ACCT 2001 Chapter : Test 2 Notes (CH 5-8)

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azuremammoth471

15 Mar 2019

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Retailers- companies that purchase from wholesalers and sell directly to consumers. Merchandising companies have two types of expenses: cost of goods sold- the total cost of merchandise sold during the period, operating expenses- the expenses from operating the business. Cost of goods sold (equals) = gross profit (less)- Beginning inventory + cost of goods purchased = cost of good available for sale. As goods are sold they are = to cost of goods sold, and what inventory is left over = ending inventory. Perpetual system- a company determines the cost of goods sold for every sale/purchase. (like bar codes in a grocery store) Periodic system- a company does not determine cost of goods sold until the end of the accounting period: determine the cost of goods on hand at the begging of the period. Add to it the cost of goods purchase. Subtract the cost of goods on hand at the end of the period.

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	Periodic Inventory Method

	Better Bottles, Inc. uses a PERIODIC inventory system and has the following information available:

	Description	# of Units	Cost per Unit	Total Cost
	Beginning inventory	20	$20.00	$400
	Jan 5 sold	15
	Jan 15 purchase	27	$22.00	594
	Jan 18 sold	21
	Jan 20 purchase	33	$30.00	990
	Total goods available for sale	80		$1,984

	Total goods sold	36


	Required:
1	Calculate both Cost of goods sold and Ending inventory using the Periodic FIFO Method.
2	Calculate both Cost of good sold and Ending Inventory using Periodic LIFO Method.
3	Use your calculations from 1-2 and complete the Income Statement.
	The company income tax rate:	0.25

1	FIFO Cost of Goods Sold - PERIODIC
	Units Sold Taken From:	# of Units	Cost per Unit	Total Cost


	Total Cost of Goods Sold FIFO


	FIFO Ending Inventory - PERIODIC
	Inventory Available	# of Units	Cost per Unit	Total Cost
	Beginning inventory
	+Purchase
	+Purchase
	(Less Cost of Goods Sold)
	Ending Inventory FIFO



2	LIFO Cost of Goods Sold - PERIODIC
	Units Sold Taken From:	# of Units	Cost per Unit	Total Cost


	Total Cost of Goods Sold LIFO


	LIFO Ending Inventory - PERIODIC
	Inventory Available	# of Units	Cost per Unit	Total Cost
	Beginning inventory
	+Purchase
	+Purchase
	(Less Cost of Goods Sold)
	Ending Inventory LIFO



3	Income Statement - Periodic Inventory Method
		FIFO	LIFO
	Sales revenue, net	25,000	25,000
	Cost of goods sold
	Gross profit
	Operating expenses	8,000	8,000
	Operating income before tax
	Income tax expense
	Net income

plumporpoise441

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

The following are comparative balance sheets and an income statement for Wentworth Company.

Wentworth Company

Balance Sheets

As of December 31

Assets 2013 2012

Cash $21,500 $120,000

Accounts receivable 195,000 105,000

Inventory 180,000 225,000

Long-term investments 0 60,000

_______ _________

Totals $396,500 $510,000

Liabilities and shareholdersâ equity

Accounts payable $75,000 $120,000

Operating expenses payable 24,000 15,000

Bonds payable 70,000 100,000

Common stock 125,000 125,000

Retained earnings 102,500 150,000

________ _________

Totals $396,500 $510,000

Wentworth Company

Income Statement

For the Year Ended December 31, 2013

Sales $560,000

Cost of goods sold:

Beginning Inventory $225,000

Purchases 30,000

________

Goods Available for Sale 555,000

Less: ending inventory 180,000

_________

Cost of goods sold 375,000

________

Gross Profit 185,000

Operating expenses 180,000

_________

Income from Operations 5,000

Other expenses:

Loss on sale of long-term investment (7,500)

_______

Net loss $ (2,500)

Cash dividends of $45,000 were paid in 2013.

Required:

Prepare a statement of cash flows for 2013 using the direct method.

ivorymink518

ACCT 2001 Chapter : Test 2 Notes (CH 5-8)

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