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Questions
Q:
The matching principle requires that the inventory valuation method follow the physical flow of inventory.
Q:
Under LIFO, the most recent costs are assigned to ending inventory.
Q:
The assignment of costs to the cost of goods sold and to inventory under FIFO is the same for both the perpetual and periodic inventory systems.
Q:
The dollar value assigned to goods purchased will differ under the different inventory valuation methods of specific identification, FIFO, LIFO, and weighted average.
Q:
The assignment of costs to cost of goods sold and to inventory using specific identification is the same for both the perpetual and periodic systems.
Q:
Three key variables determine the dollar value of inventory: (1) inventory quantity, (2) costs of inventory, and (3) cost flow assumption.
Q:
The FIFO inventory method assumes that costs for the most recently purchased items are the first to be charged to the cost of goods sold.
Q:
The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used
Q:
LIFO assumes that inventory costs flow in the order they were incurred.
Q:
When units are purchased at different costs over time, it is simple to determine the cost per unit assigned to inventory.
Q:
The four methods of inventory valuation are SIFO, FIFO, LIFO, and average cost.
Q:
One of the most important decisions in accounting for inventory is determining the unit costs assigned to each inventory item.
Q:
Toys "R" Us had cost of goods sold of $8,321 million and ending inventory of $2,027 million. Based on this, its days' sales in inventory is equal to 89 days.
Q:
A company's cost of goods sold was $15,500 and its average merchandise inventory was $4,500. Its inventory turnover equals 3.4.
Q:
It can be expected that companies that sell perishable goods have higher inventory turnover than companies that sell nonperishable goods.
Q:
There is no simple rule for inventory turnover, except that a high ratio is preferable provided inventory is adequate to meet demand.
Q:
The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.
Q:
The inventory turnover ratio is computed by dividing average merchandise inventory by cost of goods sold.
Q:
A company's ability to pay its short-term obligations depends on many factors including how quickly it is able to sell its merchandise inventory.
Q:
An overstatement of ending inventory will cause an overstatement of assets and an understatement of equity on the balance sheet.
Q:
An understatement of ending inventory will cause an understatement of assets and equity on the balance sheet.
Q:
Neither GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.
Q:
An understatement of the ending inventory balance will understate cost of goods sold and overstate net income.
Q:
Managers are able to make important decisions correctly using erroneous inventory balances because inventory errors are self-correcting and, as a result, are less serious.
Q:
An inventory error is sometimes said to be self-correcting because it causes an offsetting error in the next period.
Q:
Errors in the period-end inventory balances only have an impact on the current period's records and financial statements.
Q:
GAAP and IFRS differ on the rules regarding LIFO as GAAP allows LIFO to assign costs to inventory and IFRS does not.
Q:
According to IRS requirements, companies are allowed to use FIFO for financial reporting and LIFO for tax reporting.
Q:
An advantage of LIFO is that it assigns the most recent costs to cost of goods sold and does a better job of matching current costs with revenues on the income statement.
Q:
The full disclosure principle requires that the notes to the financial statements report a change in accounting method for inventory costing.
Q:
Under the ___________ system, each purchase, purchase return and allowance, purchase discount, and transportation-in transaction is recorded in a separate temporary account.
Q:
When a company has no reportable nonoperating activities, its income from operations is reported as ___________________.
Q:
______________________ are nonoperating activities that include interest expense, losses from asset disposals, and casualty losses.
Q:
_______________________ are nonoperating activities that include interest, dividend and rent revenues, and gains from asset disposals.
Q:
A ______________________ income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.
Q:
A _____________________ income statement format shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items.
Q:
___________ expenses are those expenses that support a company's overall operations and include expenses related to accounting, human resource management, and financial management.
Q:
Inventory shrinkage can be computed by comparing the ___________ of inventory with recorded quantities and amounts.
Q:
Sales discounts can benefit a seller by decreasing the delay in receiving cash and ___________.
Q:
A seller usually prepares a ____________________ to confirm a buyer's return or allowance that informs the buyer of the seller's credit to the buyer's account receivable on the seller's books.
Q:
___________________ refer to reductions in the selling price of merchandise sold to customers, often involving damaged or defective merchandise that a customer is willing to purchase with a decrease in the selling price.
Q:
____________________ refer to merchandise that customers return to the seller after a sale.
Q:
FOB _________________ means ownership of goods transfers to the buyer when the goods arrive at the buyer's place of business. The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit.
Q:
FOB _________________ means the buyer accepts ownership when the goods depart the seller's place of business. The buyer is responsible for paying shipping costs and bears the risk of damage or loss when goods are in transit.
Q:
A _______________________ is a document the buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.
Q:
The agreement regarding the amounts and timing of payment from a buyer to a seller are the ____________________.
Q:
A company purchased $8,750 worth of merchandise, with terms of 2/10, n/30. The invoice was paid within the cash discount period. Accordingly, the company received a cash discount of _______________.
Q:
The gross margin ratio equals net sales less ___________ divided by net sales.
Q:
The acid-test ratio reflects the ___________ of a company.
Q:
A period's ___________________ becomes the next period's beginning inventory.
Q:
The __________________ inventory system continually updates accounting records for merchandise transactions for the amounts of inventory available for sale and inventory sold.
Q:
A ___________ inventory system updates the accounting record for inventory only at the end of a period.
Q:
________________________ refers to products that a company owns and intends to sell.
Q:
A merchandising company's ___________ begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.
Q:
A ___________ is an intermediary that buys products from manufacturers and sells to retailers.
Q:
A company had net sales of $741,800. Its cost of goods sold must have been _________ to yield a gross profit of $282,884.
Q:
Maia's Bike Shop uses the periodic inventory system and had the following transactions during the month of May: May 3
Sold merchandise to a customer on credit for $600, terms 2/10, n/30. The cost of the merchandise sold was $350. May 4
Sold merchandise to a customer for cash of $425. The cost of the merchandise was $250. May 6
Sold merchandise to a customer on credit for $1,300, term 2/10, n/30. The cost of the merchandise sold was $750. May 8
The customer from May 3 returned merchandise with a selling price of $100. The cost of merchandise returned was $55. May 15
The customer from May 6 paid the full amount due, less any appropriate discounts earned. May 31
The customer from May 3 paid the full amount due, less any appropriate discounts earned. Prepare the required journal entries that Maia's Bike Shop must make to record these transactions.
Q:
Steve's Skateboards uses the periodic inventory system and had the following sales transactions during April: April 2
Sold merchandise to Happy Hobby Shop on credit for $4,800, terms 1/15, n/60. The items sold had a cost of $2,700. April 4
Happy Hobby Shop returned merchandise that had a selling price of $200. The cost of the merchandise returned was $110. April 13
Happy Hobby Shop paid for the merchandise sold on Aril 2, taking any appropriate discount earned Prepare the journal entries that Steve's Skateboards must make to record these transactions.
Q:
Neutron uses a periodic inventory system. Prepare general journal entries to record the following transactions for Neutron: June
10
Neutron purchased merchandise on credit from Proton for $9,000, terms 2/10, n/30. FOB destination. Transportation costs of $350 were paid by Proton. 12
Neutron returned $600 of merchandise from the June 10 purchase. 19
Neutron paid Proton for the June 10 purchase.
Q:
From the adjusted trial balance for Worker Products, prepare the necessary closing entries. WORKER PRODUCTS COMPANY Adjusted Trial Balance December 31 Debit
Credit Cash
$ 9,400 Accounts receivable
25,000 Merchandise inventory
36,000 Office supplies
900 Store equipment
75,000 Accumulated depreciation store equipment $ 22,000 Office equipment
60,000 Accumulated depreciation office equipment 15,000 Accounts payable 42,000 Notes payable 10,000 Common stock 40,000 Retained earnings 70,700 Dividends
48,000 Sales 325,000 Sales discounts
6,000 Sales returns and allowances
16,500 Cost of goods sold
195,000 Sales salaries expense
32,500 Depreciation expense store equipment
11,000 Depreciation expense office equipment
7,500 Office supplies expense
1,300 Interest expense
600 Totals
$524,700
$524,700
Q:
From the adjusted trial balance for the Worker Products Company, prepare a multiple-step income statement in good form. WORKER PRODUCTS COMPANY Adjusted Trial Balance December 31 Debit
Credit Cash
$ 9,400 Accounts receivable
25,000 Merchandise inventory
36,000 Office supplies
900 Store equipment
75,000 Accumulated depreciation store equipment $ 22,000 Office equipment
60,000 Accumulated depreciation office equipment 15,000 Accounts payable 42,000 Notes payable 10,000 Common stock 40,000 Retained earnings 70,700 Dividends
48,000 Sales 325,000 Sales discounts
6,000 Sales returns and allowances
16,500 Cost of goods sold
195,000 Sales salaries expense
32,500 Depreciation expense store equipment
11,000 Depreciation expense office equipment
7,500 Office supplies expense
1,300 Interest expense
600 Totals
$524,700
$524,700
Q:
The year-end adjusted trial balance of ABC Supply for the current year is shown below: ABC SUPPLY Adjusted Trial Balance December 31 Debit
Credit Cash
$ 1,500 Office supplies
500 Merchandise inventory
11,000 Store equipment
18,000 Accum depr. store equipment $ 3,000 Accounts payable 6,000 Common stock 10,000 Retained earnings 40,000 Dividends
22,000 Sales 60,500 Cost of goods sold
48,000 Depreciation expense store equipment
1,000 Office supplies expense
1,500 Salaries expense
14,000 Rent expense
2,000 $119,500
$119,500 Prepare closing entries at December 31 for the current year.
Q:
Following is the year-end adjusted trial balance for Yakima's Sporting Goods for the current year: YAKIMAS SPORTING GOODS Adjusted Trial Balance December 31 Dr
Cr Cash
$ 67,400 Accounts receivable
46,000 Merchandise inventory
50,000 Office supplies
800 Accounts payable 16,000 Salaries payable 850 Common stock 50,000 Retained earnings 75,530 Dividends
5,000 Sales 500,000 Sales returns and allowances
4,500 Sales discounts
4,250 Cost of goods sold
382,450 Sales salaries expense
44,000 Advertising expense
8,150 Office salaries expense
24,325 Office supplies expense
450 Interest expense
5,055 Totals
$642,380
$642,380 Prepare the closing entries at December 31 for the current year.
Q:
Maia's Bike Shop uses the perpetual inventory system and had the following transactions during the month of May: May 3
Sold merchandise to a customer on credit for $600, terms 2/10, n/30. The cost of the merchandise sold was $350. May 4
Sold merchandise to a customer for cash of $425. The cost of the merchandise was $250. May 6
Sold merchandise to a customer on credit for $1,300, terms 2/10, n/30. The cost of the merchandise sold was $750. May 8
The customer from May 3 returned merchandise with a selling price of $100. The cost of the merchandise returned was $55. May 15
The customer from May 6 paid the full amount due, less any appropriate discounts earned. May 31
The customer from May 3 paid the full amount due, less any appropriate discounts earned. Prepare the required journal entries that Maia's Bike Shop must make to record these transactions.
Q:
Steve's Skateboards uses the perpetual inventory system and had the following sales transactions during April: April 2
Sold merchandise to Happy Hobby Shop on credit for $4,800, terms 1/15, n/60. The items sold had a cost of $2,700. April 4
Happy Hobby Shop returned merchandise that had a selling price of $200. The cost of the merchandise returned was $110. April 13
Happy Hobby Shop paid for the merchandise sold on April 2, taking any appropriate discount earned. Prepare the journal entries that Steve's Skateboards must make to record these transactions.
Q:
Roller Blade Company uses the perpetual inventory system and had the following transactions during October: October 6:
Purchased $4,000 of inventory. The sellers credit terms are 2/10, n/30. October 8:
Returned $200 worth of defective units and received full credit. October 15:
Paid the amount due, less the returned items. Prepare journal entries to record each of the preceding transactions.
Q:
A company that uses the perpetual inventory system purchased $8,500 worth of inventory on September 25. Terms of the purchase were 2/10, n/30. The invoice was paid in full on October 4. Prepare the journal entries to record these merchandise transactions.
Q:
The following information is for Trico and its competitor Unico: Trico
Unico Year 1
Year 2
Year 1
Year 2 Net sales
$347,850
$365,418
$579,750
$664,395 Cost of sales
121,747
146,167
318,862
312,265 Required:
A. Calculate the dollar amount of gross margin and the gross margin ratio to the nearest percent for each company for both years.
B. Which company had the more favorable ratio for each year?
C. Which company had the more favorable change in the gross margin ratio over this two-year period?
Q:
A company reported the following information for the month of November: Sales
$50,475 Sales discounts
235 Sales returns and allowances
2,840 Cost of goods sold
33,975 Required: Calculate this company's gross margin ratio.
Q:
Calculate the gross margin ratio for each of the following separate cases A through D: A
B
C
D Net sales
$135,000
$623,500
$37,800
$259,600 Cost of goods sold
83,600
249,200
13,230
127,204
Q:
A company reported the following year-end information: Cash
$ 52,000 Short-term investments
12,000 Accounts receivable
54,000 Inventory
325,000 Prepaid expenses
17,500 Accounts payable
106,500 Other current payables
25,000 Required:
a. Explain the purpose of the acid-test ratio.
b. Calculate the acid-test ratio for this company.
c. What does the acid-test ratio reveal about this company?
Q:
. The following information refers to Annie's Attic and its competitors in the antiques business: Current Ratio Quick Ratio Annieu2019s Attic 2.0 0.95 Bartu2019s Basement 1.5 1.00 Chisolmu2019s Collectibles 1.8 1.20 Martinu2019s Marbles 1.9 0.80 Industry Average 2.0 1.00 Required:
Comment on the relative liquidity positions of these companies.
Q:
Fill in the blanks (a) through (g) for the Hendricks Company for each of the income statements for 2012, 2013, and 2014. HENDRICKS COMPANY Income Statements For the Years Ended December 31 2012
2013
2014 Sales
$7,500
$10,000
(f) Cost of goods sold Merchandise inventory (beginning)
(a)
375
750 Total cost of merchandise purchases
2,400
3,625
4,875 Merchandise inventory (ending)
(b)
750
625 Cost of goods sold
2,770
(d)
5,000 Gross profit
(c)
6,750
5,200 Operating expenses
3,750
3,750
(g) Net income
$ 980
(e)
$ 2,500
Q:
Harriet's Toy Shop had net sales of $852,000. The gross profit was $230,000. Calculate Harriet's cost of goods sold.
Q:
Takita Company had net sales of $500,000 and cost of goods sold of $350,000. Calculate Takita's gross profit.
Q:
A company has net sales of $1,909,000, sales commissions in the amount of $250,000, net income of $866,400, and gross profit ratio of 60%. What is the amount of cost of goods sold?
Q:
A company has sales of $2,530,000, sales discounts of $200,000, sales returns and allowances of $323,000, shipping charges of $115,000, sales commissions of $234,000, net income of $863,500, and cost of goods sold of $1,012,000. What is the gross profit/margin ratio?
Q:
A company has sales of $2,530,000, sales discounts of $200,000, sales returns and allowances of $323,000, shipping charges of $115,000, sales commissions of $234,000, net income of $863,500, and cost of goods sold of $1,012,000. What is the gross profit/margin for the period?
Q:
Scuba Company had net income on the current years income statement in the amount of $800,000, other expense in the amount of $400,000, and a gross profit ratio of 58%. What was the amount of net sales on the income statement?
Q:
Why does Chelsea Eubanks company, Faithful Fish, use a perpetual inventory system?