Question 1

Sales Discounts is classified as what type of account?

Accepted Answer

Sales Discounts is classified as a contra-revenue account because it reduces the total revenue reported by the amount of discounts given to customers.

Question 2

The following is from Goldman Inc.'s 2015 income statement.  How much will Goldman report as its cost of goods sold in its 2015 income statement?

Accepted Answer

The answer of The following is from Goldman Inc.'s 2015...

Question 3

The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the:

Accepted Answer

The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is an application of the matching principle. This principle requires that expenses be recognized in the same period as the related revenue to properly reflect the true financial results of an entity.

Question 4

Cost of goods sold is equal to:

Accepted Answer

Cost of goods sold is the cost of the inventory that is sold during the accounting period. This includes the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts minus ending inventory. Option C is the only choice that correctly calculates cost of goods sold according to accounting principles.

Question 5

Slotkin Company buys designer clothing to sell in its retail stores. Since much of the merchandise comes from Dallas and Europe, Slotkin Company must pay freight charges to get the merchandise shipped in. Which statement is true?

Accepted Answer

Under the periodic inventory system, transportation-in (also known as freight-in or shipping-in) is added to net purchases to determine the cost of goods purchased. This is because under this system, inventory is only updated periodically, usually at the end of each accounting period. Therefore, transportation-in is not added to the inventory account. Option A is incorrect because transportation-in is not added to the inventory account. Option B is incorrect because transportation-in is not subtracted from purchases; rather, it is added to determine cost of goods purchased. Option C is incorrect because freight charges can be paid by a buyer in any inventory system, not just the periodic system.

Question 6

Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2015. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2015. Park paid the amount due on June 13, 2015. Park uses a perpetual inventory system. When will the cost of merchandise sold be recorded as an expense?

Accepted Answer

Under the perpetual inventory system, the cost of merchandise sold is recorded as an expense at the date of sale. Therefore, the cost of merchandise sold will be recorded as an expense on the date the merchandise is sold, not when it was purchased or at the end of the accounting period.

Question 7

How are purchase discounts and purchase returns recorded by a company using the periodic inventory system?

Accepted Answer

Under the periodic inventory system, purchase discounts and purchase returns are recorded by debiting the Purchase Discounts or Purchase Returns and Allowances account, which are both contra-accounts to the Purchases account. This reduces the amount of Purchases recorded in the ledger and reflects the correct net amount of purchases made during the accounting period.

Question 8

Texas Inc. sold merchandise to Fagin Corp. on December 28, 2014, with shipping terms of FOB destination. Fagin Corp. received the merchandise on January 3, 2015. Which one of the following statements is true?

Accepted Answer

Since the shipping terms are FOB destination, the ownership of the merchandise stays with Texas Inc. until it reaches Fagin Corp. Therefore, Fagin Corp. should not include the merchandise in its inventory at December 31, 2014. Fagin Corp. should record a liability for the purchase on January 3, 2015, when it received the merchandise. Option A is incorrect because revenue should be recorded when the merchandise is received by Fagin Corp. Option B is incorrect because FOB destination means Texas Inc. is responsible for transportation costs.

Question 9

In a periodic inventory system, the cost of purchases is recognized as

Accepted Answer

In a periodic inventory system, the cost of purchases is recognized as an integral part of the calculation of cost of goods sold.

Question 10

The cost of goods sold is

Accepted Answer

The cost of goods sold is calculated by subtracting ending inventory from the goods available for sale during the accounting period. It is not determined by purchases, beginning inventory, or the amount of inventory on hand at the end of the period.

Question 11

Blenham, Inc. sells merchandise on credit. If a customer pays its balance due within the discount period, what is the effect of the payment on Blenham's accounting equation?

Accepted Answer

When a customer pays its balance due within the discount period, Blenham, Inc. receives cash (an asset), which decreases the accounts receivable (also an asset), with no change to liabilities. The discount reduces the revenue (and thus net income and retained earnings), decreasing stockholders' equity.

Question 12

The following is from Goldman Inc.'s 2015 income statement.  How much will Goldman report as cost of goods purchased in its 2015 income statement?

Accepted Answer

The answer of The following is from Goldman Inc.'s 2015...

Question 13

Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price of $20 each on August 5, 2015, on account. If Tile Magic Corp. pays the amount of the invoice for its purchase on August 14, 2015, how much cash will Floors receive from Tile Magic Corp.?

Accepted Answer

The answer of Floors, Inc. offers terms of 2/10, n/30...

Question 14

Which one of the following is correct?

Accepted Answer

Under the perpetual system, inventory losses can be identified and controlled better as there is continuous monitoring of inventory levels and any discrepancies can be identified immediately. In contrast, under the periodic system, inventory losses may not be detected until the end of the accounting period when the physical inventory count is taken.

Question 15

When an inventory system updates the Inventory account at the time of each sale, this is known as:

Accepted Answer

When an inventory system updates the Inventory account at the time of each sale, it is a perpetual system. In contrast, a periodic system updates the Inventory account only at the end of a period (such as a month) based on a physical count of inventory. A contra-purchase system does not exist, and an accrual system refers to the method of recognizing revenue or expenses when they are earned or incurred, respectively, regardless of when cash is exchanged.

Question 16

Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price of $20 each on August 5, 2015, on account. Tile Magic Corp. paid the invoice on August 31, 2015. How much sales discount will Floors recognize?

Accepted Answer

The answer of Floors, Inc. offers terms of 2/10, n/30...

Question 17

In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for

Accepted Answer

The answer of In order to determine inventory for its...

Question 18

Blenham, Inc. sells merchandise on credit. If a customer pays its balance due after the discount period has passed, what is the effect of the payment on Blenham's accounting equation?

Accepted Answer

If a customer pays its balance due after the discount period has passed, there will be no net effect on Blenham's accounting equation as the payment will only reduce the accounts receivable (asset) and increase the cash (asset) by the same amount. Therefore, both sides of the equation will decrease and increase by the same value, resulting in no net effect.

Question 19

Which one of the following statements is false?

Accepted Answer

The answer of Which one of the following statements is...

Question 20

-Baker Corp. sold merchandise to a customer on credit. The invoice amount was $1,000; the invoice date was June 10; credit terms were 1/10, n/30. Which one of the following statements is true?

Accepted Answer

The credit terms of 1/10, n/30 mean that the customer can take a 1% discount if the invoice is paid within 10 days (by June 20) or must pay the full amount within 30 days (by July 10). Therefore, if the invoice is paid on July 9 (one day before the 30-day deadline), the customer should pay the full $1,000 amount. Option A is incorrect because the discount can only be taken if paid within 10 days, not 20 days. Option C is incorrect because there is no penalty mentioned in the given credit terms. Option D is incorrect because it includes a penalty and does not take into account the discount option.

Quiz 5: Inventories and Cost of Goods Sold