Question 1

Revenue from contracts with multiple performance obligations is recognized as each performance obligation is satisfied.

Accepted Answer

This is in accordance with the guidance provided in the Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers.

Question 2

Purchase Discounts is a contra asset account.

Accepted Answer

Purchase Discounts is a contra expense account.

Question 3

Under the new revenue recognition standards,companies recognize revenue when performance obligations associated with contracts are identified.

Accepted Answer

Under the new revenue recognition standards,companies recognize revenue when,or as,it satisfies each performance obligation.

Question 4

Complete Electronics Inc.sells a point-of-sale computer with a two-year service contract.Complete collects $3,000 cash for the selling price of the computer and $576 for the two-year service contract.How is revenue recognized?

Accepted Answer

Revenue for the computer is recognized at the point of delivery, which is when the $3,000 cash is collected. Revenue for the service contract is recognized over the 24-month period, at a rate of $24 per month, as this represents the time frame over which the service will be provided. Therefore, Complete will record Sales Revenue of $3,000 when the computer is delivered and Service Revenue of $24 per month for 24 months.

Question 5

Home Theater Company has the following transaction related to the sale of merchandise inventory.
  
Journalize the transactions of Home Theater assuming that the company uses the perpetual inventory system.Do not record the cost of goods sold entry.Omit explanations.

Accepted Answer

The answer of Home Theater Company has the following transaction...

Question 6

In a periodic inventory system,businesses must obtain a physical count of inventory to determine quantities on hand.

Accepted Answer

In a periodic inventory system, businesses do not continuously track their inventory levels, so they must perform a physical count to determine the quantities of each item on hand. This is usually done at the end of an accounting period, such as at the end of a month or year.

Question 7

The gross profit percentage for Fran's Clothing Retailer was 37.7% for the year ended December 31,2018 and 42.5% for the year ended December 31,2019.The industry average gross profit percentage,for both years,is 45.7%.Briefly discuss these findings.

Accepted Answer

The answer of The gross profit percentage for Fran's Clothing...

Question 8

Carpenter,Inc.generated sales revenues of $1,400,000 in 2019.Its cost of goods sold amounted to Calculate Carpenter's gross profit percentage.

Accepted Answer

B)Gross profit = Sales revenue - Cost of goods sold = $1,400,000 - $560,000 = $840,000
Gross profit percentage = Gross profit / Sales revenue = $840,000 / $1,400,000 = 60%

Question 9

Under the new revenue recognition standards,companies are required to identify the performance obligations associated with each contract.

Accepted Answer

Under the new revenue recognition standards, companies are required to identify the distinct performance obligations associated with each contract.

Question 10

Smaller businesses invest in a periodic inventory system because of the ability to determine quantities of inventory on hand after each purchase and sale of merchandise inventory.

Accepted Answer

Smaller businesses invest in a periodic inventory system because it is too expensive to invest in a perpetual inventory system.

Question 11

Bridgeport Enterprises reported the following figures from its adjusted trial balance for its first year of business,which ended on June 30,2019.
  
Requirements:
a.Prepare a multi-step income statement.
b.Prepare the statement of retained earnings.
c.Prepare a classified balance sheet.
d.Compute the gross profit percentage.

Accepted Answer

The answer of Bridgeport Enterprises reported the following figures from...

Question 12

In a perpetual inventory system,multiple performance obligations ________.

Accepted Answer

In a perpetual inventory system where a company has multiple performance obligations, the company is required to allocate the transaction price to each performance obligation. This is because each performance obligation represents a separate deliverable under the contract, and the company must recognize revenue for each deliverable as it is fulfilled. Therefore, option D is the correct choice. Option A is incorrect because multiple performance obligations represent separate deliverables, not a single one. Option B is incorrect because creating an unearned revenue account is not a requirement of a perpetual inventory system with multiple performance obligations. Option C is not strictly true in all cases, as revenue recognition under IFRS 15 and ASC 606 depends on meeting specific criteria beyond the existence of a binding contract.

Question 13

The Merchandise Inventory account is only used in a perpetual inventory system.

Accepted Answer

All inventory systems use the Merchandise Inventory account.

Question 14

If a merchandiser uses the periodic inventory system,it is necessary to conduct a physical count of inventory to determine the quantity of inventory on hand.

Accepted Answer

In the periodic inventory system, inventory is not continually tracked, so a physical count is necessary to determine the quantity on hand at the end of a specific period.

Question 15

A retailer sells,for cash,a television set with a two-year service contract.The retailer initially records the cash received for the service contract as Unearned Revenue.

Accepted Answer

When a retailer sells a product with an accompanying service contract, the cash received for the service contract is initially recorded as unearned revenue. This is because the retailer has not yet provided the service, and therefore cannot recognize the revenue until the service has been performed. Over time, as the retailer fulfills its obligations under the service contract, the unearned revenue is gradually recognized as revenue.

Question 16

In a periodic inventory system,purchases,purchase discounts,and purchase returns and allowances are recorded in the Merchandise Inventory account as and when they occur.

Accepted Answer

In a periodic inventory system,purchases,purchase discounts,and purchase returns and allowances are recorded in separate accounts during the year.

Question 17

In a periodic inventory system,________.

Accepted Answer

In a periodic inventory system, merchandise quantities on hand are not updated after each sale and purchase. Instead, businesses must obtain a physical count of inventory at regular intervals (i.e. periodically) to determine the quantities on hand. This method is less costly to implement than a perpetual inventory system, which requires continuous updating of inventory quantities, but it also provides less real-time information on inventory levels. The use of a periodic inventory system is not a violation of U.S. GAAP, but businesses must ensure that they properly account for inventory costs and follow GAAP guidelines for inventory valuation and reporting.

Question 18

Regarding the inventory system used by small retailers,which of the following statements is incorrect?

Accepted Answer

While a perpetual inventory system can provide benefits, such as real-time tracking of inventory levels and reducing the risk of stockouts, it is not a requirement for small retailers to be competitive. Small retailers can still effectively track their inventory and make informed purchasing decisions using a periodic inventory system or a combination of manual and digital methods.

Question 19

What does the gross profit percentage measure? How is it computed?

Accepted Answer

The answer of What does the gross profit percentage measure?...

Question 20

A company made net sales revenue of $500,000,and cost of goods sold totaled $300,000.Calculate its gross profit percentage.

Accepted Answer

A)Gross profit = Sales revenue - Cost of goods sold = $500,000 - $300,000 = $200,000
Gross profit percentage = Gross profit / Sales revenue = $200,000 / $500,000 = 40%

Quiz 5: Merchandising Operations