Accounting Principles 7Th Canadian Edition Volume 1 By Jerry J. Weygandt - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS CHAPTER STUDY OBJECTIVES Describe the differences between service and merchandising companies. A service company …
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Accounting Principles 7Th Canadian Edition Volume 1 By Jerry J. Weygandt – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
CHAPTER 5
In a periodic inventory system, only one journal entry is made to record a sale of merchandise. Cost of goods sold is not recorded at the time of the sale. Instead, it is calculated as follows at the end of the period after the ending inventory has been counted: Beginning inventory + cost of goods purchased = cost of goods available for sale. Cost of goods available for sale − ending inventory = cost of goods sold.
Exercise 1
Below are four independent scenarios:
Instructions
For each scenario determine if a perpetual or a periodic inventory system is used.
Solution 1
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
Exercise 2
Listed below are various accounts:
Instructions
State which accounts would be classified as operating expenses.
Solution 2
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
Solution 3 (5 min.)
In a perpetual inventory system, the company keeps detailed records of each inventory purchase and sale. This system continuously shows the quantity and cost of the inventory that should be on hand for every item. In a periodic inventory system, companies do not keep detailed inventory records of the goods on hand throughout the period. Instead, the cost of goods sold is determined only at the end of the accounting period.
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
Walton Landscaping sells mowers and other lawn maintenance equipment. The following information relates to its inventory of mowers, which is accounted for using the perpetual inventory method:
June 3 Purchased 35 mowers at $400 each from Greensborough Equipment; terms 2/10, net 30, FOB shipping point.
4 The correct company paid freight of $1,200 on the June 4 purchase.
10 Returned 4 of the mowers purchased on June 3.
30 Paid the Greensborough account in full.
Instructions
Solution 4 (15 min.)
a)
Jun 3 Merchandise Inventory (35 × $400)………………………………… 14,000
Accounts Payable…………………………………………………… 14,000
4 Merchandise Inventory………………………………………………….. 1,200
Cash…………………………………………………………………….. 1,200
10 Accounts Payable (4 × $400)…………………………………………. 1,600
Merchandise Inventory……………………………………………. 1,600
30 Accounts Payable ($14,000 – $1,600)…………………………….. 12,400
Cash…………………………………………………………………….. 12,400
b)
Purchase……………………………………………………………………………………. $14,000
Freight……………………………………………………………………………………….. 1,200
15,200
Returns………………………………………………………………………………………. (1,600)
Ending inventory…………………………………………………………………………. $13,600
c)
Ending inventory per part b)…………………………………………………………. $13,600
Less discount ($14,000 – $1,600) × 2%…………………………………………. (248)
Ending inventory…………………………………………………………………………. $13,352
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
Exercise 5
Below are six independent scenarios:
Instructions
For each scenario determine who is responsible for paying and recording the freight charges: Buyer (B) or Seller (S).
Solution 5
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
Exercise 6
Below are five independent scenarios:
Instructions
State whether each item is a quantity discount (Q) or a purchase discount (P).
Solution 6
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
Exercise 7
Jabari Company purchases various types of beach toys for sale to consumers. Listed below are the transactions for the month of June. Jabari uses a perpetual inventory system.
Jun 1 Purchased 18 water tubes for $250 each terms n/30 FOB destination.
8 Returned 2 tubes purchased on June 1 due to defects. Received a full refund for the defective tubes.
10 Freight charges of $85 for the June 1 transaction are paid by the responsible party.
11 Made a complaint about competitive pricing. Received a $200 credit for the water tubes purchased on June 1.
15 Purchased 92 water tubes for $225 each terms 2/10 n/30.
18 Made payment for the amount owing for the June 1 transaction.
20 Made payment for the amount owing for June 15 transaction.
Instructions
Solution 7 (10 min.)
a)
Jun 1 Inventory……………………………………………………………………… 4,500
Accounts Payable (18 × $250)…………………………………. 4,500
8 Accounts Payable…………………………………………………………. 500
Inventory……………………………………………………………….. 500
10 No entry freight paid by the seller.
11 Accounts Payable…………………………………………………………. 200
Inventory……………………………………………………………….. 200
15 Inventory……………………………………………………………………… 20,700
Accounts Payable (92 × $225)…………………………………. 20,700
18 Accounts Payable ($4,500 – $500 – $200)………………………. 3,800
Cash…………………………………………………………………….. 3,800
20 Accounts Payable…………………………………………………………. 20,700
Inventory ($20,700 × 2%)………………………………………… 414
Cash…………………………………………………………………….. 20,286
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
Exercise 8
Carter Company purchases and resells various electronics to consumers. Listed below are the transactions for the month of September. Carter has a beginning inventory balance of $5,900 at September 1.
Sep 1 Purchased $11,000 of merchandise inventory; terms 1/15, n/30.
7 Purchased for cash $9,900 of merchandise inventory.
9 Contacted a major supplier to place an order for $55,000 to be shipped on October 31.
10 Purchased $16,500 of merchandise inventory; terms 2/15, n/45.
11 Purchased $2,700 of office supplies; terms n/15.
15 Paid for the merchandise purchased on September 1.
18 Paid for the office supplies purchased on September 11.
Oct 20 Paid for the September 10 purchase.
Instructions
Solution 8 (10 min.)
a)
Sep 1 Inventory……………………………………………………………………… 11,000
Accounts Payable…………………………………………………… 11,000
7 Inventory……………………………………………………………………… 9,900
Cash…………………………………………………………………….. 9,900
9 No entry required.
10 Inventory……………………………………………………………………… 16,500
Accounts Payable…………………………………………………… 16,500
11 Office Supplies…………………………………………………………….. 2,700
Accounts Payable…………………………………………………… 2,700
15 Accounts Payable…………………………………………………………. 17,000
Cash…………………………………………………………………….. 16,890
Inventory ($11,000 x 1%)………………………………………… 110
18 Accounts Payable…………………………………………………………. 2,700
Cash…………………………………………………………………….. 2,700
Oct 20 Accounts Payable…………………………………………………………. 16,500
Cash…………………………………………………………………….. 16,500
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
Exercise 9
Logan Lollypops purchases and resells assorted candies to consumers. Listed below are the transactions for the month of September. Logan has a beginning inventory balance of $6,350 at September 1.
Sep 2 Purchased $11,000 of merchandise inventory; terms 1/15, n/30.
5 Sold all merchandise inventory included in the opening balance September 1 for $8,500 cash.
7 Purchased for cash $9,900 of merchandise inventory.
10 Purchased $16,500 of merchandise inventory; terms 2/15, n/45.
11 Sold all merchandise inventory originally purchased on September 2 for $18,500 on account.
15 Paid for the merchandise purchased on September 2.
18 Paid for the September 10 purchase.
Instructions
Solution 9 (10 min.)
a)
Sep 2 Inventory……………………………………………………………………… 11,000
Accounts Payable…………………………………………………… 11,000
5 Cash……………………………………………………………………………. 8,500
Sales…………………………………………………………………….. 8,500
5 Cost of Goods Sold………………………………………………………. 6,350
Inventory……………………………………………………………….. 6,350
7 Inventory……………………………………………………………………… 9,900
Cash…………………………………………………………………….. 9,900
10 Inventory……………………………………………………………………… 16,500
Accounts Payable…………………………………………………… 16,500
11 Accounts Receivable…………………………………………………….. 18,500
Sales…………………………………………………………………….. 18,500
11 Cost of Goods Sold………………………………………………………. 11,000
Inventory……………………………………………………………….. 11,000
15 Accounts Payable…………………………………………………………. 17,000
Cash…………………………………………………………………….. 16,890
Inventory ($11,000 x 1%)………………………………………… 110
18 Accounts Payable…………………………………………………………. 16,500
Cash…………………………………………………………………….. 16,170
Inventory ($16,500 x 2%)………………………………………… 330
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 10
On September 1, Boathouse Marine had an inventory of 20 boats at a cost of $1,800 each. The company uses a perpetual inventory system. During September, the following transactions and events occurred:
Sep 3 Purchased 40 boats at $1,800 each from Hillside Fibreglass. The boats were shipped FOB destination terms n/30.
3 The appropriate party paid the freight costs.
6 Received credit of $7,200 for the return of 4 boats purchased on Sept. 3 that were defective.
7 Paid for the September 3 purchase.
9 Sold 20 boats for $3,000 each to Billington Yacht Club on credit.
13 Cash sale of 15 boats for $3,000 each to Birch Island Ferry.
21 Purchased 25 boats at $1,800 each from Johnson Supply terms n/30.
Instructions
a)
Sep 3 Inventory [(40 × $1,800)………………………………………………… 72,000
Accounts Payable………………………………………………….. 72,000
3 No entry for freight. It would be paid for by Moncton.
6 Accounts Payable…………………………………………………………. 7,200
Inventory……………………………………………………………….. 7,200
7 Accounts Payable ($72,000 – $7,200)…………………………….. 64,800
Cash…………………………………………………………………….. 64,800
9 Accounts Receivable (20 × $3,000)………………………………… 60,000
Sales…………………………………………………………………….. 60,000
Cost of Goods Sold (20 × $1,800)…………………………………… 36,000
Inventory……………………………………………………………….. 36,000
13 Cash (15 × $3,000)……………………………………………………….. 45,000
Sales…………………………………………………………………….. 45,000
Cost of Goods Sold (15 × $1,800)…………………………………… 27,000
Inventory……………………………………………………………….. 27,000
21 Inventory (25 × $1,800)…………………………………………………. 45,000
Accounts Payable………………………………………………….. 45,000
Sep 3 on hand 20 boats + 40 – 4 – 20 – 15 + 25 = 46 boats.
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 11
On September 1, Stanton Supply had an inventory of 20 back packs at a cost of $18 each. The company uses a perpetual inventory system. During September, the following transactions and events occurred:
Sep 3 Purchased 40 back packs at $20 each from Janzen terms n/30. Received a 10% quantity discount.
6 Received credit of $72 for the return of 4 back packs purchased on Sept. 3 that were defective.
7 Paid for the September 3 purchase.
9 Sold 20 back packs for $30 each to McGill Books terms n/30.
13 Cash sales 15 back packs for $30 each to Calvin Office Supply.
21 Purchased 25 back packs at $18 each from Coleman Company terms 2/10, n/30.
30 A physical inventory count indicated an ending inventory balance of $774.
Instructions
Journalize the September transactions for Stanton Supply, using a perpetual inventory system.
Sep 3 Inventory [(40 × $20) × 90%]………………………………………….. 720
Accounts Payable………………………………………………….. 720
6 Accounts Payable…………………………………………………………. 72
Inventory……………………………………………………………….. 72
7 Accounts Payable ($720 – $72)……………………………………… 648
Cash…………………………………………………………………….. 648
9 Accounts Receivable (20 × $30)…………………………………….. 600
Sales…………………………………………………………………….. 600
Cost of Goods Sold (20 × $18) ………………………………………. 360
Inventory……………………………………………………………….. 360
13 Cash (15 × $30)……………………………………………………………. 450
Sales…………………………………………………………………….. 450
Cost of Goods Sold (15 × $18) ………………………………………. 270
Inventory……………………………………………………………….. 270
21 Inventory (25 × $18) …………………………………………………….. 450
Accounts Payable………………………………………………….. 450
30 Cost of Goods Sold………………………………………………………. 54
Inventory……………………………………………………………….. 54
$360 + $720 – $72 – $360 – $270 + $450 = $828
$828 – $774 = $54
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 12
The following information is for the Cappelio Appliance Company, which uses the perpetual inventory system:
Jun 2 Sold 70 toaster ovens to the Motor Inn for $7,700 on account. Credit terms: n/30. Quantity discounts of 10% are given on all orders of 65 or more items. Cost of each toaster oven was $50.
5 Cash sales of 50 toaster ovens amounted to $5,500. Cost was $50 each.
8 Credited the Motor Inn account for $495 as an adjustment on 5 damaged units purchased by the Motor Inn on June 2. The units were scrapped.
15 Received a cheque from the Motor Inn in full payment of its account.
Instructions
Record the following transactions in the general journal.
Jun 2 Accounts Receivable…………………………………………………….. 6,930
Sales…………………………………………………………………….. 6,930
To record sales of merchandise to the Motor Inn.
($7,700 × 10% quantity discount = $770 quantity
discount)
($7,700 – $770 quantity discount = $6,930)
Cost of Goods Sold (70 × $50)……………………………………….. 3,500
Inventory……………………………………………………………….. 3,500
5 Cash…………………………………………………………………………… 5,500
Sales…………………………………………………………………….. 5,500
To record cash sales.
Cost of Goods Sold (50 × $50)……………………………………….. 2,500
Inventory……………………………………………………………….. 2,500
8 Sales Returns and Allowances………………………………………. 495
Accounts Receivable……………………………………………… 495
15 Cash…………………………………………………………………………… 6,435
Accounts Receivable……………………………………………… 6,435
To record collection. ($6,930 – $495 = $6,435)
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 13
On October 1, Keiler Motorcycle Shop had an inventory of 20 dirt bikes at a cost of $1,150 each. During the month of October, the following transactions occurred:
Oct 3 Purchased 10 bikes at a cost of $1,150 each from the Lyons Bike Company, terms n/30.
6 Sold 10 bikes for $1,500 each, terms n/30.
6 Freight of $250 on the October 6 sale was FOB shipping point.
7 Received credit from the Lyons Bike Company for the return of 2 defective bikes.
13 Issued a credit to a customer for the return of a bike. The bike was returned to inventory.
19 Purchased 8 bikes from Huffy Cycle Company at a cost of $1,125 each, terms 2/10, n/30.
20 Freight of $220 on the October 19 purchase was FOB shipping point.
29 Paid for the October 19 purchase.
Instructions
Using a perpetual inventory system, prepare the journal entries to record the transactions.
Oct 3 Inventory……………………………………………………………………… 11,500
Accounts Payable………………………………………………….. 11,500
6 Accounts Receivable…………………………………………………….. 15,000
Sales…………………………………………………………………….. 15,000
Cost of Goods Sold………………………………………………………. 11,500
Inventory……………………………………………………………….. 11,500
6 No entry
7 Accounts Payable…………………………………………………………. 2,300
Inventory……………………………………………………………….. 2,300
13 Sales Returns and Allowances………………………………………. 1,500
Accounts Receivable……………………………………………… 1,500
Inventory……………………………………………………………………… 1,150
Cost of Goods Sold………………………………………………… 1,150
19 Inventory……………………………………………………………………… 9,000
Accounts Payable………………………………………………….. 9,000
20 Inventory……………………………………………………………………… 220
Cash…………………………………………………………………….. 220
29 Accounts Payable…………………………………………………………. 9,000
Inventory ($9,000 × 2%)………………………………………….. 180
Cash…………………………………………………………………….. 8,820
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 14
ToneLife Music sells musical instruments. The following data relates to ToneLife’s inventory of guitars. On January 1, 2017, ToneLife had 12 guitars in inventory at a cost of $250 each. During January, the following transactions occurred:
Jan 1 Purchased 15 guitars at $250 each from International Music Centre (IMC) on account, terms n/30
4 Sold 2 guitars for cash at $370 each.
6 One of the two guitars sold on Jan 4 was returned because it was defective. A full refund was paid.
7 The defective guitar was returned to IMC for a credit on account.
16 Sold 21 guitars at $300 on account, terms 2/10, n/30.
18 Purchased 10 guitars from IMC for $250 each on account, terms n/30.
25 Paid the full amount owing to IMC.
26 Collected the balance owing from the Jan 16 sale.
Instructions
Using the perpetual inventory system, prepare the journal entries to record ToneLife Music’s transactions.
Solution 14 (20 min.)
Jan 1 Merchandise Inventory (15 × $250)………………………………… 3,750
Accounts Payable………………………………………………….. 3,750
4 Cash (2 × $370)……………………………………………………………. 740
Sales…………………………………………………………………….. 740
Cost of Goods Sold (2 × $250)……………………………………….. 500
Merchandise Inventory…………………………………………… 500
6 Sales Returns and Allowances………………………………………. 370
Cash…………………………………………………………………….. 370
Merchandise Inventory………………………………………………….. 250
Cost of Goods Sold………………………………………………… 250
7 Accounts Payable…………………………………………………………. 250
Inventory………………………………………………………………. 250
16 Accounts Receivable (21 × $300)…………………………………… 6,300
Sales…………………………………………………………………….. 6,300
Cost of Goods Sold (21 × $250)……………………………………… 5,250
Merchandise Inventory…………………………………………… 5,250
18 Merchandise Inventory (10 × $250)………………………………… 2,500
Accounts Payable………………………………………………….. 2,500
25 Accounts Payable (3,750 – 250 + 2,500)…………………………. 6,000
Cash…………………………………………………………………….. 6,000
26 Cash ($6,300 – $126)……………………………………………………. 6,174
Sales Discounts ($6,300 × 2%)………………………………………. 126
Accounts Receivable……………………………………………… 6,300
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 15
Jewel’s Gems sells gold necklaces. On December 1, 2017, Jewel’s had 230 necklaces in inventory at a cost of $120 each. During December, the following transactions occurred:
Dec 1 Purchased 500 necklaces at $120 each from Lindal Gold Fashions on account, terms net 30.
4 Returned 30 of the necklaces purchased from Lindal because they were defective.
9 Paid the balance due on the Lindal account payable.
12 Sold 600 necklaces for $250 each, terms n/30, FOB destination.
13 Freight of $250 on the Dec 12 sale paid by the appropriate party.
16 Purchased 150 necklaces from Green wholesale Jewelers for $120, terms n/30.
17 Sold 30 of the necklaces for cash, $325 each.
19 Customer returned 2 of the necklaces purchased on Dec 17. Provided a cash refund. The necklaces were returned to inventory.
Instructions
Using the perpetual inventory system, prepare the journal entries to record the transactions.
Solution 15 (20 min.)
Dec 1 Merchandise Inventory (500 × $120)………………………………. 60,000
Accounts Payable…………………………………………………… 60,000
4 Accounts Payable (30 × $120)……………………………………….. 3, 600
Merchandise Inventory……………………………………………. 3,600
9 Accounts Payable ($60,000 – 3,600)………………………………. 56,400
Cash…………………………………………………………………….. 56,400
12 Accounts Receivable (600 × $250)…………………………………. 150,000
Sales…………………………………………………………………….. 150,000
Cost of Goods Sold (600 × $120)……………………………………. 72,000
Merchandise Inventory……………………………………………. 72,000
13 Freight-out……………………………………………………………………. 250
Cash…………………………………………………………………….. 250
16 Merchandise Inventory (150 × $120)………………………………. 18,000
Accounts Payable…………………………………………………… 18,000
17 Cash (30 × $325)………………………………………………………….. 9,750
Sales…………………………………………………………………….. 9,750
Cost of Goods Sold (30 × $120)……………………………………… 3,600
Merchandise Inventory……………………………………………. 3,600
19 Sales Returns and Allowances (2 × $325)……………………….. 650
Cash…………………………………………………………………….. 650
Inventory (2 × $120)……………………………………………………… 240
Cost of Goods Sold………………………………………………… 240
Bloomcode: Application
Difficulty: Hard
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 16
Martin Sports Equipment sells a variety of sports items. The following data relates to Martin’s inventory of golf club sets. On March 1, 2017, Martin had 22 sets of clubs in inventory at a cost of $395 each. During March, the following transactions occurred:
Mar 2 Sold 7 sets of clubs on account to Flex Golf Club for $560 each, terms 2/10 n/30.
4 Flex Golf Club returned 2 sets of clubs. Martin returned the clubs to inventory.
11 Flex Golf Club paid the account in full.
15 Purchased 8 sets of clubs from Taylor Sports Canada at $395, terms n/30.
17 Freight of $600 on the purchase from Taylor was FOB destination and was paid by the appropriate party.
18 Sold 6 sets of clubs at $560 each for cash, and gave a 5% discount to the customer for paying cash.
22 Purchased 11 sets of clubs from Lopez Golf for $400 each. Terms 3/10 net/30.
24 Returned one set of clubs to Lopez Golf because they were defective.
31 Paid the Lopez Golf account.
Instructions
Using the perpetual inventory system, prepare the journal entries to record the transactions.
Solution 16 (20 min.)
Mar 2 Accounts Receivable (7 × $560)…………………………………….. 3,920
Sales…………………………………………………………………….. 3,920
Cost of Goods Sold (7 × $395)……………………………………….. 2,765
Merchandise Inventory……………………………………………. 2,765
4 Sales Returns and Allowances (2 × $560)……………………….. 1,120
Accounts Receivable………………………………………………. 1,120
Merchandise Inventory (2 × $395)………………………………….. 790
Cost of Goods Sold………………………………………………… 790
11 Cash ($2,800 – $56)……………………………………………………… 2,744
Sales Discounts ($2,800 × 2%)………………………………………. 56
Accounts Receivable ($3,920 – $1,120)……………………. 2,800
15 Merchandise Inventory (8 × $395)………………………………….. 3,160
Accounts Payable…………………………………………………… 3,160
17 No entry. Freight is paid by Taylor.
18 Cash ($3,360 – $168)……………………………………………………. 3,192
Sales Discounts ($3,360 × 5%)………………………………………. 168
Sales (6 × $560)…………………………………………………….. 3,360
Cost of Goods Sold (6 × $395)……………………………………….. 2,370
Merchandise Inventory……………………………………………. 2,370
22 Merchandise Inventory (11 × $400)………………………………… 4,400
Accounts Payable…………………………………………………… 4,400
24 Accounts Payable…………………………………………………………. 400
Merchandise Inventory……………………………………………. 400
30 Accounts Payable ($4,400 – $400)…………………………………. 4,000
Inventory ($4,000 × 3%)………………………………………….. 120
Cash ($4,000 – $120)……………………………………………… 3,880
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 17
Jabari Company produces and sells various types of beach toys. Listed below are the transactions for the month of June:
Jun 1 Sold 18 water tubes for $250 each terms n/30 FOB destination. Each tube cost $95.
8 Customer returned 2 tubes due to defects. Issued a full refund and scrapped the defective tubes.
10 Freight charges of $85 paid by the responsible party.
11 Customer complained about competitive pricing. Granted customer a $200 credit for tubes purchased.
15 Sold 92 tubes for $225 each terms 2/10 n/30. Each tube cost $95.
18 Received payment in full for June 1 transaction.
20 Received payment in full for June 15 transaction.
Instructions
Solution 17 (15 min.)
a)
Jun 1 Accounts Receivable…………………………………………………….. 4,500
Sales (18 × $250)…………………………………………………… 4,500
Cost of Goods Sold………………………………………………………. 1,710
Inventory (18 × $95)……………………………………………….. 1,710
8 Sales Returns and Allowances………………………………………. 500
Accounts Receivable………………………………………………. 500
10 Freight-out……………………………………………………………………. 85
Cash…………………………………………………………………….. 85
11 Sales Returns and Allowances………………………………………. 200
Accounts Receivable………………………………………………. 200
15 Accounts Receivable…………………………………………………….. 20,700
Sales (92 × $225)…………………………………………………… 20,700
Cost of Goods Sold………………………………………………………. 8,740
Inventory (92 × $95)……………………………………………….. 8,740
18 Cash ($4,500 – $500 – $200)…………………………………………. 3,800
Accounts Receivable………………………………………………. 3,800
20 Cash……………………………………………………………………………. 20,286
Sales Discount ($20,700 × 2%)………………………………………. 414
Accounts Receivable ……………………………………………… 20,700
Sales………………………………………………………………………………………….. $25,200
Less: Sales discounts………………………………………………………………….. $414
Sales returns and allowances…………………………………………………. 700 (1,114)
Net Sales……………………………………………………………………………………. $24,086
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 18
Jan Jenga Company manufactures and sells various kids toys. Listed below are the transactions for the month of September:
Sep 2 Sold merchandise on account with a cost of $1,500 for $2,100; terms 2/10, n/30, FOB destination.
7 Paid $225 in cash to ship the merchandise sold on September 2.
9 The customer of September 2 returned half of the amount purchased because it was the incorrect product; it was returned to inventory.
15 Sold merchandise to a customer on account for $3,800 that cost $2,280; terms 2/10, n/30, FOB destination.
16 Collected the amount owing from the customer of September 2.
19 Sold merchandise to a customer for cash of $1,200 that cost $720.
22 The customer of September 15 paid the amount owing.
Instructions
Solution 18 (15 min.)
a)
Sep 2 Accounts Receivable…………………………………………………….. 2,100
Sales…………………………………………………………………….. 2,100
Cost of Goods Sold………………………………………………………. 1,500
Inventory ………………………………………………………………. 1,500
7 Freight-out……………………………………………………………………. 225
Cash…………………………………………………………………….. 225
9 Sales Returns and Allowances ($2,100 x 50%)………………… 1,050
Accounts Receivable………………………………………………. 1,050
Inventory ($1,500 x 50%)………………………………………………. 750
Cost of Goods Sold………………………………………………… 750
15 Accounts Receivable…………………………………………………….. 3,800
Sales…………………………………………………………………….. 3,800
Cost of Goods Sold………………………………………………………. 2,280
Inventory……………………………………………………………….. 2,280
16 Cash ($2,100 – $1,050)…………………………………………………. 1,050
Accounts Receivable………………………………………………. 1,050
19 Cash……………………………………………………………………………. 1,200
Sales…………………………………………………………………….. 1,200
Cost of Goods Sold………………………………………………………. 720
Inventory……………………………………………………………….. 720
20 Cash……………………………………………………………………………. 3,724
Sales Discount ($3,800 × 2%)………………………………………… 76
Accounts Receivable ……………………………………………… 3,800
Sales………………………………………………………………………………………….. $7,100
Less: Sales discounts………………………………………………………………….. $ 76
Sales returns and allowances………………………………………………. 1,050 (1,126)
Net Sales……………………………………………………………………………………. $5,974
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
Exercise 19
The adjusted trial balance of Small Book Company appears below. The company uses a perpetual inventory system.
SMALL BOOK COMPANY
Adjusted Trial Balance
Year Ended December 31, 2017
Debit Credit
Cash………………………………………………………………………………………….. $ 3,400
Accounts receivable…………………………………………………………………….. 15,000
Merchandise inventory…………………………………………………………………. 35,000
Equipment………………………………………………………………………………….. 150,000
Accumulated depreciation—equipment………………………………………….. $ 20,000
Accounts payable………………………………………………………………………… 12,000
GST recoverable…………………………………………………………………………. 1,000
GST payable………………………………………………………………………………. 1,400
Sales…………………………………………………………………………………………. 250,000
Sales returns & allowances………………………………………………………….. 14,000
Cost of goods sold………………………………………………………………………. 140,000
Rent expense……………………………………………………………………………… 16,000
Salaries expense………………………………………………………………………… 21,000 _______
$415,400 $415,400
Instructions
Prepare the end of the year closing journal entries.
Dec 31 Sales…………………………………………………………………………… 250,000
Income Summary…………………………………………………… 250,000
To close credit balance account.
31 Income Summary…………………………………………………………. 191,000
Sales Returns and Allowances………………………………… 14,000
Cost of Goods Sold………………………………………………… 140,000
Rent Expense……………………………………………………….. 16,000
Salaries Expense…………………………………………………… 21,000
To close accounts with debit balances
31 Income Summary…………………………………………………………. 59,000
To close income summary to capital
31 J. Small, Capital……………………………………………………………. 20,000
To close drawings account to capital
Bloomcode: Application
Difficulty: Easy
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
Exercise 20
The adjusted trial balance of Singh Company includes the following income statement accounts:
Debit Credit
Sales…………………………………………………………………………………………. $550,000
Sales Returns and Allowances……………………………………………………… $ 27,000
Cost of Goods Sold……………………………………………………………………… 346,400
Freight-out………………………………………………………………………………….. 2,000
Advertising Expense……………………………………………………………………. 15,000
Rent Expense…………………………………………………………………………….. 19,000
Store Salaries Expense……………………………………………………………….. 45,000
Utilities Expense…………………………………………………………………………. 18,000
Depreciation Expense………………………………………………………………….. 7,500
It also includes the following accounts:
Debit Credit
Merchandise Inventory………………………………………………………………… $42,000
Singh Company uses a perpetual inventory system.
Instructions
Prepare the closing entries for the Singh Company.
Dec 31 Sales…………………………………………………………………………… 550,000
Income Summary…………………………………………………… 550,000
31 Income Summary…………………………………………………………. 479,900
Sales Returns and Allowances………………………………… 27,000
Cost of Goods Sold………………………………………………… 346,400
Freight-out…………………………………………………………….. 2,000
Store Salaries Expense………………………………………….. 45,000
Rent Expense……………………………………………………….. 19,000
Advertising Expense………………………………………………. 15,000
Utilities Expense……………………………………………………. 18,000
Depreciation Expense…………………………………………….. 7,500
31 Income Summary…………………………………………………………. 70,100
31 M. Singh, Capital………………………………………………………….. 38,000
Bloomcode: Application
Difficulty: Easy
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
Exercise 21
The following is a random list of the accounts and their balances for Gordon Auto Sales (a proprietorship owned by A. Gordon) on December 31, 2017. The company uses a perpetual inventory system.
Accounts Payable……………………………………………………………………….. $ 426,000
Inventory……………………………………………………………………………………. 652,500
Sales…………………………………………………………………………………………. 2,500,000
Interest Expense…………………………………………………………………………. 2,500
Salary Expense…………………………………………………………………………… 275,000
Cost of Goods Sold……………………………………………………………………… 1,950,000
Cash………………………………………………………………………………………….. 53,000
Accounts Receivable…………………………………………………………………… 8,000
A physical count of inventory on December 31, 2017 reveals $671,575 on hand.
Instructions
a)
Inventory ($671,575 − $652,500)…………………………………………………… 19,075
Cost of Goods Sold……………………………………………………………….. 19,075
b)
Sales…………………………………………………………………………………………. 2,500,000
Income Summary………………………………………………………………….. 2,500,000
Income Summary………………………………………………………………………… 2,208,425
Interest Expense…………………………………………………………………… 2,500
Salary Expense…………………………………………………………………….. 275,000
Cost of Goods Sold ($1,950,000 − $19,075)…………………………….. 1,930,925
Income Summary ($2,500,000 − $2,208,425)…………………………………. 291,575
GORDON AUTO SALES
Post-closing Trial Balance
December 31, 2017
Debit Credit
Cash………………………………………………………………………………………….. $ 53,000
Accounts Receivable…………………………………………………………………… 8,000
Inventory……………………………………………………………………………………. 671,575
Accounts Payable……………………………………………………………………….. $426,000
Totals…………………………………………………………………………………… $732,575 $732,575
*($35,000 + $291,575 – $20,000) = $306,575
Bloomcode: Application
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
Fahar Company has a current inventory balance of $864,200.
Instructions
Prepare the ending inventory adjustment required assuming a year-end inventory account revealed the following balance:
Solution 22
a)
Cost of Goods Sold……………………………………………………………………… 1,700
Inventory……………………………………………………………………………… 1,700
(864,200 – 862,500)
b)
Inventory……………………………………………………………………………………. 58,400
Cost of Goods Sold……………………………………………………………….. 58,400
(922,600 – 864,200)
Bloomcode: Application
Difficulty: Easy
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
Fahar Company has an inventory balance of $903,950 on December 31, 2017. During 2018 Fahar purchased merchandise for $97,500 and sold merchandise that had a cost of $714,220.
Instructions
Solution 23
a)
Inventory……………………………………………………………………………………. 10,500
Cost of Goods Sold……………………………………………………………….. 10,500
(914,450 – 903,950)
b)
First, calculate balance in Inventory account.
Opening balance…………………………………………………………………………. $914,450
Purchases………………………………………………………………………………….. 97,500
Cost of Goods Sold……………………………………………………………………… (714,220)
Inventory balance………………………………………………………………………… 297,730
Cost of Goods Sold……………………………………………………………………… 5,360
Inventory……………………………………………………………………………… 5,360
(297,730 – 292,370)
Bloomcode: Application
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
Exercise 24
Using a perpetual inventory system, state the missing items identified by?.
Bloomcode: Application
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
Exercise 25
Two items are missing in each of the following columns and are identified by a letter.
Sales…………………………………………………………………………………………. $ a) $900,000
Sales returns and allowances……………………………………………………….. 22,000 35,000
Net sales……………………………………………………………………………………. 490,000 c)
Cost of goods sold………………………………………………………………………. 240,000 610,000
Gross profit…………………………………………………………………………………. b) d)
Instructions
Assuming the company uses a perpetual inventory system, calculate the missing amounts and identify them by letter.
Bloomcode: Application
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
The adjusted account balances of Johanna Ltd., at December 31, 2017, are as follows:
Accounts receivable………………….. 6,000 Bank overdraft……………………. $ 2,300
Notes receivable……………………….. 6,000 Accounts payable……………….. 11,000
Inventory………………………………….. 17,600 Notes payable…………………….. 56,800
Equipment……………………………….. 74,000 Accumulated depreciation—
Depreciation expense……………….. 22,900 equipment……………………….. 9,200
Maintenance expense……………….. 2,200 Rent revenue……………………… 10,000
Sales discounts………………………… 3,300 J. Johanna, capital…………………… 18,000
Cost of goods sold…………………….. 20,000
Sales returns and allowances…….. 1,800 ________
$169,800 $169,800
a)
JOHANNA LTD.
Income Statement (Multi-Step)
For the Year Ended December 31, 2017
Sales revenue
Sales…………………………………………………………………………………… $62,500
Less: Sales returns and allowances………………………………………. $1,800
Sales discounts………………………………………………………….. 3,300 5,100
Net sales……………………………………………………………………………… 57,400
Cost of goods sold………………………………………………………………………. 20,000
Gross profit…………………………………………………………………………………. 37,400
Operating expenses
Depreciation expense……………………………………………………………. 22,900
Maintenance expense……………………………………………………………. 2,200
Total operating expenses………………………………………………… 25,100
Profit from operations…………………………………………………………………… 12,300
Other revenues
Rent revenue………………………………………………………………………… 10,000
Profit………………………………………………………………………………………….. $ 22,300
b)
Dec 31 Sales…………………………………………………………………………. 62,500
Rent Revenue……………………………………………………………. 10,000
Income Summary………………………………………………… 72,500
To close revenue account to income summary
31 Income Summary………………………………………………………. 50,200
Depreciation Expense…………………………………………… 22,900
Maintenance Expense………………………………………….. 2,200
Sales Discounts…………………………………………………… 3,300
Cost of Goods Sold………………………………………………. 20,000
Sales returns and allowances………………………………… 1,800
To close expense accounts to income summary
31 Income Summary………………………………………………………. 22,300
To close income summary to owner’s capital
31 J. Johanna, Capital…………………………………………………….. 16,000
To close drawings to capital
c)
JOHANNA LTD.
Post-Closing Trial Balance
December 31, 2017
Accounts receivable………………….. 6,000 Bank overdraft……………………. $ 2,300
Notes receivable……………………….. 6,000 Accounts payable……………….. 11,000
Inventory………………………………….. 17,600 Notes payable…………………….. 56,800
Equipment……………………………….. 74,000 Accumulated depreciation—
machinery 9,200
$103,600 $103,600
Bloomcode: Application
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
Exercise 27
Raji’s Hardware’s trial balance for the year ended December 31, 2017 is provided below. Raji’s uses the perpetual inventory system. A count of the inventory on hand shows the actual amount on hand is $26,500. All other year-end adjusting entries have been made.
RAJI’S HARDWARE
Trial Balance
December 31, 2017
Cash………………………………………………………………………………………….. $ 3,500
Accounts receivable…………………………………………………………………….. 9,250
Merchandise inventory…………………………………………………………………. 26,100
Long-term investment………………………………………………………………….. 10,000
Accounts payable………………………………………………………………………… $ 11,100
Interest payable…………………………………………………………………………… 100
Note payable, due 2020……………………………………………………………….. 5,000
Sales………………………………………………………………………………………….. 195,000
Sales returns and allowances……………………………………………………….. 620
Sales discounts…………………………………………………………………………… 300
Cost of goods sold……………………………………………………………………….. 122,500
Salaries expense…………………………………………………………………………. 26,000
Advertising expense…………………………………………………………………….. 4,500
Rent expense……………………………………………………………………………… 12,600
Interest expense………………………………………………………………………….. 100 _______
$221,470 $221,470
Instructions
Solution 27 (30 min.)
a)
Dec 31 Merchandise Inventory ($26,500 – $26,100)…………………….. 400
Cost of Goods Sold………………………………………………… 400
b)
Dec 31 Sales……………………………………………………………………………. 195,000
Income Summary…………………………………………………… 195,000
Income Summary…………………………………………………………. 166,220
Sales Returns and Allowances………………………………… 620
Sales discounts………………………………………………………. 300
Cost of Goods Sold ($122,500 – $400)……………………… 122,100
Salaries Expense……………………………………………………. 26,000
Advertising Expense……………………………………………….. 4,500
Rent Expense………………………………………………………… 12,600
Interest Expense…………………………………………………….. 100
Income Summary…………………………………………………………. 28,780
c)
RAJI’S HARDWARE
Income Statement
Year Ended December 31, 2017
Sales revenue
Sales……………………………………………………………………………….. $195,000
Less: Sales returns and allowances………………………………….. $ 620
Sales discounts……………………………………………………… 300 920
Net sales………………………………………………………………………….. $194,080
Cost of goods sold……………………………………………………………………….. 122,100
Gross profit…………………………………………………………………………………. 71,980
Operating expenses
Salaries expense………………………………………………………………. $26,000
Rent expense…………………………………………………………………… 12,600
Advertising expense………………………………………………………….. 4,500 43,100
Profit from operations…………………………………………………………………… 28,880
Non-operating expenses
Other expenses
Interest expense……………………………………………………………….. 100
Profit………………………………………………………………………………………….. $ 28,780
Bloomcode: Application
Difficulty: Hard
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
Exercise 28
The following information is taken from the General Ledger of Ben’s BMX Bikes at September 30, 2017:
Accounts payable…………………………………… $ 3,900
Accounts receivable…………………………………… 2,150
Cash…………………………………………………………. 1,180
Cost of goods sold……………………………………. 45,800
Freight-out expense……………………………………. 1,000
Insurance expense……………………………………….. 720
Merchandise inventory……………………………….. 5,800
Rent expense…………………………………………….. 4,800
Salaries expense……………………………………… 12,620
Sales revenue………………………………………….. 68,500
Sales returns and allowances………………………… 250
A physical count of the inventory indicates that the actual amount on hand is $5,450. Ben’s uses the perpetual inventory system.
Instructions
Solution 28 (20 min.)
a)
Sep 30 Cost of Goods Sold ($5,800 – $5,450)…………………………….. 350
Merchandise Inventory……………………………………………. 350
b)
Sep 30 Sales Revenue……………………………………………………………… 68,500
Income Summary…………………………………………………… 68,500
30 Income Summary…………………………………………………………. 65,540
Cost of Goods Sold ($45,800 + $350)……………………….. 46,150
Freight-out Expense……………………………………………….. 1,000
Insurance Expense…………………………………………………. 720
Rent Expense………………………………………………………… 4,800
Salaries Expense……………………………………………………. 12,620
Sales Returns and Allowances…………………………………. 250
30 Income Summary ($68,500 – $65,540)……………………………. 2,960
30 B. Toews, Capital………………………………………………………….. 5,000
c)
BEN’S BMX BIKES
Post-closing Trial Balance
September 30, 2014
Debit Credit
Cash………………………………………………………………………………………….. $ 1,180
Accounts receivable…………………………………………………………………….. 2,150
Merchandise inventory…………………………………………………………………. 5,450
Accounts payable………………………………………………………………………… $ 3,900
$ 8,780 $ 8,780
d)
BEN’S BMX BIKES
Income Statement
Year Ended September 30, 2017
Sales revenue
Sales……………………………………………………………………………….. $68,500
Less: Sales returns and allowances……………………………………. 250 $68,250
Cost of goods sold……………………………………………………………………….. 46,150
Gross profit…………………………………………………………………………………. 22,100
Operating expenses
Salaries expense………………………………………………………………. $12,620
Rent expense…………………………………………………………………… 4,800
Freight-out expense………………………………………………………….. 1,000
Insurance expense……………………………………………………………. 720 19,140
Profit………………………………………………………………………………………….. $ 2,960
Bloomcode: Application
Difficulty: Hard
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
Exercise 29
Financial information is provided for three different businesses:
Company A Company B Company C
Sales……………………………………………………………………… $45,000 $18,200 i)
Sales returns and allowances…………………………………………. 350 e) 1,200
Net sales…………………………………………………………………………. a) 18,095 119,100
Cost of goods sold……………………………………………………………. b) 10,100 j)
Gross profit………………………………………………………………. 17,650 f) 61,100
Operating expenses………………………………………………….. 10,000 5,000 k)
Profit from operations……………………………………………………….. c) g) l)
Other income…………………………………………………………………… d) 1,200 3,500
Profit……………………………………………………………………….. $8,150 h) $16,000
Instructions
Calculate the missing amounts.
Solution 29 (10 min.)
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
Exercise 30
Poland Company gathered the following condensed data for the year ended December 31, 2017:
Cost of goods sold……………………………………………………………………….. $ 684,000
Net sales………………………………………………………………………………………. 1,250,000
Operating expenses…………………………………………………………………………. 284,000
Interest expense………………………………………………………………………………… 58,000
Dividend revenue……………………………………………………………………………….. 38,000
Loss from employee strike………………………………………………………………… 233,000
The company uses a perpetual inventory system.
Instructions
Prepare a single-step income statement in good form.
POLAND COMPANY
Income Statement
Year Ended December 31, 2017
Revenues
Net sales……………………………………………………………………………… $1,250,000
Dividend revenue………………………………………………………………….. 38,000
Total revenues……………………………………………………………….. 1,288,000
Expenses
Cost of goods sold………………………………………………………………… $684,000
Operating expenses………………………………………………………………. 284,000
Interest expense…………………………………………………………………… 58,000
Loss from employee strike……………………………………………………… 233,000
Total expenses……………………………………………………………….. 1,259,000
Profit………………………………………………………………………………………….. $ 29,000
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
Exercise 31
Kingbridge Range Company has sales in 2017 of $2,650,000. During the year, the company had $50,000 in sales returns and $30,000 in sales discounts. The cost of these sales was $1,800,000. Operating expenses excluding salaries and wages were $150,000 and salaries and wages incurred during the year were $300,000. Kingbridge uses a perpetual inventory system.
Instructions
Prepare a multiple-step income statement for Kingbridge Range Company for the year ended December 31, 2017.
KINGBRIDGE RANGE COMPANY
Income Statement
Year Ended December 31, 2017
Sales revenue
Sales…………………………………………………………………………………… $2,650,000
Less: Sales returns and allowances………………………………………. $50,000
Sales discounts………………………………………………………….. 30,000 80,000
Net sales……………………………………………………………………………… 2,570,000
Cost of goods sold………………………………………………………………………. 1,800,000
Gross profit…………………………………………………………………………………. 770,000
Operating expenses
Salaries and wages……………………………………………………………….. $300,000
Other operating expenses……………………………………………………… 150,000
Total operating expenses………………………………………………… 450,000
Profit………………………………………………………………………………………….. $ 320,000
Bloomcode: Application
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
Exercise 32
The adjusted trial balance of Cochrane Company includes the following accounts:
Debit Credit
Sales…………………………………………………………………………………………. $595,000
Sales Returns and Allowances……………………………………………………… $ 47,000
Cost of Goods Sold……………………………………………………………………… 371,400
Salaries Expense………………………………………………………………………… 47,000
Advertising Expense……………………………………………………………………. 10,000
Rent Expense……………………………………………………………………………… 18,000
Freight-out………………………………………………………………………………….. 7,000
Utilities Expense………………………………………………………………………….. 12,000
Depreciation Expense………………………………………………………………….. 12,500
Interest Revenue…………………………………………………………………………. 4,000
Loss Due to Vandalism………………………………………………………………… 3,000
The company uses a perpetual inventory system.
Instructions
Prepare a multiple-step income statement for the year ended December 31, 2017.
COCHRANE COMPANY
Income Statement
Year Ended December 31, 2017
Sales revenues
Sales…………………………………………………………………………………………. $595,000
Less: Sales returns and allowances………………………………………………. 47,000
Net sales……………………………………………………………………………………. 548,000
Cost of goods sold………………………………………………………………………. 371,400
Gross profit…………………………………………………………………………………. 176,600
Operating expenses
Salaries expense………………………………………………………………. $47,000
Advertising expense………………………………………………………….. 10,000
Rent expense…………………………………………………………………… 18,000
Freight-out……………………………………………………………………….. 7,000
Utilities expense……………………………………………………………….. 12,000
Depreciation expense……………………………………………………….. 12,500 106,500
Profit from operations…………………………………………………………………… 70,100
Other revenues and gains
Interest revenue……………………………………………………………….. $4,000
Other expenses
Loss due to vandalism………………………………………………………. 3,000
Net non-operating revenue………………………………………………… 1,000
Profit………………………………………………………………………………………….. $ 71,100
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
Exercise 33
Financial information is presented here for two companies:
Pippy Company Hum Company
Sales…………………………………………………………………………………. $90,000 ?
Sales Returns…………………………………………………………………….. ? $5,000
Net Sales…………………………………………………………………………… 81,000 95,000
Cost of Goods Sold…………………………………………………………….. 56,000 ?
Gross profit………………………………………………………………………… ? 38,000
Operating Expenses……………………………………………………………. 15,000 ?
Profit…………………………………………………………………………………. ? 15,000
Instructions
a)
Pippy Company
Sales…………………………………………………………………………………. $90,000
*Sales returns…………………………………………………………………….. (9,000)
Net sales……………………………………………………………………………. $81,000
Net sales……………………………………………………………………………. $81,000
Cost of goods sold………………………………………………………………. (56,000)
*Gross profit……………………………………………………………………….. $25,000
Gross profit………………………………………………………………………… $25,000
Operating expenses…………………………………………………………….. (15,000)
*Profit………………………………………………………………………………… $10,000
Hum Company
*Sales………………………………………………………………………………… $100,000
Sales returns………………………………………………………………………. (5,000)
Net sales……………………………………………………………………………. $ 95,000
Net sales……………………………………………………………………………. $95,000
*Cost of goods sold……………………………………………………………… (57,000)
Gross profit………………………………………………………………………… $38,000
Gross profit………………………………………………………………………… $38,000
*Operating expenses…………………………………………………………… (23,000)
Profit…………………………………………………………………………………. $15,000
*Indicates missing amount
b)
Pippy Company Hum Company
Profit margin………………………… $10,000 ÷ $81,000 = 12.3% $15,000 ÷ $95,000 = 15.8%
Gross profit margin……………….. $25,000 ÷ $81,000 = 30.9% $38,000 ÷ $95,000 = 40.0%
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
Exercise 34
Presented below is the adjusted trial balance of Katie’s Pet Supplies as at its fiscal year end, June 30, 2017. All accounts are their normal balance (debit or credit). Katie’s uses the perpetual inventory system.
Accounts payable……………………… $ 34,850 K. Milani, Capital…………………. $ 50,770
Accounts receivable…………………….. 27,300 K. Milani, Drawings……………… 24,000
Accum. depreciation, computers……… 1,500 Long-term note receivable…… 14,000
Accum. depreciation, equipment……. 32,000 Merchandise inventory………… 55,000
Advertising expense………………………. 3,200 Note payable, due 2018………. 47,000
Cash…………………………………………….. 9,500 Prepaid rent……………………….. 1,500
Computers……………………………………. 4,500 Rent expense…………………….. 14,000
Cost of goods sold……………………… 195,000 Salaries expense………………… 46,800
Depreciation Expense……………………. 4,000 Salaries payable…………………. 6,200
Equipment…………………………………… 80,000 Sales discounts………………….. 100
Freight-out expense……………………….. 6,200 Sales returns and allowances. 1,000
Insurance expense………………………… 2,200 Sales revenue……………………. 320,000
Interest expense……………………………. 2,350 Supplies…………………………….. 900
Interest payable……………………………….. 280 Supplies expense……………….. 1,750
Interest revenue……………………………….. 700
Instructions
Solution 34 (30 min.)
a)
KATIE’S PET SUPPLIES
Income Statement
Year Ended June 30, 2017
Revenue
Sales revenue………………………………………………………………….. $ 320,000
Interest revenue……………………………………………………………….. 700 $320,700
Expenses
Cost of goods sold…………………………………………………………….. $195,000
Salaries expense………………………………………………………………. 46,800
Rent expense…………………………………………………………………… 14,000
Freight-out expense………………………………………………………….. 6,200
Depreciation expense……………………………………………………….. 4,000
Advertising expense………………………………………………………….. 3,200
Interest expense……………………………………………………………….. 2,350
Insurance expense……………………………………………………………. 2,200
Supplies expense……………………………………………………………… 1,750
Sales discounts………………………………………………………………… 100
Sales returns and allowances…………………………………………….. 1,000 276,600
Profit………………………………………………………………………………………….. $ 44,100
b)
KATIE’S PET SUPPLIES
Income Statement
Year Ended June 30, 2017
Revenue
Sales revenue………………………………………………………………………. $320,000
Less: Sales discounts………………………………………………………….. $ 100
Sales returns and allowances………………………………………. 1,000 1,100
318,900
Cost of goods sold……………………………………………………………………….. 195,000
Gross profit…………………………………………………………………………………. 123,900
Operating expenses
Salaries expense…………………………………………………………………… $46,800
Rent expense……………………………………………………………………….. 14,000
Freight-out expense………………………………………………………………. 6,200
Depreciation expense …………………………………………………………… 4,000
Advertising expense………………………………………………………………. 3,200
Insurance expense………………………………………………………………… 2,200
Supplies expense………………………………………………………………….. 1,750 78,150
Profit from operations…………………………………………………………………… 45,750
Other revenue
Interest revenue……………………………………………………………………. $ 700
Other expense
Interest expense……………………………………………………………………. (2,350)
Net non-operating revenue…………………………………………………….. (1,650)
Profit………………………………………………………………………………………….. $ 44,100
Katie’s gross profit margin has decreased from 2016 by 6%. This could be either because selling prices have declined, or because Katie is paying more for merchandise than in the prior year.
Bloomcode: Application
Difficulty: Hard
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
The adjusted account balances of Johanna Ltd., at December 31, 2017, are as follows:
Accounts receivable………………….. 6,000 Bank overdraft……………………. $ 2,300
Notes receivable……………………….. 6,000 Accounts payable……………….. 11,000
Inventory………………………………….. 17,600 Notes payable…………………….. 56,800
Equipment……………………………….. 74,000 Accumulated depreciation—
Depreciation expense……………….. 22,900 equipment……………………….. 9,200
Maintenance expense……………….. 2,200 Rent revenue……………………… 10,000
Sales discounts………………………… 3,300 J. Johanna, capital…………………… 18,000
Cost of goods sold…………………….. 20,000
Sales returns and allowances…….. 1,800 _______
$169,800 $169,800
Income Statement (Multi-Step)
For the Year Ended December 31, 2017
Sales revenue
Sales…………………………………………………………………………………… $62,500
Less: Sales returns and allowances………………………………………. $1,800
Sales discounts………………………………………………………….. 3,300 5,100
Net sales……………………………………………………………………………… 57,400
Cost of goods sold………………………………………………………………………. 20,000
Gross profit…………………………………………………………………………………. 37,400
Operating expenses
Depreciation expense……………………………………………………………. 22,900
Maintenance expense……………………………………………………………. 2,200
Total operating expenses………………………………………………… 25,100
Profit from operations…………………………………………………………………… 12,300
Other revenues
Rent revenue………………………………………………………………………… 10,000
Profit………………………………………………………………………………………….. $ 22,300
Profit Margin = $22,300 / $57,400 = 39%
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
Exercise 36
Kingbridge Range Company has sales in 2017 of $2,650,000. During the year, the company had $80,000 in sales returns. The cost of these sales was $1,800,000. Operating expenses excluding salaries and wages were $150,000 and salaries and wages incurred during the year were $300,000. Kingbridge uses a perpetual inventory system.
Instructions
Calculate Kingbridge Range Company’s gross profit margin and profit margin for 2017.
Gross profit margin = Gross profit ÷ Net sales = $770,000 ÷ $2,570,000 = 29.96%.
Profit margin = Profit ÷ Net sales = $320,000 ÷ $2,570,000 = 12.45%.
Bloomcode: Application
Difficulty: Hard
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
Exercise 37
Tantramar Shipbuilding Company had the following information available at its year end September 30, 2017. Accounts are listed in alphabetical order for the convenience of the bookkeeper.
Advertising Expense…………………………………………. 15,000
Cost of Goods Sold…………………………………………. 476,500
Depreciation Expense……………………………………….. 41,000
Freight-out…………………………………………………………. 7,500
Interest Revenue………………………………………………. 11,000
Office Salaries Expense…………………………………….. 65,000
Office Supplies…………………………………………………… 6,000
Office Supplies Expense……………………………………… 7,500
Sales……………………………………………………………… 750,000
Sales Discounts……………………………………………….. 12,800
Sales Returns & Allowances………………………………. 25,700
Instructions
Solution 37 (20 min.)
a)
Sales………………………………………………………………………………………….. $750,000
Sales Discounts……………………………………………………………………. 12,800
Sales Returns & Allowances…………………………………………………… 25,700
Net Sales……………………………………………………………………………………. 711,500
Cost of Goods Sold……………………………………………………………………… 476,500
Gross Profit………………………………………………………………………………… $235,000
Gross profit margin = Gross profit ÷ Net Sales = $235,000 ÷ $711,500= 33%.
b)
Operating Expenses
Advertising Expense……………………………………………………………… $15,000
Depreciation Expense……………………………………………………………. 41,000
Freight-out……………………………………………………………………………. 7,500
Office Salaries Expense…………………………………………………………. 65,000
Office Supplies Expense………………………………………………………… 7,500
136,000
Profit from Operations………………………………………………………………….. 99,000
Interest Revenue…………………………………………………………………………. 11,000
Profit………………………………………………………………………………………….. $110,000
Profit from Operations = $99,000
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
Exercise 38
Hernandez Clothing Store employs the perpetual inventory system and prepares monthly financial statements. All accounts have been adjusted except for merchandise inventory. A physical count of merchandise inventory on November 30, 2017, indicates that $21,000 was on hand. A partial listing of account balances follows:
Accounts Receivable……………………………………. $ 9,000
Merchandise Inventory…………………………………. 23,000
Commissions Expense…………………………………. 600
Sales Returns and Allowances………………………. 1,800
Freight-out………………………………………………….. 1,200
Cost of Goods Sold……………………………………… 31,000
Sales………………………………………………………….. 55,000
Instructions
a)
HERNANDEZ CLOTHING STORE
(Partial) Income Statement
Month Ended November 30, 2017
Sales revenues
Sales…………………………………………………………………………………… $55,000
Less: Sales returns and allowances………………………………………… 1,800
Net sales……………………………………………………………………………… $53,200
Cost of goods sold ($31,000 + $2,000)………………………………………….. 33,000
Gross profit…………………………………………………………………………………. $20,200
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
Exercise 39
The following information is taken from the financial statements of Down Home Deli for the last three years. The owner, John Walton is quite pleased to see that his sales are growing steadily.
2017 2016 2015
Sales……………………………………….. $ 61,500 $ 50,400 $ 42,000
Cost of goods sold…………………….. 27,670 21,170 16,800
Profit from operations………………… 7,530 6,050 4,620
Profit……………………………………….. 3,075 4,030 2,940
Instructions
Solution 39 (15 min.)
a)
| 2017 | 2016 | 2015 | |
| Gross profit margin | ($61,500 – $27,670) ÷ $61,500 = 55%
|
($50,400 – 21,170) ÷ $50,400 = 58% | ($42,000 – $16,800 ÷ $42,000 = 60% |
| Profit margin | ($ 3,075 ÷ $61,500) = 5.0% | ($4,030 ÷ $50,400) = 8.0% | ($2,940 ÷ $42,000) = 7.0% |
| Profit margin-operating | ($7,530 ÷ $61,500) = 12.2% | ($6,050 ÷ $50,400) = 12.0% | ($4,620 ÷ $42,000) = 11.0% |
Bloomcode: Application
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
*Exercise 40
The Cost of Goods Sold sections of three companies’ financial statements are provided below. All of the companies use the periodic inventory method.
A B C
Beginning inventory………………………………………….. $1,100 $90 $580
Purchases……………………………………………………… 105,000 e) 49,700
Purchase returns and allowances………………………… 3,500 110 750
Purchase discounts………………………………………………….. a) 65 230
Net purchases………………………………………………… 101,030 6,665 h)
Freight-in………………………………………………………………… b) f) 990
Cost of goods purchased…………………………………. 103,080 6,875 i)
Cost of goods available for sale…………………………………. c) g) j)
Ending inventory……………………………………………………… d) 125 840
Cost of goods sold………………………………………….. 102,400 6,840 k)
Instructions
Determine the missing amounts.
*Solution 40 (15 min.)
Bloomcode: Application
Difficulty: Hard
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
*Exercise 41
On January 1, University Supplies had an inventory of 30 MP3 Players at a cost of $80 each. The company uses a periodic inventory system. During January the following transactions occurred:
Jan 7 Purchased 60 MP3 players at $75 each from Digital Co. for cash.
9 Paid freight of $80 on the MP3 players purchased from Digital Co.
10 Returned two players to Digital Co. for $150 because they did not meet specifications.
12 Sold 26 MP3 players costing $80 (including freight) for $120 each, terms n/30.
14 Granted credit on account to customer of January 12 for $120 related to the return of one MP3 player.
Instructions
Journalize the January transactions.
Jan 7 Purchases (60 × $75)……………………………………………………. 4,500
Cash…………………………………………………………………….. 4,500
9 Freight-In……………………………………………………………………… 80
Cash…………………………………………………………………….. 80
10 Cash……………………………………………………………………………. 150
Purchase Returns and Allowances…………………………… 150
12 Accounts Receivable (26 × $120)…………………………………… 3,120
Sales…………………………………………………………………….. 3,120
14 Sales Returns and Allowances………………………………………. 120
Accounts Receivable………………………………………………. 120
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
*Exercise 42
Consider the information in Exercise 41. On January 31, a physical count revealed 64 MP3 players on hand: four at a cost of $80, and the remainder at a cost of $75.
Instructions
Calculate the cost of goods sold for January.
Inventory, January 1…………………………………………………………………….. $2,400
Purchases………………………………………………………………………………….. $4,500
Less: Purchase returns and allowances…………………………………………. 150
Net Purchases…………………………………………………………………………….. 4,350
Add: Freight-in…………………………………………………………………………….. 80
Cost of goods purchased……………………………………………………………… 4,430
Cost of goods available for sale…………………………………………………….. 6,830
Inventory, January 31 (4 × $80) + (60 × $75)………………………………….. 4,820
Cost of goods sold……………………………………………………………………….. $2,010
Bloomcode: Application
Difficulty: Hard
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
*Exercise 43
On October 1, Ki’s Bicycle Store had an inventory of 10 mountain bicycles at a cost of $150 each. During the month of October, the following transactions occurred:
Oct 3 Purchased 20 bicycles at a cost of $150 each from the Lyons Bicycle Company, terms n/30.
6 Sold 20 bicycles to Team Canada for $250 each, terms n/30.
7 Received credit from the Lyons Bicycle Company for the return of 2 defective bicycles.
13 Issued a credit to Team Canada for the return of a defective bicycle.
19 Purchased 10 BMX bicycles from Huffy Bicycle Company at a cost of $125 each, terms n/30.
20 Paid freight of $80 on the October 19 purchase.
Instructions
Prepare the journal entries to record the transactions assuming the company uses a periodic inventory system.
Oct 3 Purchases…………………………………………………………………… 3,000
Accounts Payable………………………………………………….. 3,000
6 Accounts Receivable…………………………………………………….. 5,000
Sales…………………………………………………………………….. 5,000
7 Accounts Payable…………………………………………………………. 300
Purchase Returns and Allowances…………………………… 300
13 Sales Returns and Allowances………………………………………. 250
Accounts Receivable……………………………………………… 250
19 Purchases…………………………………………………………………… 1,250
Accounts Payable………………………………………………….. 1,250
20 Freight-In……………………………………………………………………… 80
Cash…………………………………………………………………….. 80
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
*Exercise 44
Rebecca’s Equestrian Supplies sells riding saddles. On July 1, 2017, Rebecca had 9 saddles in inventory at a cost of $900 each. During July, the following transactions occurred:
Jul 1 Purchased 5 saddles at $900 each from North Country Equipment on account, terms net 30.
4 Returned 1 of the saddles purchased from North Country because it was defective.
9 Paid the balance due on the North Country account payable.
12 Sold 8 saddles for $1,250 each, terms n/30.
13 Paid freight of $250 on the July 12 sale.
16 Purchased 7 saddles from Anders Tack Suppliers for $900 each, terms n/30.
17 Sold 6 saddles for cash, $1,080 each.
19 Customer returned 2 of the saddles purchased on July 17. Provided a cash refund. The saddles were returned to inventory.
31 Counted the saddles on hand and determined the total cost of the remaining inventory was $7,100.
Instructions
*Solution 44 (20 min.)
a)
Jul 1 Purchases (5 × $900)…………………………………………………….. 4,500
Accounts Payable…………………………………………………… 4,500
4 Accounts Payable…………………………………………………………. 900
Purchase Returns and Allowances…………………………… 900
9 Accounts Payable ($4,500 – $900)………………………………….. 3, 600
Cash……………………………………………………………………… 3,600
12 Accounts Receivable (8 × $1,250)…………………………………… 10,000
Sales…………………………………………………………………….. 10,000
13 Freight-out Expense………………………………………………………. 250
Cash……………………………………………………………………… 250
16 Purchases (7 × $900)…………………………………………………….. 6,300
Accounts Payable…………………………………………………… 6,300
17 Cash (6 × $1,080)…………………………………………………………. 6,480
Sales ……………………………………………………………………. 6,480
19 Sales Returns and Allowances……………………………………….. 2,160
Cash……………………………………………………………………… 2,160
b)
Inventory, July 1, 2017 (9 × $900)…………………………………………………. $8,100
Purchases ($4,500 + $6,300)……………………………………………………….. $10,800
Less: Purchase returns and allowances…………………………………………. 900
Cost of goods purchased……………………………………………………………… 9,900
Cost of goods available for sale…………………………………………………….. 18,000
Inventory, July 31, 2017……………………………………………………………….. 7,100
Cost of goods sold……………………………………………………………………….. $ 10,900
c)
Sales ($10,000 + $6,480)……………………………………………………………… $16,480
Less: sales returns and allowances……………………………………………….. 2,160
Net sales…………………………………………………………………………………….. 14,320
Less: Cost of goods sold………………………………………………………………. 10,900
Gross profit…………………………………………………………………………………. $ 3,420
Gross profit margin = Gross profit ÷ Net Sales = $3,420 ÷ $14,320 = 23.9%.
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
*Exercise 45
Millwood Framing sells picture frames. On February 1, 2017, Millwood had 420 frames in inventory at a cost of $10.50 each. During February, the following transactions occurred:
Feb 2 Sold 355 frames on account for $24 each, terms 2/10 n/30.
4 Customer returned 20 of the frames, which were returned into inventory.
11 Customer paid the account in full.
15 Purchased 250 frames from Mitch’s Art Supplies at $10.50, terms n/30.
17 Freight of $600 on the purchase from Mitch’s was FOB destination and was paid by the appropriate party.
18 Sold 200 frames at $25 each for cash, providing a 5% cash discount to the customer.
19 Purchased 90 frames from Canada Wood Products for $10.71 each. Terms 2/10 net/30.
21 Returned 5 frames to Canada Wood Products because they were defective.
27 Paid the Canada Wood Products account within the discount period.
28 Counted the remaining inventory and determined that it has a value of $2,365.
Instructions
*Solution 45 (25 min.)
Feb 2 Accounts Receivable (355 × $24)…………………………………… 8,520
Sales…………………………………………………………………….. 8,520
4 Sales Returns and Allowances (20 × $24)……………………….. 480
Accounts Receivable………………………………………………. 480
11 Cash ($8,040 – $161)…………………………………………………… 7,879
Sales Discounts ($8,040 × 2%)………………………………………. 161
Accounts Receivable ($8,520 – $480)………………………. 8,040
15 Purchases (250 × $10.50)……………………………………………… 2,625
Accounts Payable…………………………………………………… 2,625
17 No entry. Freight is paid by Mitch’s.
18 Cash……………………………………………………………………………. 4,750
Sales Discounts ($5,000 × 5%)………………………………… 250
Sales (200 × $25)…………………………………………………… 5,000
19 Purchases (90 × $10.71)……………………………………………….. 964
Accounts Payable…………………………………………………………. 964
21 Accounts Payable (5 × $10.71)………………………………………. 54
Purchase returns and allowances…………………………….. 54
27 Accounts Payable ($964 – $54)………………………………………. 910
Purchase Discounts [($964 − $54) × 2%]………………….. 18
Cash ($910 – $18)………………………………………………….. 892
b)
Inventory, Feb 1, 2017 (420 × $10.50)…………………………………………… $4,410
Purchases ($2,625 + $964)………………………………………………………….. $3,589
Less: purchase discounts……………………………………………………………… (18)
Less: Purchase returns and allowances…………………………………………. (54)
Cost of goods purchased……………………………………………………………… 3,517
Cost of goods available for sale…………………………………………………….. 7,927
Inventory, Feb 28, 2017……………………………………………………………….. 2,365
Cost of goods sold……………………………………………………………………….. $5,562
c)
Sales ($8,520 + $5,000)……………………………………………………………….. $13,520
Less: Sales discount (161+250)……………………………………………………. (411)
Less: sales returns and allowances……………………………………………….. (480)
Net sales…………………………………………………………………………………….. 12,629
Less: Cost of goods sold………………………………………………………………. 5,562
Gross profit…………………………………………………………………………………. $ 7.067
Gross profit margin = Gross profit ÷ Net Sales = $7,067 ÷ $12,629 = 55.9%.
Bloomcode: Application
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
Exercise 46
Carter Company purchases and resells various electronics to consumers. Listed below are the transactions for the month of September. Carter has a beginning inventory balance of $5,900 at September 1.
Sep 1 Purchased $11,000 of merchandise inventory; terms 1/15, n/30.
7 Purchased for cash $9,900 of merchandise inventory.
9 Contacted a major supplier to place an order for $55,000 to be shipped on October 31.
10 Purchased $16,500 of merchandise inventory; terms 2/15, n/45.
11 Purchased $2,700 of office supplies; terms n/15.
15 Paid for the merchandise purchased on September 1.
18 Paid for the office supplies purchased on September 11.
Oct 20 Paid for the September 10 purchase.
Instructions
Solution 46 (15 min.)
a)
Sep 1 Purchases……………………………………………………………………. 11,000
Accounts Payable ………………………………………………….. 11,000
7 Purchases……………………………………………………………………. 9,900
Cash…………………………………………………………………….. 9,900
9 No entry required.
10 Purchases……………………………………………………………………. 16,500
Accounts Payable ………………………………………………….. 16,500
11 Office Supplies…………………………………………………………….. 2,700
Accounts Payable…………………………………………………… 2,700
15 Accounts Payable…………………………………………………………. 17,000
Cash…………………………………………………………………….. 16,890
Purchase Discounts ($11,000 x 1%)………………………… 110
18 Accounts Payable…………………………………………………………. 2,700
Cash…………………………………………………………………….. 2,700
Oct 20 Accounts Payable…………………………………………………………. 16,500
Cash…………………………………………………………………….. 16,500
Sep 30 Income Summary…………………………………………………………. 5,900
Inventory ………………………………………………………………. 5,900
Inventory……………………………………………………………………… 41,500
Income Summary…………………………………………………… 41,500
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
Exercise 47
Jan Jenga Company manufactures and sells various kids toys. Listed below are the transactions for the month of September:
Sep 2 Sold merchandise on account for $2,100; terms 2/10, n/30, FOB destination.
7 Paid $225 in cash to ship the merchandise sold on September 2.
9 The customer of September 2 returned half of the amount purchased because it was the incorrect product; it was returned to inventory.
15 Sold merchandise to a customer on account for $3,800; terms 2/10, n/30, FOB destination.
16 Collected the amount owing from the customer of September 2.
19 Sold merchandise to a customer for cash of $1,200.
22 The customer of September 15 paid the amount owing.
Instructions
Solution 47 (15 min.)
a)
Sep 2 Accounts Receivable…………………………………………………….. 2,100
Sales ……………………………………………………………………. 2,100
7 Freight-out……………………………………………………………………. 225
Cash…………………………………………………………………….. 225
9 Sales Returns and Allowances ($2,100 x 50%)………………… 1,050
Accounts Receivable………………………………………………. 1,050
15 Accounts Receivable…………………………………………………….. 3,800
Sales…………………………………………………………………….. 3,800
16 Cash ($2,100 – $1,050)…………………………………………………. 1,050
Accounts Receivable………………………………………………. 1,050
19 Cash……………………………………………………………………………. 1,200
Sales…………………………………………………………………….. 1,200
20 Cash……………………………………………………………………………. 3,724
Sales Discount ($3,800 × 2%)………………………………………… 76
Accounts Receivable ……………………………………………… 3,800
Sep 30 Income Summary…………………………………………………………. 35,250
Inventory……………………………………………………………….. 35,250
Inventory……………………………………………………………………… 29,900
Income Summary…………………………………………………… 29,900
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
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CHAPTER 5
In a periodic inventory system, only one journal entry is made to record a sale of merchandise. Cost of goods sold is not recorded at the time of the sale. Instead, it is calculated as follows at the end of the period after the ending inventory has been counted: Beginning inventory + cost of goods purchased = cost of goods available for sale. Cost of goods available for sale − ending inventory = cost of goods sold.
1) A retail company and a service company have different ways of measuring profit.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
2) A service company will NOT have to measure gross profit.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
3) Operating expenses will only occur in a merchandising company.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
4) An operating cycle is the average time that it takes to go from cash to cash in producing revenues.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
5) The normal operating cycle of a merchandising company is shorter than the cycle of a service company.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
6) Goods available for sale can be defined as inventory.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
7) Goods that have been sold in a merchandising company are called cost of goods sold.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
8) Service revenue minus operating expenses equals gross profit.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
9) The operating expenses of a merchandising company will be different than the operating expenses of a service company.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
10) A periodic system of inventory will give the company much more control over their inventory.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
11) A perpetual inventory system makes it easier for the company to answer questions about the availability of merchandise.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
12) A physical count of the inventory system at year end is only required in the periodic system of inventory.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
13) In a periodic inventory system, detailed records of the goods on hand are kept throughout the period.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
14) A perpetual inventory system requires the company only determine the cost of goods sold at the end of the accounting period.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
15) In the perpetual system of inventory, the account Merchandise Inventory is debited when merchandise is purchased for resale to customers.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
16) A quantity discount is a reduction in price based on the number of items purchased.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
17) A quantity discount is the same as a purchase discount.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
18) Purchase discounts are offered to customers for the early payment of the balance due.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
19) Every seller offers purchase discounts.
Answer: False
Bloomcode: Knowledge
Difficulty: Hard
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
20) If sales terms are FOB destination, the buyer is responsible for getting the goods to their intended destination.
Answer: False
Bloomcode: Knowledge
Difficulty: Hard
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
21) FOB shipping point means that the seller is responsible for the freight costs.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
22) If a company purchases goods FOB shipping point, the purchasing company will be responsible for the payment of the freight costs.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
23) Freight costs are always a separate cost to the purchasing company.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
24) When a company returns merchandise to its supplier under a perpetual inventory system, the inventory account will be debited.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
25) Under a perpetual inventory system, any freight which is incurred when purchasing the inventory is debited to the inventory account.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
26) In a perpetual system, there are two journal entries when making a sale of goods.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
27) The perpetual system requires a second journal entry, increasing cost of goods sold and decreasing merchandise inventory when goods are sold.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
28) A Sales Returns and Allowances account is only used in a perpetual inventory system.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
29) A large balance in the Sales Returns and Allowances account may indicate that the merchandise which is being sold is of inferior quality.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
30) The Sales Returns and Allowances account is a contra revenue account.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
31) The Sales Discount account is a contra revenue account.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
32) Sales discounts are only used in a perpetual inventory system.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
33) There are additional steps required in the accounting cycle for a merchandising company than for a service company.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
34) A single-step income statement is named because there is only one step in determining profit.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
35) A single-step income statement is only done when using the periodic inventory system.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
36) A single-step income statement is considered more useful because it provides a detailed breakdown of all the categories of expenses.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
37) A multiple-step income statement is consistent with International Financial Reporting Standards.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
38) The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
39) In a multiple-step income statement, operating expenses are deducted from gross profit to give the profit from operations.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
40) If gross profit is $80,000 and operating expenses are $55,000, then the profit from operations is $25,000.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
41) Non-operating expenses are any expenses which are not related to the company’s main operations.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
42) Profit is the final outcome of a company’s operating and non-operating activities.
Answer: True
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
43) If there are no “non-operating” activities, then profit from operations equals the company’s profit.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
44) Gross profit is NOT presented on the single-step income statement.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
45) Gross profit margin is calculated by dividing cost of goods sold by net sales.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
46) Gross profit margin is net sales divided by cost of goods sold.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
47) To increase their gross profit margin, a company could increase their sales.
Answer: True
Bloomcode: Comprehension
Difficulty: Hard
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
48) To increase their gross profit margin, a company could decrease their cost of goods sold.
Answer: True
Bloomcode: Comprehension
Difficulty: Hard
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
49) To increase their gross profit margin, a company could decrease their operating expenses.
Answer: False
Bloomcode: Comprehension
Difficulty: Hard
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
50) An increase in a company’s gross profit will mean an increase in gross profit margin.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
51) Gross profit margin is an example of a liquidity ratio.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
52) An increase in sales will always increase a company’s gross profit margin.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
53) A decrease in cost of goods sold will always increase a company’s gross profit margin.
Answer: False
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
54) An increase in profit when accompanied with a decrease in net sales will increase profit margin.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
55) A company can improve its profit margin by increasing its gross profit margin.
Answer: True
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
56) Artist Company has net sales of $350,000 and cost of goods sold is $275,000. If all other expenses equal $40,000, the company’s profit margin is 10%.
Answer: True
Bloomcode: Application
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
57) In a periodic inventory system, detailed records of each inventory purchase are maintained.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
58) Under a periodic inventory system, the inventory account is updated when the sale is recorded.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
59) When a company returns merchandise to its supplier under a periodic inventory system, the Purchases account is credited.
Answer: False
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
60) In the periodic system of accounting, the cost of goods sold is not recorded at the time of sale of goods.
Answer: True
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
61) Purchases is a temporary account reported on the income statement as an expense.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
62) Cost of goods sold, in a periodic inventory system, is determined by adding the cost of goods purchased to the ending inventory.
Answer: False
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
63) Net purchases is determined by adding purchase returns and allowances to total purchases.
Answer: False
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
64) Cost of goods available for sale, in a periodic inventory system, is deducted from beginning inventory to determine cost of goods purchased.
Answer: True
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
65) A company which sells goods to customers is known as a
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
66) Which of the following companies would NOT be considered a merchandising company?
Answer: c
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
67) A merchandiser differs from a service type business in that it
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
68) Two categories of expenses in merchandising companies are
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
69) Which of the following represents the function of the wholesaler?
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
70) Which of the following represents the function of the retailer?
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
71) Which of the following statements is correct?
Answer: a
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
72) Sales revenue less the cost of goods sold equals
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
73) In a periodic inventory system, the inventory is adjusted
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
74) If a company determines cost of goods sold each time a sale occurs, it
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
75) The operating cycle of a merchandising company differs from that of a service company in that it
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
76) When contrasting a perpetual inventory system to a periodic system, the
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
77) Operating expenses are
Answer: c
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
78) Which of the following statements is correct?
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
79) Which of the following is a true statement about inventory systems?
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Describe the differences between service and merchandising companies.
Section Reference: Merchandising Operations
CPA: Financial Reporting
80) The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
81) Under a perpetual inventory system, acquisition of merchandise for resale is debited to the
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
82) In a perpetual inventory system, cost of goods sold is recorded
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
83) Under a perpetual inventory system, the following entry would be made to record the purchase of inventory on account:
Accounts Payable……………………………………………………………….. xxx
Accounts Payable……………………………………………………………….. xxx
Accounts Payable……………………………………………………………….. xxx
Accounts Receivable…………………………………………………………… xxx
Answer: a
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
84) Under a perpetual inventory system, the following entry would be made to record the return of merchandise purchased on account:
Purchases…………………………………………………………………………. xxx
Merchandise Inventory………………………………………………………… xxx
Purchase Returns and Allowances……………………………………….. xxx
Cost of Goods Sold…………………………………………………………….. xxx
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
85) In a perpetual inventory system, a merchandiser will record the purchase of individual inventory items in a (an) ______ account.
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
86) The detailed individual data from the inventory subsidiary ledger are summarized in the
Answer: c
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
87) In a perpetual inventory system, the entry to record the purchase of merchandise inventory on account would require a
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
88) Sackville Company purchased merchandise from Amherst Company with freight terms of FOB shipping point. The freight costs will be paid by the
Answer: b
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
89) Woodpoint Company purchased merchandise from Rockport Company with freight terms of FOB destination point. The freight costs will be paid by the
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
90) Using a perpetual inventory system, the cost of freight in
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
91) Wright Company recently made a $10,000 purchase from a major supplier. Shipping costs were $200, terms FOB shipping point. To record this purchase, Wright Company will need to debit the
Answer: c
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
92) Westcock Company recently made a $20,000 purchase from a major supplier. Shipping costs were $400, terms FOB destination point. To record this purchase, Westcock Company will need to debit the
Answer: a
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
93) If a purchaser returns goods purchased on account to the supplier under a perpetual inventory system, the purchaser would debit
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
94) Which of the following best represents the journal entry to record the return of goods purchased on account under a perpetual inventory system?
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
95) In a perpetual inventory system, a separate account is maintained for each separate inventory item. These separate accounts are referred to as
Answer: b
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
96) Selling terms 2/10, net 30 indicates which of the following?
Answer: c
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
97) The term n/30 means
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
98) If a company purchases inventory for $160,000 with terms 2/10 n/30 and pays within the discount period, the amount of cash paid is
Answer: c
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
99) Bendo Company receives a discount from its largest supplier for each order that exceeds 100 units. This discount is referred to as a
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
100) FOB means
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
101) A company buys merchandise costing $25,000 with terms of 2/10 n/30. The adjustment to the Merchandise Inventory account, assuming the discount is taken, will be
Answer: c
Bloomcode: Application
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
102) A company makes a purchase for $250 on December 1, terms 2/10 n/30. How much will the discount be if the amount is paid on December 16?
Answer: b
Bloomcode: Application
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
103) Harvest Company has an offer to purchase 100 seeds for $100, 200 seeds for $150 or 300 seeds for $175. This offer includes a(n)
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
CPA: Financial Reporting
104) GST/HST paid on the purchase of inventory is
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
105) The Sales Returns and Allowances account is classified as
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
106) Which of the following best represents the journal entry to record the return of goods sold to customers on account?
Answer: a
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
107) The Sales Discounts account is classified as
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
108) As an incentive for customers to purchase a large number of items at one time, a business may offer its customers
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
109) As an incentive for customers to pay their accounts promptly, a business, in certain industries, may offer its customers
Answer: a
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
110) A purchase return in a perpetual inventory system requires a
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
111) Sales revenues are usually considered earned when
Answer: c
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
112) A sales invoice is a source document that
Answer: a
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
113) In a perpetual system, the required entry(ies) to record the sale of merchandise for $1,000 on credit for goods costing the company $600 would be
Answer: d
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
114) Freight costs incurred by the seller on outgoing merchandise are recorded as
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
115) Freight costs incurred by the seller on outgoing merchandise is shown on the income statement as part of
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
116) A Sales Returns and Allowances account is NOT debited if a customer
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
117) If a customer agrees to keep merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales
Answer: d
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
118) The HST collected on a sale of merchandise is recorded as
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
119) When goods are returned that relate to a prior cash sale,
Answer: b
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
120) The Sales Returns and Allowances account does NOT provide information to management about
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
121) A quantity discount is
Answer: d
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
122) Tidnish Company sells merchandise on account for $2,400 to Upper Cape Company. Upper Cape Company returns $800 (cost $500) of merchandise that was damaged, along with a cheque to settle the account. What entry does Tidnish Company make upon receipt of the cheque?
Accounts Receivable…………………………………………………………… 1600
Sales Returns and Allowances………………………………………………….. 832
Accounts Receivable…………………………………………………………… 2,400
Sales Returns and Allowances………………………………………………….. 800
Inventory………………………………………………………………………………… 500
Accounts Receivable…………………………………………………………… 2,400
Cost of Goods Sold…………………………………………………………….. 500
Sales Returns and Allowances…………………………………………….. 800
Accounts Receivable…………………………………………………………… 1600
Answer: c
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
123) Which of the following would be classified as a contra account?
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
124) Which of the following accounts has a normal credit balance?
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
125) Northend Electric returned to Southerby Inc. 5 damaged fuses. Southerby accepted the return and refunded the $200 Northend had paid for the order. To record this return, Southerby’s accountant must
Answer: c
Bloomcode: Application
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
126) Freight costs paid by a seller on merchandise sold to customers will cause an increase
Answer: b
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
127) Using a perpetual inventory system, the respective normal account balances of Merchandise Inventory, Sales Returns and Allowances, and Cost of Goods Sold are
Answer: b
Bloomcode: Knowledge
Difficulty: Hard
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
128) When recording a credit sale in a perpetual inventory system, all of the following accounts are affected EXCEPT
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
129) When recording a return of a credit sale in a perpetual inventory system, all of the following accounts are affected EXCEPT
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
130) A company uses the Sales Returns and Allowances account to record
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
131) On the income statement, a merchandiser would normally give a single sales figure (the sum of all its individual sales account) because
Answer: a
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
132) If the seller delivers products FOB destination, what entry will it record?
Cash
Cash
Cash
Cash
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
133) If returned merchandise is not damaged and can be sold again, the seller must record two journal entries. What will the seller record to update inventory?
Accounts Receivable
Sales
Cost of Goods Sold
Accounts Receivable
Answer: c
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
CPA: Financial Reporting
134) Using a perpetual inventory system, if Shediac Video Store’s accounting records show an ending inventory balance of $25,000 and a physical count shows a balance of $23,000, it is necessary to
Answer: c
Bloomcode: Application
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
135) Using a perpetual inventory system, if Sackville Harness Shop accounting records show an ending inventory balance of $43,000 and a physical count shows a balance of $45,000, it is necessary to
Answer: a
Bloomcode: Application
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
136) The journal entry to record a shortage of inventory at the end of the accounting period is
Debit Credit
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
137) In a perpetual inventory system, the Merchandise Inventory account should equal the actual merchandise on hand
Answer: a
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
138) All of the following accounts are closed at the end of the accounting period EXCEPT
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
139) In a perpetual system, if the accounting records show an ending inventory balance of $22,000 and a physical count shows a balance of $20,000, it is necessary to
Answer: c
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
140) When using a perpetual inventory system, the adjusting entry required when merchandise inventory records do not agree with the physical count
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
141) A physical inventory should be taken
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
142) Taking a physical inventory count involves all of the following EXCEPT
Answer: c
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Perform the steps in the accounting cycle for a merchandising company.
Section Reference: Completing the Accounting Cycle
CPA: Financial Reporting
143) Which of the following expressions is INCORRECT?
Answer: d
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
144) The sales revenue section of an income statement for a retailer would NOT include
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
145) The operating expense section of an income statement for a wholesaler would NOT include
Answer: c
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
146) Profit from operations will result if
Answer: d
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
147) Gross profit for a merchandising concern is net sales minus
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
148) Which of the following does NOT belong on a single-step income statement?
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
149) Gross profit does not appear
Answer: b
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
150) Which of the following is NOT a true statement about a multiple-step income statement?
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
151) Under IFRS, expenses must be classified on an income statement on the basis of
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
CPA: Financial Reporting
152) Profit margin is improved when
Answer: a
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
153) Profit margin measures the extent by which selling price covers
Answer: c
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
154) If a company has net sales of $250,000 and cost of goods sold of $175,000, the gross profit margin is
Answer: b
Bloomcode: Application
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
155) ABC Manufacturing has net sales of $150,000, cost of goods sold of $95,000, and operating expenses of $30,000. The profit margin rounded to the nearest percentage is
Answer: d
Bloomcode: Application
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
156) ABC Manufacturing has net sales of $150,000, cost of goods sold of $95,000, and operating expenses of $30,000. The gross profit margin rounded to the nearest percentage is
Answer: a
Bloomcode: Application
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
157) A company shows the following balances:
Sales…………………………………………………………………………………… $1,000,000
Sales returns and allowances…………………………………………………. 250,000
Cost of goods sold………………………………………………………………… 600,000
Operating expenses………………………………………………………………. 75,000
What is the gross profit margin?
Answer: d
Bloomcode: Application
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
158) A company shows the following balances:
Sales…………………………………………………………………………………… $1,000,000
Sales returns and allowances…………………………………………………. 250,000
Cost of goods sold………………………………………………………………… 600,000
Operating expenses………………………………………………………………. 75,000
What is the company’s profit margin?
Answer: b
Bloomcode: Application
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
159) Which of the following is NOT needed to calculate the gross profit margin?
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
160) Profit margin is calculated as
Answer: b
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
161) In a profitable company, the gross profit margin will always be ______ the profit margin.
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
162) If sales have decreased in the past year and the cost of goods sold value remains the same each year, this will create
Answer: c
Bloomcode: Comprehension
Difficulty: Easy
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
CPA: Financial Reporting
163) The Purchase Returns and Allowances account is classified as
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
164) The Purchase Discounts account is classified as
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
165) Which of the following accounts has a normal debit balance?
Answer: d
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
166) Using a periodic inventory system, the cost of freight in
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
167) Midgic Farm Store had a beginning merchandise inventory of $9,000. During the period, purchases were $35,000; purchase returns, $1,500; and freight in $3,000. A physical count of inventory at the end of the period revealed that $6,000 was still on hand. Using a periodic inventory system, the cost of goods sold was
Answer: b
Bloomcode: Application
Difficulty: Hard
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
168) The calculation of net purchases includes all of the following EXCEPT
Answer: b
Bloomcode: Knowledge
Difficulty: Hard
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
169) In a periodic inventory system, when the buyer pays for freight costs, this entails
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
170) In a periodic inventory system, the cost of goods sold is calculated as
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
171) Yatsu Limited has the following information in its accounting records as at December 31, 2014:
Purchases……………………………………………………………………………. $129,860
Freight in……………………………………………………………………………… 4,500
Purchase returns and allowances……………………………………………. 12,550
Beginning inventory………………………………………………………………. 57,000
A physical inventory count revealed that there was $68,000 in ending inventory. Net purchases are
Answer: d
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
172) Yatsu Limited has the following information in its accounting records as at December 31, 2014:
Purchases……………………………………………………………………………. $129,860
Freight in……………………………………………………………………………… 4,500
Purchase returns and allowances……………………………………………. 12,550
Beginning inventory………………………………………………………………. 57,000
A physical inventory count revealed that there was $68,000 in ending inventory. The cost of goods purchased is
Answer: c
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
173) Yatsu Limited has the following information in its accounting records as at December 31, 2014:
Purchases……………………………………………………………………………. $129,860
Freight in……………………………………………………………………………… 4,500
Purchase returns and allowances……………………………………………. 12,550
Beginning inventory………………………………………………………………. 57,000
A physical inventory count revealed that there was $68,000 in ending inventory. The cost of goods sold is
Answer: d
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
174) The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be
Debit Credit
Answer: a
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
175) Under a periodic inventory system, the sale of merchandise on credit requires a debit to
Answer: c
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
176) Under a periodic inventory system, the sale of merchandise on credit requires a credit to
Answer: b
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
177) Under a periodic inventory system, the return of merchandise sold on credit requires a credit to
Answer: c
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
178) In a periodic system, the required entry(ies) to record the sale of merchandise for $1,000 on credit for goods costing the company $600 would be
Answer: c
Bloomcode: Application
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
179) In a periodic system, if the accounting records show an opening inventory balance of $15,000 and a physical count shows a balance of $20,000, it is necessary to
Answer: d
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
MATCHING QUESTIONS
____ 1. Debits to Merchandise Inventory
____ 2. A discount provided to encourage early payment
____ 3. The merchandise inventory account balance should equal ending inventory, at all times
____ 4. Separate account maintained for each different product
____ 5. Freight terms which require the seller to pay the freight cost
____ 6. Sales less sales returns and allowances and sales discounts
____ 7. Freight cost to deliver goods to customers reported as an operating expense
____ 8. Freight terms which required the buyer to pay the freight cost
____ 9. Deducted from net sales to calculate gross profit
____ 10. Requires a physical count of goods on hand to calculate cost of goods sold
____ 11. A calculation of gross profit divided by net sales
Bloomcode: Knowledge
Difficulty: Easy
Learning Objective: Prepare entries for purchases under a perpetual inventory system.
Section Reference: Recording Purchases of Merchandise
Learning Objective: Prepare entries for sales under a perpetual inventory system.
Section Reference: Recording Sales of Merchandise
Learning Objective: Prepare single-step and multiple-step income statements.
Section Reference: Merchandising Financial Statements
Learning Objective: Calculate the gross profit margin and profit margin.
Section Reference: Using the Information in the Financial Statements
Learning Objective: Prepare the entries for purchases and sales under a periodic inventory system and calculate cost of goods sold.
Section Reference: Periodic Inventory System (Appendix 5A)
CPA: Financial Reporting
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Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
