts Payable, $1,000; credit Purchases, $1,000.

C) debit Accounts Payable, $1,000; credit Purchase Discounts,$1,000.

D) debit Accounts Payable, $1,000; credit Purchase returns andAllowances, $1,000.

E) debit Merchandise Inventory; $600; credit Cost of Goods Sold,$600.

7. what journal entry will Sam record on May 3 if the periodicinventory system is used?

A) debit Merchandise Inventory, $600; credit Cost of Goods Sold,$600.

B) debit Sales, $1,000; credit Accounts Receivable, $1,000.

C) debit Sales, $1,000; credit Cash, $1,000.

D) debit Sales Returns and Allowances, $1,000; credit AccountsReceivable, $1,000.

E) debit Sales Returns and Allowances, $1,000; credit Cash,$1,000.

MGAB01H3 Chapter 5.3: Chapter 5.3

MGAB01H3 Full Course Notes

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