ACC 110 Chapter Notes - Chapter 5: Gross Profit, Purchase Order, Operating Expense

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3 Feb 2017

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Differences between service & merchandising companies: service: performing services as primary revenue source, merchandising: buy & sell inventory. 3 types of merchandisers: retail, wholesale, manufacturers. Manufacturers sell to wholesalers who sell to retailers. Merchandising companies have longer operating cycles than service companies. Service company cycle: perform services for customers on account, pay cash to employees, receiving cash from customers. Merchandising company cycle: purchase inventory from suppliers on account, pay cash to suppliers, sell inventory to customers on account, receive cash from customers. Expenses: cost of goods sold (total cost of merchandise sold in a period), operating expenses (incurred in the process of earning sales revenue) Gross profit = sales revenue cost of goods sold. Profit = gross profit operating expenses. Perpetual system: keep detailed records of merchandise inventory when it happens (each time a sale occurs, know cost of goods sold and merchandise inventory right away (helps companies have optimal inventory amounts, for sales and profit.

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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

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:

Accounts	Debit		Credit
Cash	$	25,100
Accounts Receivable		46,200
Allowance for Uncollectible Accounts			$	4,200
Inventory		20,000
Land		46,000
Equipment		15,000
Accumulated Depreciation				1,500
Accounts Payable				28,500
Notes Payable (6%, due April 1, 2019)				50,000
Common Stock				35,000
Retained Earnings				33,100

Totals	$	152,300	$	152,300

During January 2018, the following transactions occur:

January 2. Sold gift cards totaling $8,000. The cards are redeemable for merchandise within one year of the purchase date.
January 6. Purchase additional inventory on account, $147,000.
January 15. Firework sales for the first half of the month total $135,000. All of these sales are on account. The cost of the units sold is $73,800.
January 23. Receive $125,400 from customers on accounts receivable.
January 25. Pay $90,000 to inventory suppliers on accounts payable.
January 28. Write off accounts receivable as uncollectible, $4,800.
January 30. Firework sales for the second half of the month total $143,000. Sales include $11,000 for cash and $132,000 on account. The cost of the units sold is $79,500.
January 31. Pay cash for monthly salaries, $52,000.

1. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $3,000 and a two-year service life.
2. At the end of January, $11,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 5% will not be collected.
3. Accrued interest expense on notes payable for January.
4. Accrued income taxes at the end of January are $13,000.
5. By the end of January, $3,000 of the gift cards sold on January 2 have been redeemed.

Need journal entries for the following 5.

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NUMBERS:

Service Revenue Per Hour: $90.50

Sales Revenue Per Unit: $50.50

Cost of Inventory Per Unit: $24.75

Part 1 General Journal â Post the followingjournal entries to the general journal.

Trans.	Date	Description
1	May 1	Sell 50,000 shares of common stock for $50,000 to obtain thefunds necessary to start your business.
2	May 1	Borrow $20,000 from the local bank and sign a note promising torepay the full amount of the debt in 5 years.
3	May 1	Issue 1,500 shares of $2 par value preferred stock at$30/share.
4	May 1	Purchase equipment necessary for business operations for$15,000.
5	May 1	Pay one year of rent in advance, $12,000 ($1,000 per month.)
6	May 3	Purchase supplies on account, $800.
7	May 3	Purchase 200 units of inventory with cash.
8	May 6	Provide 40 hours of services to customers for cash (calculateusing your hourly service rate).
9	May 10	Sell 100 units of inventory on account. (Perpetual method = 2entries)
10	May 12	Sell 50 units of inventory to a customer on account with a salesdiscount of 2/10, n/30.
11	May 15	Purchase an additional 300 units of inventory onaccount.
12	May 20	The customer who purchased product on May 12th pays the amountdue (within discount period).
13	May 23	Receive cash in advance for 20 hours of services to be completedin the future.
14	May 31	Sell 200 units of inventory to a customer who signs a 6-monthpromissory note at 10% interest for the balance due.
15	May 31	Pay employee salaries, $1,000.
16	May 31	Pay cash dividends to shareholders, $600.

Part 3 â GeneralLedger â Post the information from the journal entries into thegeneral ledger.

Part 4 â TrialBalance â Prepare a trial balance from the information in thegeneral ledger.

Part 2 cont. âAdjusting journal Entries â Post the following adjusting entries tothe general journal

Adj-1	May 31	Record the portion of the Prepaid Rent used in May.
Adj-2	May 31	The company has $300 of supplies left at month end
Adj-3	May 31	Record one month of depreciation on the equipment. The equipmenthas a useful life of 10 years
Adj-4	May 31	Provide 10 hours of services that were paid in advance on May23^rd.
Adj-5	May 31	Record the receipt of a $300 utilities bill due on June5^th.
Adj-6	May 31	Record accrued interest on the $20,000 â 5 year note payable.The annual interest rate is 10%.

Part 3 cont. âGeneral Ledger - Post the adjusting entries to the GeneralLedger.

Part 5 â AdjustedTrial Balance â Post the ending balances from the General Ledger tothe Adjusted Trial Balance. Debits should equal credits if you havedone the prior steps correctly.

Part 6 â Prepare theend of month Income Statement.

Part 7 â Prepare theend of month Retained Earnings Statement .

Part 8 â Prepare theend of month Balance Sheet .

Part 1 cont. - Addthe following closing entries to the general journal:

Clo-1	May 31	Close out revenues/income
Clo-2	May 31	Close out expenses/losses
Clo-3	May 31	Close out dividends

Part 2 cont. - Postthe above closing entries to the general ledger.

Part 9 â Prepare apost-closing trial balance.

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ACC 110 Chapter Notes - Chapter 5: Gross Profit, Purchase Order, Operating Expense

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