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ACCT207 Lecture Notes - Lecture 2: Perpetual Inventory, Gross Profit, Cash Register

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violetmuskrat44
7 Aug 2018
School
University of Delaware
Department
Accounting
Course
ACCT207
Professor
Vin Mar

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Document Summary

Merchandising companies are called merchandising companies because they buy and sell merchandise rather than perform services as their primary source of revenue. Merchandising companies that purchase and sell directly to consumers are called Merchandising companies that sell to retailers are known as The primary source of revenue for merchandising companies is the , often referred to simply as sale of merchandise sales revenue or sales. A merchandising company has 2 categories of expenses: cost of goods sold and operating expenses. Cost of goods sold is the total cost of merchandise sold during the period. The operating cycle of a merchandising company ordinarily is longer than that of a service company. Service company operating cycles cash --> perform services --> accounts receivable -->mail --> received cash. Merchandising company operating cycles cash --> buy inventory --> inventory --> sell inventory --> accounts receivable - Sales may be made on or for

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Related Questions

12 ACCOUNTING QUESTIONS

4. Using a perpetual inventory system, the buyer'sjournal entry to record the return of merchandise purchased onaccount includes a:

Select one:

A. Credit to Cost of Goods Sold

B. Credit to Accounts Payable

C. Credit to Purchase Returns

D. Credit to Inventory

6.Using a perpetual inventory system, the buyer’sjournal entry to record the payment for merchandise within thediscount period includes a:

Select one:

A. Debit to Accounts Payable

B. Debit to Cost of Goods Sold

C. Debit to Purchases

D. Debit to Inventory

7.Which of the following statements regarding cost flows istrue?

Select one:

Cost of goods available for sale is equal to beginning inventoryminus cost of goods purchased.

CGAS = beginning inventory minus ending inventory.

Cost of goods available for sale is equal to beginning inventoryplus cost of goods purchased.

CGAS = cost of goods sold minus cost of goods purchased.

10. Using a perpetual inventory system, the buyer’sjournal entry to record the purchase of merchandise on creditincludes a:

Select one:

A. Debit to Inventory

B. Debit to Freight In

C. Debit to Cost of Goods Sold

D. Debit to Purchases

11. Which of the following is not shown in thestatement of stockholder's equity?

Select one:

A. Unearned revenue

B. Common stock

C. Retained earnings

D. Dividends

13. Using a perpetual inventory system, the seller’sjournal entry to record the sale of merchandise on account includesa:

Select one:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Credit to Purchases

D. Debit to Inventory

14. A merchandising company's multi-step income statementdiffers from that of a service company in what way?

Select one:

A service company does not include a line for cost of goodssold.

A service company has a line for selling expenses whereas amerchandising company does not.

There is no difference.

A merchandising company will have a line for income fromoperations whereas a service company will not.

16.Using a perpetual inventory system, the seller’s journalentry to record the return, by the buyer, of merchandise purchasedon account includes a:

Select one:

A. Credit to Purchase Returns

B. Debit to Cost of Goods Sold

C. Debit to Accounts Receivable

D. Debit to Sales and Allowances

20. For a firm that uses the perpetual inventory system, theSales Returns and Allowances account:

Select one:

A. Is not a contra account

B. Is not used

C. Is debited by the firm receiving returned goods from acustomer

D. Has a normal credit balance

21. Current assets are cash and other assets that will beconverted into cash or used up within:

Select one:

A. One year

B. The normal operating cycle of the business

C. The normal operating cycle of the business or one year,whichever is longer

D. The normal operating cycle of the business or one year,whichever is shorter

22. The balance sheet format that reports assets first and then,beneath the assets, reports the liabilities and stockholders'equity is called the:

Select one:

A. Account form

B. Report form

C. Stack form

D. Classified form

23. Safari Monkey Company sold $2,400,000 worth of merchandise,had $200,000 returned, and then the balance was received during the2% discount period.

What were the company’s net sales?

Select one:

A. $1,800,000

B. $1,760,000

C. $2,156,000

D. $2,040,000

16) Petty cash payments are recorded in the accounting systemwhen:

the petty cash fund needs to be replenished

a payment is made out of petty cash

a bank reconciliation is prepared for the petty cash fund

cash is received from returns of merchandise

21)

In a perpetual system, when inventory is sold on account:

Sales Revenue is increased and Accounts Receivable isdecreased.

Sales Revenue, Cost of Goods Sold, and Accounts Receivable areincreased while Inventory is decreased.

Sales Revenue and Accounts Receivable are increased, and Cost ofGoods Sold and Inventory are decreased.

Sales Revenue is increased and Inventory is decreased.

22 )

Multistep income statements:

are required for merchandise companies.

contain more detail than just listing revenues and expenses.

are required when the perpetual inventory method is used.

classify Cost of Goods Sold as a selling expense.

Welnor Industrial Gas Corporation supplies acetylene and othercompressed gases to industry. Data regarding the store's operationsfollow:

•

Sales are budgeted at $330,000 for November, $350,000 forDecember, and $340,000 for January.
•

Collections are expected to be 70% in the month of sale, 26% inthe month following the sale, and 4% uncollectible.
• The cost of goods sold is 67% ofsales.
•

The company desires ending merchandise inventory to equal 85% ofthe following month's cost of goods sold. Payment for merchandiseis made in the month following the purchase.
• Other monthly expenses to bepaid in cash are $21,900.
• Monthly depreciation is$16,900.
• Ignore taxes.


Balance Sheet
October 31
Assets
Cash $ 22,900
Accounts receivable(net of allowance for uncollectible accounts) 82,900
MerchandiseInventory 187,935
Property, plant andequipment (net of $667,000 accumulated depreciation) 1,170,000
Total assets $ 1,463,735
Liabilities and Stockholders’ Equity
Accountspayable $ 199,900
Common stock 930,000
Retainedearnings 333,835
Total liabilitiesand stockholders’ equity $ 1,463,735


Required:

a.

Prepare a Schedule of Expected Cash Collections for November andDecember. (Omit the "$" sign in yourresponse.)


Welnor Industrial Gas Corporation
Schedule of Expected Cash Collections
November December
Sales $ $
Schedule of ExpectedCash Collections
Accountsreceivable $
November sales $
December sales
Total cashcollections $ $


b.

Prepare a Merchandise Purchases Budget for November andDecember. (Input all amounts as positive values. Do notround intermediate calculations. Omit the "$" sign in yourresponse.)


Welnor Industrial Gas Corporation
Merchandise Purchases Budget
November December
Budgeted cost ofgoods sold $ $
(Click toselect)AddDeduct: (Click to select)Beginning merchandiseinventoryDesired ending merchandising inventory
Total needs
(Click toselect)DeductAdd: (Click to select)Beginning merchandiseinventoryDesired ending merchandising inventory
Requiredpurchase $ $


c.

Prepare Cash Budgets for November and December. (Leaveno cells blank - be certain to enter "0" wherever required. Inputall amounts as positive values. Omit the "$" sign in yourresponse.)


Welnor Industrial Gas Corporation
Cash Budget
November December
Cash disbursementsfor merchandise $ $
Other monthly cashexpenses
Total cashdisbursements $ $
Cash balance,beginning $ $
Add cashreceipts
Total cashavailable
Less cashdisbursement
Excess (deficiency)of cash available
over disbursements
Financing
Cash balance,ending $ $


d.

Prepare Budgeted Income Statements for November and December.(Input all amounts as positive values. Omit the "$" sign inyour response.)


Welnor Industrial Gas Corporation
Budgeted Income Statement
November December
(Click toselect)Gross marginBad debt expenseSalesOther monthly expensesNetoperating incomeDepreciationCost of goods sold $ $
(Click toselect)Cost of goods soldSalesGross marginOther monthlyexpensesDepreciationNet operating incomeAccounts payable
(Click toselect)Gross marginDepreciationCost of goods soldNet operatingincomeOther monthly expensesSalesAccounts payable
(Click to select)Baddebt expenseSalesGross marginInventoryCost of goods soldAccountsreceivableAccounts payableNet operating incomeCash
(Click toselect)Other monthly expensesInventoryCashAccounts payableSalesCostof goods soldOther monthly expensesAccounts receivableNet operatingincomeGross margin
(Click toselect)CashAccounts receivableNet operating incomeSalesAccountspayableInventoryDepreciationCost of goods soldGross margin
(Click to select)Netoperating incomeBad debt expenseCost of goods soldOther monthlyexpensesDepreciationGross marginSales $ $


e.

Prepare a Budgeted Balance Sheet for the end of December.(Be sure to enter your answers in the order of liquidity.Input all amounts as positive values. Omit the "$" sign in yourresponse.)


Welnor Industrial Gas Corporation
Budgeted Balance Sheet
December 31
Assets
(Click toselect)InventoryCashAccounts receivableProperty, plant andequipment
(Click toselect)InventoryAccounts receivableProperty, plant andequipmentCash
(Click toselect)InventoryCashProperty, plant and equipmentAccountsreceivable
(Click toselect)Property, plant and equipmentAccountsreceivableCashInventory
Total assets
Liabilities and Stockholders’ Equity
(Click toselect)Accounts payableCashCommon stockRetained earnings
(Click toselect)InventoryCashAccounts payableCommon stock
(Click toselect)InventoryRetained earningsCashAccounts payable
Total liabilitiesand stockholders’ equity