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ACCT – Ch 5 Missed Orion

B will probably indicate less than $2.5 million in merchandise on hand Why ? Because rarely will the physical count of inventory ever be equal to what is on the books. And since you would never have an increase in inventory, it would have to be less.
A department store uses a perpetual inventory system. At year-end, the balance in the merchandise inventory account is $2.5 million. Assuming that the inventory records have been maintained properly, a year-end physical inventory

A is unnecessary
B will probably indicate less than $2.5 million in merchandise on hand

C will probably indicate more than $2.5 million in merchandise on hand
D is required to determine the cost of goods sold for the period

A True
Using the periodic inventory system requires more record keeping than the perpetual inventory system.

A True

B False

A a perpetual inventory system
At year-end, a department store shows a balance in the merchandise inventory account of $2 million and a physical inventory shows there is less than $2 million in merchandise on hand. What kind of inventory system does the department store use?

A a perpetual inventory system

B a periodic inventory system

C a proprietary inventory system

D a peripheral inventory system

D credit to Inventory (the “purchasing company” meaning the company that purchased and returned the goods.)
A company receives a return of merchandise purchased on account. How would this be recorded in a perpetual inventory system in the books of the purchasing company?

A debit to Purchase Returns and Allowances

B debit to Sales Revenue

C credit to Purchase Returns and Allowances

D credit to Inventory

A a document that provides evidence of credit purchases
What is a purchase invoice?

A a document that provides evidence of credit purchases

B a document that serves only as a customer receipt

C a document that provides evidence of incurred operating expenses

D a document that provides support for goods purchased for cash

D operating expense

NOT
SELLING EXPENSE

When a seller pays freight costs on outgoing merchandise, these costs are considered the seller’s

A selling expense

B purchase expense

C inventory cost

D operating expense

C increase the Inventory account

From the buyers perspective, if they pay for shipping it technically increases the value of the inventory purchased

A company using a perpetual inventory system buys goods and pays the freight costs. Because it pays the freight costs, it must

A increase operating expenses

B decrease net income

C increase the Inventory account

D decrease the Inventory account

A True
Discounts taken by the buyer for early payment of an invoice are called purchase discounts by the buyer.

A True

B False

A The Sales Discount account is classified as an expense account but the Sales Returns and Allowances account is not

So,
SALES DISCOUNT = EXPENSE
SALES RETURNS = CONTRA

Which of the following statements is true?

A The Sales Discount account is classified as an expense account but the Sales Returns and Allowances account is not.

B Neither the Sales Returns and Allowances account nor the Sales Discount account are classified as expense accounts.

C The Sales Returns and Allowances account is classified as an expense account but the Sales Discount account is not.

D The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

B before cash is collected
When may sales revenue be recorded?

A on the first or last day of a month

B before cash is collected

C only after cash is collected

D only after transfer of inventory

B when goods are transferred from the merchandising company to the buyer
According to the revenue recognition principle, when do merchandising companies record sales revenues?

A when cash is received from credit sales

B when goods are transferred from the merchandising company to the buyer

C when buyers utilize a sales discount

D when adjusting entries are made

A Sales Returns and Allowances
In which account can merchandising companies find information about the presence of CORRECTIBLE PROBLEMS, such as the need to improve methods for filling orders or packaging goods for shipment?

A Sales Returns and Allowances

B Net Profits

C Sales Revenue

D Purchase Orders

A canceled checks

B shipping invoices

D cash register tapes

Which of the following do NOT provide evidence of credit sales? Select all that apply.

A canceled checks

B shipping invoices

C sales invoices

D cash register tapes

D Sales Revenue
Which of the following has a normal credit balance?

A Sales Allowance

B Sales Returns

C Sales Discounts

D Sales Revenue

A Seneca: $2,500 Debit to Accounts Receivable, $2,500 Credit to Sales Receivable; $1,600 Debit to Cost of Goods Sold, $1,600 Credit to Inventory. Rogers: $2,500 Debit to Inventory, $2,500 Credit to Accounts Payable.
Seneca Company sold goods on account to Rogers Enterprises with terms of 2/10, n30. The goods had a cost of $1,600 and a selling price of $2,500. Both Seneca and Rogers use a perpetual inventory system. What does the sale look like on Seneca’s books? What does the purchase look like on Rogers’s books?

A Seneca: $2,500 Debit to Accounts Receivable, $2,500 Credit to Sales Receivable; $1,600 Debit to Cost of Goods Sold, $1,600 Credit to Inventory. Rogers: $2,500 Debit to Inventory, $2,500 Credit to Accounts Payable.

B Seneca: $2,500 Credit to Accounts Receivable, $2,500 Debit to Sales Receivable; $1,600 Credit to Cost of Goods Sold, $1,600 Debit to Inventory. Rogers: $2,500 Credit to Inventory, $2,500 Debit to Accounts Payable.

C Seneca: $2,500 Debit to Accounts Receivable, $2,500 Credit to Sales Receivable; $1,600 Debit to Cost of Goods Sold, $1,600 Credit to Inventory. Rogers: $2,500 Credit to Inventory, $2,500 Debit to Accounts Payable.

D Seneca: $2,500 Credit to Accounts Receivable, $2,500 Debit to Sales Receivable; $1,600 Credit to Cost of Goods Sold, $1,600 Debit to Inventory. Rogers: $2,500 Debit to Inventory, $2,500 Credit to Accounts Payable

B False

Remember, a sales invoice typically has credit terms on it which means it must only be for sales on credit.

A sales invoice is prepared when goods are sold on credit or for cash.

A True

B False

D debit to Sales Returns and Allowances and credit to Accounts Receivable; debit to Inventory and credit to Cost of Goods Sold
In a perpetual inventory system, what two entries are made each time a seller accepts a return from a purchaser?

A debit to Sales Returns and Allowances and credit to Accounts Receivable; debit to Cost of Goods Sold and credit to Inventory

B debit to Accounts Receivable and credit to Sales Returns and Allowances; debit to Inventory and credit to Cost of Goods Sold

C debit to Accounts Receivable and credit to Sales Returns and Allowances; debit to Cost of Goods Sold and credit to Inventory

D debit to Sales Returns and Allowances and credit to Accounts Receivable; debit to Inventory and credit to Cost of Goods Sold

C Sales Returns and Allowances account
The ________ provides management with information about inefficiencies and errors in filling customer orders.

A Inventory account

B Cost of Goods Sold account

C Sales Returns and Allowances account

D Discount account

A $3,430

Apply the 2% discount to the 3,500 not the 4,000

Gen-Tech sells merchandise on account for $4,000 to Acorn Company with credit terms of 2/10, n/30. Within the discount period, Acorn Company returns $500 of damaged merchandise and a check for ________ to settle the account.

A $3,430

B $3,020

C $3,200

D $3,420

A cash register tapes

B canceled (cashed) checks

Which of the following provide evidence of cash sales? Select all that apply.

A cash register tapes

B canceled checks

C purchase invoices

D contracts

B False

When you are looking for the cost of goods available for sale you add your beginning inventory to your net purchases.

The amount of cost of goods available for sale during the year depends on the amounts of beginning merchandise inventory, cost of goods sold, and ending merchandise inventory.

A True

B False

A Subtract purchase returns and allowances.

C Subtract purchase discounts.

D Add freight-in

When using the periodic inventory system, which of the following are steps in determining cost of goods purchased? Select all that apply.

A Subtract purchase returns and allowances.

B Subtract cost of ending inventory.

C Subtract purchase discounts.

D Add freight-in

D $840,000

x – 900,000 = -60,000
x = 840,000

During the year, Porro’s Curtains merchandise inventory decreased by $60,000. If the company’s cost of goods sold for the year was $900,000, what would the cost of purchases have been?

A $620,000

B $780,000

C $960,000
:
D $840,000

A Purchases represent cash paid for purchases during the accounting period.

the amount in cash you paid to purchase merchandise does not necessarily equate to the amount of value in purchases

Under a periodic inventory system, which of the following statements is NOT true?

A Purchases represent cash paid for purchases during the accounting period.

B Goods available for sale must be calculated before cost of goods sold.

C The purchases account is used to accumulate all purchases of merchandise for resale.

D The amount of ending inventory is determined on the last day of the accounting period.

A Purchases represent cash paid for purchases during the accounting period. (possibly incorrectly copied)
Under the periodic inventory system, which statements concerning the computation of cost of goods sold are NOT correct? Select all that apply.

A Purchases represent cash paid for purchases during the accounting period.
B Freight-in is ignored.
C The amount of ending inventory is determined on the last day of the accounting period.
D Cost of goods available for sale includes net purchases plus the ending inventory.

B Purchases account
Under the periodic inventory system, all purchases of merchandise for resale are accumulated in the

A Net Profits account

B Purchases account

C Inventory account

D Cost of Goods Sold account

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