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ACC 100 Chapter Notes - Chapter 5: Perpetual Inventory, Accounts Payable, Gross Profit

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School
Ryerson University
Department
Accounting
Course
ACC 100
Professor
Joel Shapiro

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Document Summary

Merchandising companies that sell directly to consumers are called retailers. Merchandising companies that sell to retailers are wholesalers. Merchandising companies that produce goods for sale to wholesalers or other are called manufacturers raw materials are basic goods and materials that are used for production but have not yet been sent into production. Cost of goods sold: total cost of merchandise that was sold during the period. Gross profit: [sales revenue] [cost of goods sold] Perpetual inventory system: detailed records about every product sold. Records kept perpetually about cost and price sold for every good in merchandise inventory. Under a perpetual inventory system, the cost of goods sold and the reduction in inventory - both quantity and cost- are recorded each time a sale occurs. Periodic inventory system: detailed records of merchandise inventory are not kept: determine the cost of goods at beginning of the inventory cycle, add cost of goods purchased to the beginning inventory.

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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

1. Inventory is classified on the balance sheet as a

a.current liability

b.long-term asset

c.current asset

d.long-term liability

 

2. What is the term applied to the excess of sales over the cost of goods sold?

a.net income

b.gross profit

c.operations

d.gross sales

 

3. The inventory system employing accounting records that continuously disclose the amount of inventory is called

a.periodic

b.retail

c.perpetual

d.physical

 

4. Calculate the gross profit for Jefferson Company based on the following:

Sales                          $764,000

Selling Expenses         $42,500

Cost of Goods Sold      $538,000

a.$183,500

b.$721,500

c.$495,500

d.$226,000

 

5. Calculate income from operations for Jonas Company based on the following data:

Sales                          $764,000

Selling Expenses         $52,500

Cost of Goods Sold      $538,000

a.$226,000

b.$711,500

c.$485,500

d.$173,500

 

6. The primary difference between the periodic and perpetual inventory systems is that a

a.periodic system keeps a record showing the inventory on hand at all times

b.periodic system determines the inventory on hand only at the end of the accounting period

c.periodic system records the cost of the sale on the date the sale is made

d.periodic system provides an easy means to determine inventory shrinkage

 

7. In credit terms of 3/15, n/45, the "3" represents the

a.percent of the cash discount

b.full amount of the invoice

c.number of days when the entire amount is due

d.number of days in the discount period

 

8. Which of the following accounts has a normal credit balance?

a.Inventory

b.Accounts Receivable

c.Sales

d.Delivery Expense

 

9. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

a.debit to Inventory

b.debit to Accounts Payable

c.credit to Sales

d.credit to Inventory

 

10. Which of the following accounts usually has a debit balance?

a.Sales

b.Inventory

c.Accounts Payable

d.Sales Tax Payable

 

11. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

a.n/30

b.consigned

c.FOB shipping point

d.FOB destination

 

12. When goods are shipped FOB destination and the seller pays the freight charges, the buyer

a.does not take a discount

b.journalizes a reduction for the cost of the merchandise

c.makes no journal entry for the freight

d.journalizes a reimbursement to the seller

 

13. When the perpetual inventory system is used, the inventory sold is debited to

a.Supplies Expense

b.Cost of Goods Sold

c.Sales

d.Inventory

 

14. Generally, the revenue account for a merchandising business is entitled

a.Gross Sales

b.Sales

c.Gross Profit

d.Fees Earned

Dazzle, Inc. produces beads for jewelry making use. Thefollowing information summarizes production operations and salesactivities for June. The journal entry to record June sales is:

Direct materials used $87,000
Direct labor used 160,000
Predetermined overhead rate(based on direct labor) 155%
Goods transferred to finishedgoods 432,000
Cost of goods sold 444,000
Credit sales 810,000

a.Debit Accounts Receivable $810,000; credit Cost of Goods Sold$810,000.

b.Debit Accounts Receivable $810,000; credit Sales $366,000;credit Finished Goods Inventory $444,000.

c.Debit Cost of Goods Sold $444,000; credit Sales $444,000.

d.Debit Finished Goods Inventory $444,000; debit Sales $810,000;credit Accounts Receivable $810,000; credit Cost of Goods Sold$444,000.

e.Debit Accounts Receivable $810,000; credit Sales $810,000;debit Cost of Goods Sold $444,000; credit Finished Goods Inventory$444,000.

2. A process cost summary is amanagerial accounting report that describes all but which of thefollowing:

a.The gross profit earned on the sale of products.

b.The equivalent units of production by the department.

c.How the costs were assigned to the output.

d.Physical transfers for a department.

e.The costs charged to a department.

3. During January, the productiondepartment of a process operations system completed and transferredto finished goods a total of 78,000 units. At the end of January,9,000 additional units were in process in the production departmentand were 65% complete with respect to labor. The beginninginventory included labor cost of $37,100 and the productiondepartment incurred direct labor cost of $294,300 during January.Compute the direct labor cost per equivalent unit for thedepartment using the weighted-average method.

a.$6.34.

b.$3.77.

c.$3.51.

d.$4.25.

e.$3.95.

4.Which of the following is thebest explanation for why it is necessary to calculate equivalentunits of production in a process costing environment?

a.In most manufacturing environments, it is not possible toconduct a physical count of units.

b.Companies often use a combination of a process costing and joborder costing systems.

c.In most process costing systems, direct materials are added atthe beginning of the process while conversion costs are addedevenly throughout the manufacturing process.

d.All of the work to make a unit 100% complete and ready to moveto the next stage of production or to finished goods inventory maynot have been completed in a single time period.

e.In most cases, there is no difference between physical unitsand equivalent units of production.

5.The following refers to unitsprocessed by a breakfast cereal maker in August. Compute the totalequivalent units of production with respect to conversion for Julyusing the weighted-average inventory method.


Tons of Product 		Percentof
Conversion Added
Beginning Work in Process 230,000 60%
Goods started 570,000 100%
Goods completed 620,000 100%
Ending Work in Process 180,000 70%

a.758,000

b.800,000

c.620,000

d.746,000

e.884,000

6.During December, the productiondepartment of a process operations system completed and transferredto finished goods a total of 65,000 units of product. At the end ofMarch, 15,000 additional units were in process in the productiondepartment and were 80% complete with respect to materials. Thebeginning inventory included materials cost of $57,500 and theproduction department incurred direct materials cost of $183,000during December. Compute the direct materials cost per equivalentunit for the department using the weighted-averagemethod.

a.$3.70.

b.$2.38.

c.$2.82.

d.$3.12.

e.$4.79.