ADM 1340 Chapter Notes - Chapter 5: Gross Margin, Perpetual Inventory, Gross Profit

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7 Feb 2017

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Recording purchases of merchandise: purchases, sales taxes, freight costs, purchase returns and allowances, discounts. Recording sales of merchandise: sales, sales taxes, freight costs, sales returns and allowances, discounts. Income statement presentation: single-step income statement, multiple-step income statement. Evaluating profitability: gross profit margin, profit margin. Inventory for a merchandising company consists of many different items. Merchandising involves purchasing products to resell to customers. Merchandise inventory is needed to describe the many different items that make up the total inventory. Retailers are merchandisers that sell to customers: wholesalers are merchandisers who sell to retailers. Manufactures have an inventory, but its not ready to be sold to customers. Inventory good can be classified into three categories: raw materials, work in process, finished goods. Operating cycles: the operating cycle is usually longer for a merchandising company than it is for a service company. The cycle is the time it takes to go from cash to cash in producing revenues: service company.

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Question 10 (15 points)

The following is a partial Adjusted Trial Balance for Alpha Company for the month:

Alpha Company
Adjusted Trial Balance (partial)
January 31, 2016
Accounts	Debit	Credit
Inventory	$2,750
Sales		$11,500
Sales Discounts	200
Sales Returns & Allowances	1,200
Purchases	4,000
Purchases Discounts		150
Purchase Returns & Allowances		450
Freight In	50
Advertising Expense	150
Depreciation Expense	130
Freight Out	70
Income Tax Expense	500
Salaries Expense	550
Utilities Expense	100

Additionally, Inventory for December 31, 2015 was $2,600. Prepare a multiple-step income statement.

What amount should Alpha Company report on a Multi-Step Income Statement for the following items:

1. Net Sales

2. Cost of Goods Available for Sales

3. Gross Profit

4. General & Administrative Expenses

5. Income before Taxes

bluecat772

Which of the following characteristics may result in theclassification of a liability being changed from current tononcurrent:

a) violation of a subjective acceleration clause

b) violation of a objective acceleration clause

c) a demand provision for payment

d) refiancing after the balance sheet date

Pending litigation would generally be considered:

a) nonmonetary liabilty

b) contingent liability

c) estimated liability

d) current liability

Barrons Co. current ratio is 2:1. Which of the followingtransactions would normally increase Barney's current ratio?

a) purchasing inventory on account

b) borring money by signing a long-term note

c) collecting an account receivable

d) purchasing land for cash

On multiple step income statement, gains or losses on sale ofequipment would be shown

a) before gross profit on sales

b) after gross profit on sales but before income from conitnuingoperations

c) after income from continuing operations but before incomefrom extraordinary items

d) after income before extraordinary items but before netincome

A single step income statement is a format that

a) compares the current years income with last year's income

b) recongnizes subtotals at intermediate stages such as grossmargin

c) combines revenues and gains and subtracts from them expensesand losses, resulting in income from operations

d) reports sales revenue, cost of goods sold, gross margin, andall other expenses

In contrast with a multiple-step income statement, a single stepincome statement does NOT show the amount of

a) income taxes on continuing operations

b) cost of goods sold

c) gross profit

d) earnings per share

The amount of income reported for tax purposes

a) is nomally greater than the net income reported tostockholders

b) must be computed according to GAAP

c) is used to compute earnings per share

d) may differ from the amount of income detemined for financialreporting purposes

Under the general rule of revenue recognition, revenue isrecognized when

a) marketability and market price are assured

b) a contractual agreement exists, and cash collection isassured

c) the earnings process is complete, and a valid promise ofpayment has been received

d) all related expenses have been incurred

Seaworth Company's gross sales in 2014 were 3930000. Assumingsales returns and allowances were 74000 sales discounts were 35000and freight-out was 28000 what were Seaworthy's net sales in2014?

a) 3792000

b) 3821000

c)3856000

d) 3930000

On June 30, 2014 Sonata COmpanys operating facilities inNebraska were detroyed by a flood. The loss of $700000 was notcovered by insurance. Sonata's tax rate for 2014 is 40 percent. InSonatas income statement for the year ended sept 30 2014 this eventshould be reported as an extraordinary loss of

a) 0

b) 280000

c) 420000

d) 700000

In a statement of cash flows, payments to acquire debtinstruments of other entities would typically be classified as cashoutflows for

a) financing activities

b) equity activities

c) operating activities

d) investing activities

A gain on the sale of a plan asset in the ordinary course ofbusiness should be presented in a staement of cash flows preparedusing the indirect method as

a) a cash inflow from investing activities

b) a cash inflow from financing activities

c) a deduction from net income

d) a addition to net income

In a statement of cash flows, proceeds from issuing equityinstruments should be classified as cash inflows from

a) brokerage activities

b) financing activities

c) investing activites

d) operating activities

When preparing a statement of cash flows using the indirectmethod, the amortization of trademarks should be reported as a

a) increase in cash flows from investing activities

b) reduction in cash flows from investing activities

c) increase in cash flows from operating activities

d) reduction in cash flows from operating activites

A loss in the sale of machinery in the ordinary course ofbusiness should be presented in a statement of cash flows( indirectmethod) as

a) an addition to net income

b) a deduction from net income

c) an inflow and outflow of cash

d) an outflow of cash

In preparing a statement of cash flows, which of the followingtransactions would be considered an investing activity?

a) sale of a business segment

b) Issuance of bonds payable at a discount

c) purchase of treasury stock

d) sale of capital stock

In a statement of cash flows (indirect method), depreciation istreated as an adjustment to reported net income becausedepreciation

a) is an inflow of cash to reserve account for assetreplacement

b) reduces the reported net income and involves an inflow ofcash

c) reduces the reported net inome but does not involve anoutflow of cash

d) usually represents a significant portion of operatingexpense

orchidfrog938

17 accounting 1 questions! HELP

9. The following amounts and costs of platters were availablefor sale by Corpus Christy Ceramics during 2016:

Beginning inventory	10 units at $41
First purchase	15 units at $55
Second purchase	30 units at $70
Third purchase	25 units at $65

Corpus Christy Ceramics has 35 platters on hand at the end ofthe year.

What is the dollar amount of inventory at the end of the yearaccording to the weighted-average cost method?

Select one:

A. $4,340

B. $9,920

C. $3,465

D. $6,200

32. Santa Fe Corporation uses the perpetual inventory method. OnMarch 1, it purchased $60,000 of merchandise inventory, terms 2/10,n/30. On March 3, Santa Fe returned goods (not damaged) that cost$6,000. On March 9, Santa Fe paid the supplier.

On March 9, Santa Fe should credit:

Select one:

A. Purchase discounts for $1,200

B. Purchase discounts for $1,080

C. Inventory for $1,080

D. Inventory for $1,200

33. Rocky Company has beginning equity of $600,000, net incomeof $100,000, dividends of $60,000 and investments by owners inexchange for stock of $20,000. Its ending equity is:

Select one:

A. $660,000

B. $480,000

C. $536,000

D. $446,000

35. On September 1, 2016, Chopper, Inc. reported RetainedEarnings of $272,000. During the month of September, Choppergenerated revenues of $40,000, incurred expenses of $24,000,purchased equipment for $10,000 and paid dividends of $12,000.

What is the balance in Retained Earnings on September 30,2016?

Select one:

A. $272,000 debit

B. $276,000 credit

C. $ 16,000 credit

D. $274,000 credit

36. Savannah Company purchases $120,000 of inventory during theperiod and sells $36,000 of it for $60,000. Beginning of the periodinventory was $6,000.

What is the companyâs inventory balance to be reported on itsbalance sheet at year end?

Select one:

A. $36,000

B. $90,000

C. $ 4,000

D. $ 6,000

37. Assuming rising prices, which method will give the highestdollar value for cost of goods sold on the income statement?

Select one:

A. FIFO

B. Average Cost

C. LIFO

D. All of these give equal values for cost of goods sold

38. Kali Company began the period with $20,000 in inventory. Thecompany also purchased an additional $20,000 of inventory andreturned $2,000 for a full credit. A physical count of theinventory at yearâend revealed an inventory on hand of $16,000.What was Kaliâs cost of goods sold for the period?

Select one:

a. $50,000

b. $22,000

c. $48,000

d. $16,000

39. The periodic inventory system differs from the perpetualinventory system:

Select one:

because the periodic system is not compatible with moderntechnology.

because the periodic system continually updates inventory, whilethe perpetual inventory system only updates inventory at the end ofthe period.

because the perpetual system continually updates inventory,while the periodic inventory system only updates inventory at theend of the period.

because the periodic system is more complex and costly.

40. Which one of the following is included in currentassets?

Select one:

A. Common stock

B. Accounts receivable

C. Taxes payable

D. Automobiles

41. For the balance sheet to be in balance, the following mustexist:

Select one:

Total assets must be less than total liabilities

Total assets must be greater than total liabilities

Total assets must equal total liabilities plus stockholders'equity

Total liabilities must equal total stockholders' equity

43. Using a perpetual inventory system, the buyerâs journalentry to record the freight costs includes a:

Select one:

A. Debit to Purchases

B. Debit to Inventory

C. Debit to Freight In

D. Debit to Cost of Goods Sold

44. Joshua records purchases at invoice price and uses theperpetual inventory system. On July 5, Joshua returned $6,000 ofgoods purchased on account to the seller.

How would Joshua record this transaction?

Select one:

Accounts Payable		6,000
	Purchases		6,000

Accounts Receivable		6,000
	Inventory		6,000

Accounts Payable		6,000
	Inventory		6,000

Cash		6,000
	Purchases		6,000

45. Smith & Sons purchased $5,000 of merchandise from theClaremont Company with terms of 3/10, n/30. How much discount isSmith & Sons entitled to take if it pays within the alloweddiscount period of 10 days?

Select one:

$100

$50

$300

$150

46. The accounting record for Max III Company reported thefollowing selected information:

Operating Expenses	$180,000
Sales Returns and Allowances	52,000
Sales Discounts	24,000
Sales Revenue	700,000
Cost of Goods Sold	268,000

Determine Max III Company's gross profit.

Select one:

A. $332,000

B. $280,000

C. $308,000

D. $356,000

48. Using a a perpetual inventory system, the sellerâs journalentry to record the payment for merchandise, received from thebuyer, within the discount period includes a:

Select one:

A. Debit to Accounts Receivable

B. Debit to Cost of Goods Sold

C. Credit to Sales Discounts

D. Debit to Sales Discounts

49.Geraldoâs Groceries purchased milk cartons at an invoiceprice of $6,000 and terms of 2/10, n/30. On arrival of the goods,Geraldoâs realized that half of the milk was past the expirationdate, and returned them immediately to the supplier.

If Geraldoâs pays the remaining amount of the invoice within thediscount period, the amount paid should be:

Select one:

A. $2,880

B. $5,880

C. $2,940

D. $6,000

50. Which one of the following is not a current liability?

Select one:

A. Wages payable

B. Accounts payable

C. Wage expense

D. Taxes payable

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ADM 1340 Chapter Notes - Chapter 5: Gross Margin, Perpetual Inventory, Gross Profit

ADM 1340 Full Course Notes

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