ch05
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ch05

Course Number: BUS 2212, Spring 2013

College/University: FIT

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C HAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT 6 6 7 7 7 7 8 1 1 K K K K K K K K K 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP C K K K AP AP K C C K K C Item SO BT 2 3 3 4 5 6 K K K C K K 8 8 1 2 2 2 3 4 6 5 6 7 8 8...

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HAPTER C 5 ACCOUNTING FOR MERCHANDISING OPERATIONS SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT 6 6 7 7 7 7 8 1 1 K K K K K K K K K 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP AP C K K K AP AP K C C K K C Item SO BT 2 3 3 4 5 6 K K K C K K 8 8 1 2 2 2 3 4 6 5 6 7 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 K K AP K K K K K AP K K K K K K K K K K K K K K K K K K True-False Statements 1. 2. 3. 4. 5. 6. 7. 8. 9. 1 1 1 2 2 2 2 3 3 C C K K K K K C C 10. 11. 12. 13. 14. 15. 16. 17. 18. 3 3 3 4 4 4 5 5 5 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 1 1 1 1 1 1 1 1 1 1 2 2 2 3 3 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 K K C K K C K K C K C C C K C K K C K C C C AP AP C K AP AP K AP 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 C C K C K K K K K 19. 20. 21. 22. 23. 24. 25. 26. 27. 5 5 5 5 5 5 5 6 6 K K C C C K K AP K 28. 29. 30. 31. a 32. a 33. a 34. sg 35. sg 36. sg 37. 38. sg 39. sg 40. sg 41. sg 42. sg Multiple Choice Questions sg AP AP AP AP C C AP AP C C C K K C C K K C K AP C C C C C C AP AP AP K 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 This question also appears in the Study Guide. K C C K K C C K C C AP K C C C AP K C K K K AP AP K C K K AP AP AP 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. a 146. a 147. a 148. 149. 150. 151. a 152. a 153. a 154. a 155. a 156. a 157. a 158. a 159. a 160. a 161. a 162. a 163. 164. sg 165. sg 166. sg 167. st 168. sg 169. st 170. sg 171. st 172. sg 173. a,st 174 . 175. 176. 177. 178. 179. 180. 181 182 183. 184. 185. 186. 187. 188. 189. a 5-2 st a Test Bank for Accounting Principles, Tenth Edition This question also appears in a self-test at the student companion website. This question covers a topic in an appendix to the chapter. FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 5-3 SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMY Brief Exercises 190. 191. 192. 1 2 2,3 AP AP AP 193. 194. 195. 3 3 4 AP AP AP 196. 197. 198. 5 6 7 AP AP AP 199. 200. a 201. 7 7 7 AP AP AP 217. 218. 219. 220. a 221. 5,6 5,6 5,6 5,6 7 AP C AP AP AP 3 3 K K 1 1 K K Exercises 202. 203. 204. 205. 206. 1 2,3 2,3 2 2,3 C AP AP E AP 207. 208. 209. 210. 211. 2,3 2 3 3 4 AN AP AP AP AP 212. 213. 214. 215. 216. 4 4 5 5,6 5,6 AP AP AN AP AP a 222. 223. a 224. a 225. a 226. 7 7 7 8 7 AP AP AP AP AP 235. 236. 6 6 K K a Completion Statements 227. 228. 1 1 K K 237. 1 K 238. 239. 3 1 K K 229. 230. 240. 241. 1 2 K K 231. 2 K 233. 232. 3 K 234. Matching Statements 3 5 Short-Answer Essay K 242. 1 K 244. K 243. 5 K 245. SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item Type Item Type Item 1. 2. 3. 35. TF TF TF TF 36. 43. 44. 45. TF MC MC MC 46. 47. 48. 49. 4. 5. 6. 7. 37. 53. TF TF TF TF TF MC 54. 55. 58. 59. 60. 61. MC MC MC MC MC MC 62. 63. 64. 65. 66. 67. 8. 9. 10. 11. 12. 38. 39. 56. TF TF TF TF TF TF TF MC 57. 74. 75. 76. 77. 78. 79. 80. MC MC MC MC MC MC MC MC 81. 82. 83. 84. 85. 86. 87. 88. Type Item Type Item Study Objective 1 MC 50. MC 190. MC 51. MC 202. MC 52. MC 227. MC 165. MC 228. Study Objective 2 MC 68. MC 156. MC 69. MC 157. MC 70. MC 158. MC 71. MC 166. MC 72. MC 167. MC 73. MC 203. Study Objective 3 MC 89. MC 97. MC 90. MC 98. MC 91. MC 99. MC 92. MC 100. MC 93. MC 101. MC 94. MC 102. MC 95. MC 103. MC 96. MC 104. Type Item Type Item Type BE Ex C C 229. 237. 239. 242. C MA SA SA 244. 245. SA SA MC MC MC BE BE Ex 204. 205. 206. 207. 208. 230. Ex Ex Ex Ex Ex C 231. C MC MC MC MC MC MC MC MC 105. 106. 107. 169. 192. 193. 194. 203. MC MC MC MC BE BE BE Ex 204. 206. 209. 210. 232. 233. 234. 240. Ex Ex Ex Ex C C C SA FOR INSTRUCTOR USE ONLY 5-4 Test Bank for Accounting Principles, Tenth Edition SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE 13. 14. 16. 17. 18. 19. 20. TF TF 15. 40. TF TF 108. 109. TF TF TF TF TF 21. 22. 23. 24. 25. TF TF TF TF TF 41. 113. 114. 115. 116. 26. TF 27. TF 28. TF 29. TF 42. TF 124. MC 125. 126. 127. 128. 129. 130. MC MC MC MC MC MC 131. 132. 133. 134. 135. 136. a 30. 31. a 32. a 33. a 146. a a 34. 163. a 164. a a TF TF TF TF MC 147. 148. a 149. a 150. a 151. TF MC MC 175. 176. 177. a MC MC MC MC MC MC MC a 152. 153. a 154. a 155. a 156. a 178. 179. 180. Note: TF = True-False MC = Multiple Choice MA = Matching Study Objective 4 MC 110. MC 112. MC 111. MC 170. Study Objective 5 TF 117. MC 122. MC 118. MC 123. MC 119. MC 172. MC 120. MC 196. MC 121. MC 215. Study Objective 6 MC 137. MC 143. MC 138. MC 144. MC 139. MC 145. MC 140. MC 171. MC 141. MC 173. MC 142. MC 197. a Study Objective 7 MC a157. MC a162. MC a158. MC a174. MC a159. MC a198. MC a160. MC a199. MC a161. MC a200. Study Objective a8 181. MC 184. MC 182. MC 185. MC 183. MC 186. MC MC 195. 211. BE Ex 212. 213. Ex Ex MC MC MC BE Ex 216. 217. 218. 219. 220. Ex Ex Ex Ex Ex 241. 243. SA SA MC MC MC MC MC BE 215. 216. 217. 218. 219. 220. Ex Ex Ex Ex Ex Ex 235. 236. C C 201. 221. a 222. a 223. a 224. BE Ex Ex Ex Ex a 226. Ex 187. 188. 189. MC MC MC a 225. Ex MC MC BE BE BE MC MC MC BE = Brief Exercise Ex = Exercise FOR INSTRUCTOR USE ONLY a a C = Completion SA = Short-Answer Accounting for Merchandising Operations 5-5 CHAPTER STUDY OBJECTIVES 1. Identify the differences between service and merchandising companies. Because of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual and a periodic inventory system. 2. Explain the recording of purchases under a perpetual inventory system. The company debits the Inventory account for all purchases of merchandise, freight-in, and other costs, and credits it for purchase discounts and purchase returns and allowances. 3. Explain the recording of sales revenues under a perpetual inventory system. When a merchandising company sells inventory, it debits Accounts Receivable (or Cash) and credits Sales Revenue for the selling price of the merchandise. At the same time, it debits Cost of Goods Sold and credits Inventory for the cost of the inventory items sold. 4. Explain the steps in the accounting cycle for a merchandising company. Each of the required steps in the accounting cycle for a service company applies to a merchandising company. A worksheet is again an optional step. Under a perpetual inventory system, the company must adjust the Inventory account to agree with the physical count. 5. Distinguish between a multiple-step and a single-step income statement. A multiple-step income statement shows numerous steps in determining net income, including nonoperating activities sections. A single-step income statement classifies all data under two categories, revenues or expenses, and determines net income in one step. 6. Explain the computation and importance of gross profit. Merchandising companies compute gross profit by subtracting cost of goods sold from net sales. Gross profit represents the merchandising profit of a company. Managers and other interested parties closely watch the amount and trend of gross profit and of the gross profit rate. a 7. Explain the recording of purchases and sales of inventory under a periodic inventory system. In recording purchases under a periodic system, companies must make entries for (a) cash and credit purchases, (b) purchase returns and allowances, (c) purchase discounts, and (d) freight costs. In recording sales, companies must make entries for (a) cash and credit sales, (b) sales returns and allowances, and (c) sales discounts. a 8. Prepare a worksheet for a merchandising company. The steps in preparing a worksheet for a merchandising company are the same as for a service company. The unique accounts for a merchandising company are Inventory, Sales Revenue, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold. FOR INSTRUCTOR USE ONLY 5-6 Test Bank for Accounting Principles, Tenth Edition TRUE-FALSE STATEMENTS 1. Retailers and wholesalers are both considered merchandisers. Register to View AnswerSO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 2. The steps in the accounting cycle are different for a merchandising company than for a service company. Register to View AnswerSO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 3. Sales minus operating expenses equals gross profit. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 4. Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 5. A periodic inventory system requires a detailed inventory record of inventory items. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 6. Freight terms of FOB Destination means that the seller pays the freight costs. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 7. Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 8. Sales revenues are earned during the period cash is collected from the buyer. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 9. The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 10. The revenue recognition principle applies to merchandisers by recognizing sales revenues when they are earned. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 11. Sales Allowances and Sales Discounts are both designed to encourage customers to pay their accounts promptly. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 12. To grant a customer a sales return, the seller credits Sales Returns and Allowances. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 13. A company's unadjusted balance in Inventory will usually not agree with the actual amount of inventory on hand at year-end. Register to View AnswerSO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 14. 5-7 For a merchandising company, all accounts that affect the determination of income are closed to the Income Summary account. Register to View AnswerSO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 15. A merchandising company has different types of adjusting entries than a service company. Register to View AnswerSO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 16. Nonoperating activities exclude revenues and expenses that result from secondary or auxiliary operations. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 17. Operating expenses are different for merchandising and service enterprises. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 18. Net sales appears on both the multiple-step and single-step forms of an income statement. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 19. A multiple-step income statement provides users with more information about a companys income performance. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 20. The multiple-step form of income statement is easier to read than the single-step form. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 21. Inventory is classified as a current asset in a classified balance sheet. Register to View AnswerSO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 22. Gain on sale of equipment and interest expense are reported under other revenues and gains in a multiple-step income statement. Register to View AnswerSO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 23. The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement. Register to View AnswerSO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 24. In a multiple-step income statement, income from operations excludes other revenues and gains and other expenses and losses. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 25. A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 26. If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 27. Gross profit represents the merchandising profit of a company. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5-8 28. Test Bank for Accounting Principles, Tenth Edition Gross profit is a measure of the overall profitability of a company. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 29. Gross profit rate is computed by dividing cost of goods sold by net sales. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics a 30. Purchase Returns and Allowances and Purchase Discounts are subtracted from Purchases to produce net purchases. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 31. Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 32. Under a periodic inventory system, the acquisition of inventory is charged to the Purchases account. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA a 33. Under a periodic inventory system, freight-in on merchandise purchases should be charged to the Inventory account. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA a 34. In a worksheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted trial balance (Dr.) and income statement (Dr.) columns. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 35. Inventory is reported as a long-term asset on the balance sheet. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 36. Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 37. The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 38. Sales revenue should be recorded in accordance with the matching principle. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 39. Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 40. A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count. Register to View AnswerSO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 41. 5-9 If a merchandising company sells land at more than its cost, the gain should be reported in the sales revenue section of the income statement. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 42. The major difference between the balance sheets of a service company and a merchandising company is inventory. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Answers to True-False Statements Item 1. 2. 3. 4. 5. 6. Register to View AnswerF F T F T Item 7. 8. 9. 10. 11. 12. Register to View AnswerF F T F F Item 13. 14. 15. 16. 17. 18. Register to View AnswerT F F F T Item Ans. 19. 20. 21. 22. 23. 24. T F T F F T Item 25. 26. 27. 28. 29. 30. Ans. Item T T T F F T a 31. a 32. a 33. a 34. 35. 36. Register to View AnswerT F T F T Item 37. 38. 39. 40. 41. 42. Register to View AnswerF T T F T MULTIPLE CHOICE QUESTIONS 43. Income from operations is gross profit less a. financing expenses. b. operating expenses. c. other expenses and losses. d. other expenses. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 44. An enterprise which sells goods to customers is known as a a. proprietorship. b. corporation. c. retailer. d. service firm. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 45. Which of the following would not be considered a merchandising company? a. Retailer b. Wholesaler c. Service firm d. Dot Com firm Register to View AnswerSO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 46. A merchandising company that sells directly to consumers is a a. retailer. b. wholesaler. c. broker. d. service company. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics FOR INSTRUCTOR USE ONLY 5 - 10 47. Test Bank for Accounting Principles, Tenth Edition Two categories of expenses for merchandising companies are a. cost of goods sold and financing expenses. b. operating expenses and financing expenses. c. cost of goods sold and operating expenses. d. sales and cost of goods sold. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 48. The primary source of revenue for a wholesaler is a. investment income. b. service fees. c. the sale of merchandise. d. the sale of fixed assets the company owns. Register to View AnswerSO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 49. Sales revenue less cost of goods sold is called a. gross profit. b. net profit. c. net income. d. marginal income. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 50. After gross profit is calculated, operating expenses are deducted to determine a. gross margin. b. net income. c. gross profit on sales. d. net margin. Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 51. Cost of goods sold is determined only at the end of the accounting period in a. a perpetual inventory system. b. a periodic inventory system. c. both a perpetual and a periodic inventory system. d. neither a perpetual nor a periodic inventory system. Register to View AnswerSO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 52. Which of the following expressions is incorrect? a. Gross profit operating expenses = net income b. Sales revenue cost of goods sold operating expenses = net income c. Net income + operating expenses = gross profit d. Operating expenses cost of goods sold = gross profit Register to View AnswerSO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 53. Detailed records of goods held for resale are not maintained under a a. perpetual inventory system. b. periodic inventory system. c. double entry accounting system. d. single entry accounting system. Register to View AnswerSO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 54. 5 - 11 A perpetual inventory system would likely be used by a(n) a. automobile dealership. b. hardware store. c. drugstore. d. convenience store. Register to View AnswerSO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 55. Which of the following is a true statement about inventory systems? a. Periodic inventory systems require more detailed inventory records. b. Perpetual inventory systems require more detailed inventory records. c. A periodic system requires cost of goods sold be determined after each sale. d. A perpetual system determines cost of goods sold only at the end of the accounting period. Register to View AnswerSO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 56. In a perpetual inventory system, cost of goods sold is recorded a. on a daily basis. b. on a monthly basis. c. on an annual basis. d. with each sale. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 57. If a company determines cost of goods sold each time a sale occurs, it a. must have a computer accounting system. b. uses a combination of the perpetual and periodic inventory systems. c. uses a periodic inventory system. d. uses a perpetual inventory system. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 58. Under a perpetual inventory system, acquisition of merchandise for resale is debited to the a. Inventory account. b. Purchases account. c. Supplies account. d. Cost of Goods Sold account. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 59. The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit a. Accounts Payable. b. Purchase Returns and Allowances. c. Sales Revenue. d. Inventory. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY 5 - 12 60. Test Bank for Accounting Principles, Tenth Edition The Inventory account is used in each of the following except the entry to record a. goods purchased on account. b. the return of goods purchased. c. payment of freight on goods sold. d. payment within the discount period. Register to View AnswerSO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 61. A buyer would record a payment within the discount period under a perpetual inventory system by crediting a. Accounts Payable. b. Inventory. c. Purchase Discounts. d. Sales Discounts. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 62. If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the a. Inventory account will be increased. b. Inventory account will not be affected. c. seller will bear the freight cost. d. carrier will bear the freight cost. Register to View AnswerSO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 63. Freight costs paid by a seller on merchandise sold to customers will cause an increase a. in the selling expense of the buyer. b. in operating expenses for the seller. c. to the cost of goods sold of the seller. d. to a contra-revenue account of the seller. Register to View AnswerSO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 64. Paden Company purchased merchandise from Emmett Company with freight terms of FOB shipping point. The freight costs will be paid by the a. seller. b. buyer. c. transportation company. d. buyer and the seller. Register to View AnswerSO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 65. Glenn Company purchased merchandise inventory with an invoice price of $7,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Glenn Company pays within the discount period? a. $6,300 b. $6,440 c. $6,860 d. $7,000 Register to View AnswerSO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 66. 5 - 13 Scott Company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? a. 20% b. 24% c. 36% d. 72% Register to View AnswerSO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 67. If a company is given credit terms of 2/10, n/30, it should a. hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time. b. pay within the discount period and recognize a savings. c. pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill. d. recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price. Register to View AnswerSO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 68. In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to a. Inventory. b. Purchase Discounts. c. Purchase Allowance. d. Sales Discounts. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 69. Jakes Market recorded the following events involving a recent purchase of merchandise: Received goods for $50,000, terms 2/10, n/30. Returned $1,000 of the shipment for credit. Paid $250 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the companys inventory increased by a. $48,020. b. $48,265. c. $48,270. d. $49,250. Register to View AnswerSO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY 5 - 14 70. Test Bank for Accounting Principles, Tenth Edition Costners Market recorded the following events involving a recent purchase of merchandise: Received goods for $20,000, terms 2/10, n/30. Returned $400 of the shipment for credit. Paid $100 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the companys inventory a. increased by $19,208. b. increased by $19,306. c. increased by $19,308. d. increased by $19,700. Register to View AnswerSO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 71. Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in a. Freight Expense b. Freight - In c. Inventory d Freight - Out Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 72. Glover Co. returned defective goods costing $4,000 to Mal Company on April 19, for credit. The goods were purchased April 10, on credit, terms 3/10, n/30. The entry by Glover Co. on April 19, in receiving full credit is: a. Accounts Payable.................................................................. Inventory....................................................................... 4,000 b. Accounts Payable.................................................................. Inventory................................................................................ Cash.............................................................................. 4,000 120 c. Accounts Payable.................................................................. Purchase Discounts...................................................... Inventory....................................................................... 4,000 d. Accounts Payable.................................................................. Inventory....................................................................... Cash.............................................................................. 4,000 4,000 4,120 120 3,880 120 3,880 Register to View AnswerSO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 73. 5 - 15 McIntyre Company made a purchase of merchandise on credit from Marvin Company on August 8, for $8,000, terms 3/10, n/30. On August 17, McIntyre makes the appropriate payment to Marvin. The entry on August 17 for McIntyre Company is: a. Accounts Payable.................................................................. Cash.............................................................................. 8,000 b. Accounts Payable.................................................................. Cash.............................................................................. 7,760 c. Accounts Payable.................................................................. Purchase Returns and Allowances.............................. Cash.............................................................................. 8,000 d. Accounts Payable.................................................................. Inventory....................................................................... Cash.............................................................................. 8,000 8,000 7,760 240 7,760 240 7,760 Register to View AnswerSO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 74. On July 9, Sheb Company sells goods on credit to Wooley Company for $3,000, terms 1/10, n/60. Sheb receives payment on July 18. The entry by Sheb on July 18 is: a. Cash....................................................................................... Accounts Receivable.................................................... 3,000 b. Cash....................................................................................... Sales Discounts............................................................ Accounts Receivable.................................................... 3,000 c. Cash....................................................................................... Sales Discounts..................................................................... Accounts Receivable.................................................... 2,970 30 d. Cash....................................................................................... Sales Discounts............................................................ Accounts Receivable.................................................... 3,030 3,000 30 2,970 3,000 30 3,000 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 75. On November 2, 2012, Kasdan Company has cash sales of $4,500 from merchandise having a cost of $2,700. The entries to record the day's cash sales will include: a. a $2,700 credit to Cost of Goods Sold. b. a $4,500 credit to Cash. c. a $2,700 credit to Inventory. d a $4,500 debit to Accounts Receivable. Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 76. A credit sale of $2,000 is made on April 25, terms 2/10, n/30, on which a return of $125 is granted on April 28. What amount is received as payment in full on May 4? a. $1,837.50 b. $1,875.00 c. $1,960.00 d $2,000.00 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY 5 - 16 77. Test Bank for Accounting Principles, Tenth Edition The entry to record the receipt of payment within the discount period on a sale of $1,000 with terms of 2/10, n/30 will include a credit to a. Sales Discounts for $20. b. Cash for $980. c. Accounts Receivable for $1,000. d. Sales Revenue for $1,000. Register to View AnswerSO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 78. The collection of a $4,000 account within the 2 percent discount period will result in a a. debit to Sales Discounts for $80. b. debit to Accounts Receivable for $3,920. c. credit to Cash for $3,920. d. credit to Accounts Receivable for $3,920. Register to View AnswerSO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 79. Company X sells $600 of merchandise on account to Company Y with credit terms of 2/10, n/30. If Company Y remits a check taking advantage of the discount offered, what is the amount of Company Y's check? a. $420 b. $480 c. $540 d. $588 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 80. Cleese Company sells merchandise on account for $3,000 to Langston Company with credit terms of 2/10, n/30. Langston Company returns $600 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? a. $2,352 b. $2,400 c. $2,940 d. $2,952 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 81. The collection of a $1,200 account after the 2 percent discount period will result in a a. debit to Cash for $1,176. b. debit to Accounts Receivable for $1,200. c. debit to Cash for $1,200. d. debit to Sales Discounts for $24. Register to View AnswerSO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 82. The collection of a $800 account after the 2 percent discount period will result in a a. debit to Cash for $784. b. credit to Accounts Receivable for $800. c. credit to Cash for $800. d. debit to Sales Discounts for $16. Register to View AnswerSO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 83. 5 - 17 In a perpetual inventory system, the Cost of Goods Sold account is used a. only when a cash sale of merchandise occurs. b. only when a credit sale of merchandise occurs. c. only when a sale of merchandise occurs. d. whenever there is a sale of merchandise or a return of merchandise sold. Register to View AnswerSO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 84. Sales revenues are usually considered earned when a. cash is received from credit sales. b. an order is received. c. goods have been transferred from the seller to the buyer. d. adjusting entries are made. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 85. A sales invoice is a source document that a. provides support for goods purchased for resale. b. provides evidence of incurred operating expenses. c. provides evidence of credit sales. d. serves only as a customer receipt. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 86. Sales revenue a. may be recorded before cash is collected. b. will always equal cash collections in a month. c. only results from credit sales. d. is only recorded after cash is collected. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 87. The journal entry to record a credit sale is a. Cash Sales Revenue b. Cash Service Revenue c. Accounts Receivable Service Revenue d. Accounts Receivable Sales Revenue Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 88. A credit memorandum is prepared when a. an employee does a good job. b. goods are sold on credit. c. goods that were sold on credit are returned. d. customers refuse to pay their accounts. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY 5 - 18 89. Test Bank for Accounting Principles, Tenth Edition The Sales Returns and Allowances account is classified as a(n) a. asset account. b. contra asset account. c. expense account. d. contra revenue account. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 90. A credit memorandum is used as documentation for a journal entry that requires a debit to a. Sales Revenue and a credit to Cash. b. Sales Returns and Allowances and a credit to Accounts Receivable. c. Accounts Receivable and a credit to a contra-revenue account. d. Cash and a credit to Sales Returns and Allowances. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 91. If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales a. discount. b. return. c. contra asset. d. allowance. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 92. A credit sale of $2,700 is made on July 15, terms 2/10, n/30, on which a return of $150 is granted on July 18. What amount is received as payment in full on July 24? a. $2,499 b. $2,550 c. $2,646 d $2,700 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 93. When goods are returned that relate to a prior cash sale, a. the Sales Returns and Allowances account should not be used. b. the cash account will be credited. c. Sales Returns and Allowances will be credited. d. Accounts Receivable will be credited. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 94. The Sales Returns and Allowances account does not provide information to management about a. possible inferior merchandise. b. the percentage of credit sales versus cash sales. c. inefficiencies in filling orders. d. errors in overbilling customers. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 95. A Sales Returns and Allowances account is not debited if a customer a. returns defective merchandise. b. receives a credit for merchandise of inferior quality. c. utilizes a prompt payment incentive. d. returns goods that are not in accordance with specifications. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 96. 5 - 19 As an incentive for customers to pay their accounts promptly, a business may offer its customers a. a sales discount. b. free delivery. c. a sales allowance. d. a sales return. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 97. The credit terms offered to a customer by a business firm are 2/10, n/30, which means that a. the customer must pay the bill within 10 days. b. the customer can deduct a 2% discount if the bill is paid between the 10th and 30th day from the invoice date. c. the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date. d. two sales returns can be made within 10 days of the invoice date and no returns thereafter. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 98. A sales discount does not a. provide the purchaser with a cash saving. b. reduce the amount of cash received from a credit sale. c. increase a contra-revenue account. d. increase an operating expense account. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics 99. Company A sells $1,500 of merchandise on account to Company B with credit terms of 2/10, n/30. If Company B remits a check taking advantage of the discount offered, what is the amount of Company B's check? a. $1,050 b. $1,200 c. $1,350 d. $1,470 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 100. Kern Company sells merchandise on account for $6,000 to Block Company with credit terms of 2/10, n/30. Block Company returns $1,200 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? a. $4,704 b. $4,800 c. $5,880 d. $5,904 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics FOR INSTRUCTOR USE ONLY 5 - 20 101. Test Bank for Accounting Principles, Tenth Edition Carter Company sells merchandise on account for $3,000 to Hannah Company with credit terms of 2/10, n/30. Hannah Company returns $450 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Carter Company make upon receipt of the check? a. Cash....................................................................................... 2,550 Accounts Receivable.................................................... 2,550 b. Cash....................................................................................... Sales Returns and Allowances.............................................. Accounts Receivable.................................................... 2,499 501 c. Cash....................................................................................... Sales Returns and Allowances.............................................. Sales Discounts..................................................................... Accounts Receivable.................................................... 2,499 450 51 d. Cash....................................................................................... Sales Discounts..................................................................... Sales Returns and Allowances..................................... Accounts Receivable.................................................... 2,940 60 3,000 3,000 450 2,550 Register to View AnswerSO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 102. Which of the following would not be classified as a contra account? a. Sales Revenue b. Sales Returns and Allowances c. Accumulated Depreciation d. Sales Discounts Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 103. Which of the following accounts has a normal credit balance? a. Sales Returns and Allowances b. Sales Discounts c. Sales Revenue d. Selling Expense Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 104. With respect to the income statement, a. contra-revenue accounts do not appear on the income statement. b. sales discounts increase the amount of sales. c. contra-revenue accounts increase the amount of operating expenses. d. sales discounts are included in the calculation of gross profit. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 105. When a seller grants credit for returned goods, the account that is credited is a. Sales Revenue. b. Sales Returns and Allowances. c. Inventory. d. Accounts Receivable. Register to View AnswerSO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 106. 5 - 21 The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are a. credit, credit, credit. b. debit, credit, debit. c. credit, debit, debit. d. credit, debit, credit. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 107. All of the following are contra revenue accounts except a. sales revenue. b. sales allowances. c. sales discounts. d. sales returns. Register to View AnswerSO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 108. A merchandising company using a perpetual system will make a. the same number of adjusting entries as a service company does. b. one more adjusting entry than a service company does. c. one less adjusting entry than a service company does. d. different types of adjusting entries compared to a service company. Register to View AnswerSO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 109. In preparing closing entries for a merchandising company, the Income Summary account will be credited for the balance of a. sales revenue. b. inventory. c. sales discounts. d. freight-out. Register to View AnswerSO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 110. A merchandising company using a perpetual system may record an adjusting entry by a. debiting Income Summary. b. crediting Income Summary. c. debiting Cost of Goods Sold. d. debiting Sales Revenue. Register to View AnswerSO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 111. The operating cycle of a merchandiser is a. always one year in length. b. generally longer than it is for a service company. c. about the same as for a service company. d. generally shorter than it is for a service company. Register to View AnswerSO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 22 112. Test Bank for Accounting Principles, Tenth Edition When the physical count of Rosanna Company inventory had a cost of $4,300 at year end and the unadjusted balance in Inventory was $4,500, Rosanna will have to make the following entry: a. Cost of Goods Sold................................................................ Inventory....................................................................... 200 b. Inventory................................................................................ Cost of Goods Sold....................................................... 200 c. Income Summary................................................................... Inventory....................................................................... 200 d. Cost of Goods Sold................................................................ Inventory....................................................................... 4,500 200 200 200 4,500 Register to View AnswerSO: 4, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 113. Arquette Company's financial information is presented below. Sales Sales Returns and Allowances Net Sales $ ???? 20,000 450,000 Cost of Goods Sold Gross Profit 270,000 ???? The missing amounts above are: Sales Gross Profit a. $470,000 $180,000 b. $430,000 $180,000 c. $470,000 $210,000 d. $430,000 $210,000 Register to View AnswerSO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics 114. The sales revenue section of an income statement for a retailer would not include a. Sales discounts. b. Sales revenue. c. Net sales. d. Cost of goods sold. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 115. The operating expense section of an income statement for a wholesaler would not include a. freight-out. b. utilities expense. c. cost of goods sold. d. insurance expense. Register to View AnswerSO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 116. Income from operations will always result if a. the cost of goods sold exceeds operating expenses. b. revenues exceed cost of goods sold. c. revenues exceed operating expenses. d. gross profit exceeds operating expenses. Register to View AnswerSO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 117. 5 - 23 Indicate which one of the following would appear on the income statement of both a merchandising company and a service company. a. Gross profit b. Operating expenses c. Sales revenues d. Cost of goods sold Register to View AnswerSO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 118. Conrad Company reported the following balances at June 30, 2012: Sales Sales Returns and Allowances Sales Discounts Cost of Goods Sold $10,800 400 200 5,000 Net sales for the month is a. $5,200. b. $10,200. c. $10,400. d. $10,800. Register to View AnswerSO: 5, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 119. Income from operations appears on a. both a multiple-step and a single-step income statement. b. neither a multiple-step nor a single-step income statement. c. a single-step income statement. d. a multiple-step income statement. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 120. Gross profit does not appear a. on a multiple-step income statement. b. on a single-step income statement. c. to be relevant in analyzing the operation of a merchandiser. d. on the income statement if the periodic inventory system is used because it cannot be calculated. Register to View AnswerSO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 121. Which of the following is not a true statement about a multiple-step income statement? a. Operating expenses are similar for merchandising and service enterprises. b. There may be a section for nonoperating activities. c. There may be a section for operating assets. d. There is a section for cost of goods sold. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 122. Which one of the following is shown on a multiple-step but not on a single-step income statement? a. Net sales b. Net income c. Gross profit d. Cost of goods sold Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 24 123. Test Bank for Accounting Principles, Tenth Edition All of the following items would be reported as other expenses and losses except a. freight-out. b. casualty losses. c. interest expense. d. loss from employees' strikes. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 124. If a company has net sales of $700,000 and cost of goods sold of $490,000, the gross profit percentage is a. 15%. b. 30%. c. 70%. d. 100%. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 125. A company shows the following balances: Sales Revenue Sales Returns and Allowances Sales Discounts Cost of Goods Sold $2,000,000 360,000 40,000 1,120,000 What is the gross profit percentage? a. 30% b. 44% c. 56% d. 70% Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 126. The gross profit rate is computed by dividing gross profit by a. cost of goods sold. b. net income. c. net sales. d. sales revenue. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 127. In terms of liquidity, inventory is a. more liquid than cash. b. more liquid than accounts receivable. c. more liquid than prepaid expenses. d. less liquid than store equipment. Register to View AnswerSO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 128. On a classified balance sheet, inventory is classified as a. an intangible asset. b. property, plant, and equipment. c. a current asset. d. a long-term investment. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 129. 5 - 25 Gross profit for a merchandiser is net sales minus a. operating expenses. b. cost of goods sold. c. sales discounts. d. cost of goods available for sale. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 130. During 2012, Parker Enterprises generated revenues of $60,000. The companys expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000. Parkers gross profit is a. $16,000. b. $18,000. c. $30,000. d. $60,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 131. During 2012, Parker Enterprises generated revenues of $60,000. The companys expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000. Yoders income from operations is a. $12,000. b. $18,000. c. $30,000. d. $60,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 132. During 2012, Parker Enterprises generated revenues of $60,000. The companys expenses were as follows: cost of goods sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000. Yoders net income is a. $16,000. b. $18,000. c. $30,000. d. $60,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 26 133. Test Bank for Accounting Principles, Tenth Edition Financial information is presented below: Operating Expenses $ 40,000 Sales Revenue 150,000 Cost of Goods Sold 90,000 Gross profit would be a. $20,000. b. $60,000. c. $110,000. d. $150,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 134. Financial information is presented below: Operating Expenses $ 40,000 Sales Revenue 150,000 Cost of Goods Sold 90,000 The gross profit rate would be a. .133. b. .400. c. .600. d. .733. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 135. Financial information is presented below: Operating Expenses Sales Returns and Allowances Sales Discounts Sales Cost of Goods Sold $ 45,000 13,000 6,000 150,000 79,000 Gross profit would be a. $52,000. b. $58,000. c. $65,000. d. $71,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 136. Financial information is presented below: Operating Expenses Sales Returns and Allowances Sales Discounts Sales Revenue Cost of Goods Sold 5 - 27 $ 45,000 13,000 6,000 150,000 79,000 The gross profit rate would be a. .347. b. .397. c. .473. d. .542. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 137. Financial information is presented below: Operating Expenses Sales Returns and Allowances Sales Discounts Sales Revenue Cost of Goods Sold $ 45,000 9,000 6,000 160,000 87,000 The amount of net sales on the income statement would be a. $145,000. b. $151,000. c. $154,000. d. $160,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 138. Financial information is presented below: Operating Expenses Sales Returns and Allowances Sales Discounts Sales Revenue Cost of Goods Sold $ 45,000 9,000 6,000 160,000 87,000 Gross profit would be a. $13,000. b. $58,000. c. $64,000. d. $67,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 28 139. Test Bank for Accounting Principles, Tenth Edition Financial information is presented below: Operating Expenses Sales Returns and Allowances Sales Discounts Sales Revenue Cost of Goods Sold $ 45,000 9,000 6,000 160,000 87,000 The gross profit rate would be a. .363. b. .400. c. .456. d. .503. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 140. If a company has sales revenue of $630,000, net sales of $600,000, and cost of goods sold of $378,000, the gross profit rate is a. 37%. b. 40% c. 60%. d. 63%. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 141. Dawsons Fashions sold merchandise for $40,000 cash during the month of July. Returns that month totaled $1,000. If the companys gross profit rate is 40%, Murrays will report monthly net sales revenue and cost of goods sold of a. $39,000 and $23,400. b. $39,000 and $24,000. c. $40,000 and $23,400. d. $40,000 and $24,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 142. During August, 2012, Baxters Supply Store generated revenues of $30,000. The companys expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000. Baxters gross profit for August, 2012 is a. $10,000. b. $10,500. c. $11,500. d. $12,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 143. 5 - 29 During August, 2012, Baxters Supply Store generated revenues of $30,000. The companys expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000. Baxters nonoperating income (loss) for the month of August, 2012 is a. $0. b. $500. c. $1,000. d. $1,500. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 144. During August, 2012, Baxters Supply Store generated revenues of $30,000. The companys expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000. Baxters operating income for the month of August, 2012 is a. $10,000. b. $10,500. c. $11,500. d. $12,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 145. During August, 2012, Baxters Supply Store generated revenues of $30,000. The companys expenses were as follows: cost of goods sold of $18,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on the sale of a delivery truck of $1,000. Baxters net income for August, 2012 is a. $10,000. b. $10,500. c. $11,500. d. $12,000. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 30 Test Bank for Accounting Principles, Tenth Edition a 146. Cobb Company's accounting records show the following at the year ending on December 31, 2012: Purchase Discounts Freight - in Purchases Beginning Inventory Ending Inventory Purchase Returns $ 5,600 7,800 201,000 23,500 28,800 6,400 Using the periodic system, the cost of goods purchased is a. $189,000. b. $191,500. c. $196,800. d. $202,100. Register to View AnswerSO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting a 147. Cobb Company's accounting records show the following at the year ending on December 31, 2012: Purchase Discounts Freight - in Purchases Beginning Inventory Ending Inventory Purchase Returns $ 5,600 7,800 201,000 23,500 28,800 6,400 Using the periodic system, the cost of goods sold is a. $189,000. b. $191,500. c. $196,800. d. $202,100. Register to View AnswerSO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting a 148. The following information is available for Dennehy Company: Sales Ending Inventory Purchases $260,000 25,000 180,000 Freight-in $20,000 Purchase Returns and Allowances 10,000 Beginning Inventory 30,000 Dennehy's cost of goods sold is a. $175,000. b. $190,000. c. $195,000. d. $230,000. Register to View AnswerSO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations a 149. 5 - 31 At the beginning of September, 2012, Stella Company reported Inventory of $4,000. During the month, the company made purchases of $17,800. At September 31, 2012, a physical count of inventory reported $4,200 on hand. Cost of goods sold for the month is a. $17,600. b. $17,800. c. $18,000. d. $21,800. Register to View AnswerSO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting a 150. At the beginning of the year, Hunt Company had an inventory of $500,000. During the year, the company purchased goods costing $1,600,000. If Hunt Company reported ending inventory of $600,000 and sales of $2,500,000, the companys cost of goods sold and gross profit rate must be a. $1,000,000 and 66.7%. b. $1,500,000 and 40%. c. $1,000,000 and 40%. d. $1,500,000 and 60%. Register to View AnswerSO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting a 151. During the year, Slicks Pet Shops inventory decreased by $20,000. If the companys cost of goods sold for the year was $400,000, purchases must have been a. $380,000. b. $400,000. c. $420,000. d. Unable to determine. Register to View AnswerSO: 7, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA a 152. Cost of goods available for sale is computed by adding a. beginning inventory to net purchases. b. beginning inventory to the cost of goods purchased. c. net purchases and freight-in. d. purchases to beginning inventory. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics a 153. The Freight-in account a. increases the cost of merchandise purchased. b. is contra to the Purchases account. c. is a permanent account. d. has a normal credit balance. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 154. Net purchases plus freight-in determines a. cost of goods sold. b. cost of goods available for sale. c. cost of goods purchased. d. total goods available for sale. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 32 Test Bank for Accounting Principles, Tenth Edition a 155. Goldblum Company has the following account balances: Purchases $48,000 Sales Returns and Allowances 6,400 Purchase Discounts 4,000 Freight-in 3,000 Delivery Expense 5,000 The cost of goods purchased for the period is a. $40,400. b. $44,000. c. $47,000. d. $52,000. Register to View AnswerSO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 156. McKendrick Shoe Store has a beginning inventory of $30,000. During the period, purchases were $130,000; purchase returns, $4,000; and freight-in $10,000. A physical count of inventory at the end of the period revealed that $20,000 was still on hand. The cost of goods available for sale was a. $126,000. b. $136,000. c. $146,000. d. $166,000. Register to View AnswerSO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 157. In a periodic inventory system, a return of defective merchandise to a supplier is recorded by crediting a. Accounts Payable. b. Inventory. c. Purchases. d. Purchase Returns and Allowances. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA a 158. Which one of the following transactions is recorded with the same entry in a perpetual and a periodic inventory system? a. Cash received on account with a discount b. Payment of freight costs on a purchase c. Return of merchandise sold d. Sale of merchandise on credit Register to View AnswerSO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations a 159. 5 - 33 The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be a. Accounts Payable Purchase Returns and Allowances b. Purchase Returns and Allowances Accounts Payable c. Accounts Payable Inventory d. Inventory Accounts Payable Register to View AnswerSO: 7, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA a 160. Under a periodic inventory system, acquisition of merchandise is debited to the a. Inventory account. b. Cost of Goods Sold account. c. Purchases account. d. Accounts Payable account. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA a 161. Which of the following accounts has a normal credit balance? a. Purchases b. Sales Returns and Allowances c. Freight-in d. Purchase Discounts Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 162. The respective normal account balances of Purchases, Purchase Discounts, and Freightin are a. credit, credit, debit. b. debit, credit, credit. c. debit, credit, debit. d. debit, debit, debit. Register to View AnswerSO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 163. In a worksheet for a merchandising company, Inventory would appear in the a. trial balance and adjusted trial balance columns only. b. trial balance and balance sheet columns only. c. trial balance, adjusted trial balance, and balance sheet columns. d. trial balance, adjusted trial balance, and income statement columns. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 164. The Inventory account balance appearing in a worksheet represents the a. ending inventory. b. beginning inventory. c. cost of merchandise purchased. d. cost of merchandise sold. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 34 165. Test Bank for Accounting Principles, Tenth Edition Ezra Company has sales revenue of $40,000, cost of goods sold of $24,000 and operating expenses of $9,000 for the year ended December 31. Ezra's gross profit is a. $0. b. $7,000. c. $16,000. d. $31,000. Register to View AnswerSO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 166. Rae Company made a purchase of merchandise on credit from Tyree Corporation on August 3, for $7,000, terms 2/10, n/45. On August 10, Rae makes the appropriate payment to Tyree. The entry on August 10 for Rae Company is a. Accounts Payable.................................................................. 7,000 Cash............................................................................... 7,000 b. Accounts Payable.................................................................. 6,860 Cash............................................................................... 6,860 c. Accounts Payable.................................................................. 7,000 Purchase Returns and Allowances................................ 140 Cash............................................................................... 6,860 d. Accounts Payable.................................................................. 7,000 Inventory......................................................................... 140 Cash............................................................................... 6,860 Register to View AnswerSO: 2, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 167. Kate Company purchased inventory from Phoebe Company. The shipping costs were $500 and the terms of the shipment were FOB shipping point. Kate would have the following entry regarding the shipping charges: a. There is no entry on Kate's books for this transaction. b. Freight Expense..................................................................... 500 Cash.............................................................................. 500 c. Freight-out.............................................................................. 500 Cash.............................................................................. 500 d. Inventory................................................................................ 500 Cash.............................................................................. 500 Register to View AnswerSO: 2, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 168. In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting a. Purchases. b. Purchase Returns. c. Purchase Allowance. d. Inventory. Register to View AnswerSO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 169. 5 - 35 On October 4, 2012, JT Corporation had credit sales transactions of $3,200 from merchandise having cost $1,900. The entries to record the day's credit transactions include a a. debit of $3,200 to Inventory. b. credit of $3,200 to Sales Revenue. c. debit of $1,900 to Inventory. d. credit of $1,900 to Cost of Goods Sold. Register to View AnswerSO: 3, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA 170. Which of the following accounts is not closed to Income Summary? a. Cost of Goods Sold b. Inventory c. Sales Revenue d. Sales Discounts Register to View AnswerSO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 171. In the Augie Company, sales were $500,000, sales returns and allowances were $20,000, and cost of goods sold was $300,000. gross The profit rate was a. 36%. b. 37.5%. c. 40%. d. 41.7%. Register to View AnswerSO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting 172. Net sales is sales less a. sales discounts. b. sales returns. c. sales returns and allowances. d. sales discounts and sales returns and allowances. Register to View AnswerSO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 173. In the balance sheet, ending inventory is reported a. in current assets immediately following accounts receivable. b. in current assets immediately following prepaid expenses. c. in current assets immediately following cash. d. under property, plant, and equipment. Register to View AnswerSO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a 174. Cost of goods available for sale is computed by adding a. freight-in to net purchases. b. beginning inventory to net purchases. c. beginning inventory to purchases and freight-in. d. beginning inventory to cost of goods purchased. Register to View AnswerSO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 175. The Income statement is a. required under GAAP but not under IFRS. b. required under IFRS in the same format as under GAAP. c. required under IFRS but not under GAAP. d. required under IFRS with some differences as compared to GAAP. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 36 176. Test Bank for Accounting Principles, Tenth Edition The basic accounting entries for merchandising are a. the same under GAAP and under IFRS. b. required under GAAP but not under IFRS. c. required under IFRS but not under GAAP. d. required under IFRS with some differences as compared to GAAP. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 177. Under GAAP, companies can choose which inventory system? Perpetual Periodic a. Yes No b. Yes Yes c. No Yes d. Yes No Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 178. Under IFRS, companies can choose which inventory system? Perpetual Periodic a. Yes No b. Yes Yes c. No Yes d. Yes No Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 179. Companies cannot use the a. periodic inventory system under GAAP. b. periodic inventory system under IFRS. c. perpetual system under IFRS. d. none of the above; both periodic and perpetual can be used under GAAP and IFRS. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 180. Inventories are defined by IFRS as a. held-for-sale in the ordinary course of business. b. in the process of production for sale in the ordinary course of business. c. in the form of materials or supplies to be consumed in the production process or in the providing of services. d. all of the above. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 181. Under GAAP, companies generally classify income statement items by a. function. b. nature. c. nature or function d. date incurred. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 182. Under IFRS, companies must classify income statement items by a. function. b. nature. c. nature or function d. date incurred. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 183. 5 - 37 Under GAPP, income statement items are generally described as a. administration, distribution, manufacturing, etc. b. salaries, depreciation, utilities, etc. c. administration, depreciation, manufacturing, etc. d. salaries, distribution, utilities, etc. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 184. Under IFRS, income statement items are generally described as a. administration, distribution, manufacturing, etc. b. salaries, depreciation, utilities, etc. c. administration, depreciation, manufacturing, etc. d. salaries, distribution, utilities, etc. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 185. For the income statement, IFRS requires a. single-step approach. b. multiple-step approach. c. single-step approach or multiple-step approach. d. no specific income statement approach. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 186. Under IFRS, companies can apply revaluation to a. land, buildings, and intangible assets. b. land, buildings, but not intangible assets. c. intangible assets, but not land or beer. d. no assets. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 187. The use of IFRS results in more transactions affecting a. net income but not other comprehensive income. b. other comprehensive income, but not net income. c. but net income and other comprehensive income. d. neither net income nor other comprehensive income. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 188. Comprehensive income under IFRS a. includes unrealized gains and losses included in net income, in contrast to GAAP. b. includes unrealized gains and losses included in net income, similar to GAAP. c. excludes unrealized gains and losses included in net income, in contrast to GAAP. d. excludes unrealized gains and losses included in net income, similar to GAAP. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 189. The number of years of income statement information to be presented is a. 2 years under both GAAP and IFRS. b. 3 years under both GAAP and IFRS. c. 2 years under GAAP and 3 years under IFRS. d. 3 years under GAAP and 2 years under IFRS. Register to View AnswerSO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 38 Test Bank for Accounting Principles, Tenth Edition Answers to Multiple Choice Questions Item 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. Register to View Answerc c a c c a b b d b a b d d a d c b a b Item 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. Register to View Answerc c b a c c c a d c c a c a d a c b d c Item 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. Register to View Answera d c d b d a b b c a c d d a c a c d d Item 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124. 125. 126. Register to View Answera b a c b a a d c d b b d b c c a b a c Item Ans. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. a 146 a . 147 . c c b c b a b b a b a b b a a d d a c c b Item a 148. 149. a 150. a 151. a 152. a 153. a 154. a 155. a 156. a 157. a 158. a 159. a 160. a 161. a 162. a 163. a 164. 165. 166. 167. 168. a Ans. Item Register to View Answera b a b a c c d d a a c d c c a c d d d 169. 170. 171. 172. 173. a 174. 175. 176. 177. 178. 179. 180. 181. 182. 183. 184. 185. 186. 187. 188. 189. b b b d a d d a b b d d a c a b d a b b d BRIEF EXERCISES BE 190 Presented here are the components in Bradley Companys income statement. Determine the missing amounts. Cost of _Sales Revenue_Goods Sold $75,000 (a) (c) $86,000 Gross _Profit $30,000 $64,000 Operating Expenses (b) $48,000 Net Income $17,000 (d) Ans: N/A, SO: 1, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 190 a. b. c. d. (5 min.) $45,000 $13,000 $150,000 $16,000 BE 191 Prepare the necessary journal entries on the books of Kelly Carpet Company to record the following transactions, assuming a perpetual inventory system (you may omit explanations): (a) Kelly purchased $40,000 of merchandise on account, terms 2/10, n/30. (b) Returned $3,000 of damaged merchandise for credit. (c) Paid for the merchandise purchased within 10 days. FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 5 - 39 Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 191 (5 min.) (a) Inventory......................................................................................... Accounts Payable............................................................... (b) (c) 40,000 40,000 Accounts Payable........................................................................... Inventory............................................................................. 3,000 Accounts Payable ($40,000 $3,000)........................................... Inventory ($37,000 .02)................................................... Cash ($37,000 $740)....................................................... 37,000 3,000 740 36,260 BE 192 Garth Company sold goods on account to Kyle Enterprises with terms of 2/10, n/30. The goods had a cost of $600 and a selling price of $1,000. Both Garth and Kyle use a perpetual inventory system. Record the sale on the books of Garth and the purchase on the books of Kyle. Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 192 (3 min.) Journal entry on Garths books: Accounts Receivable........................................................................ Sales........................................................................................ 1,000 1,000 Cost of Goods Sold........................................................................ Inventory................................................................... 600 600 Journal entry on Kyles books: Inventory... ..................................................................... Accounts Payable.................................................................... 1,000 1,000 BE 193 Richter Company sells merchandise on account for $2,000 to Lynch Company with credit terms of 3/10, n/60. Lynch Company returns $200 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Richter Company make upon receipt of the check and the damaged merchandise? Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 193 (3 min.) Sales Returns and Allowances........................................................ Sales Discounts ($1,800 .03)....................................................... Cash ($2,000 $200 $54)............................................................. Accounts Receivable .............................................................. FOR INSTRUCTOR USE ONLY 200 54 1,746 2,000 Test Bank for Accounting Principles, Tenth Edition 5 - 40 BE 194 Charlie Company uses a perpetual inventory system. During May, the following transactions and events occurred. May 13 Sold 6 motors at a cost of $45 each to Scruffy Brothers Supply Company, terms 4/10, n/30. The motors cost Charlie $26 each. May 16 One defective motor was returned to Charlie. May 23 Received payment in full from Scruffy Brothers. Instructions Journalize the May transactions for Charlie Company (seller) assuming that Charlie uses a perpetual inventory system. You may omit explanations. Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 194 May May 23 270 156 Sales Returns and Allowances........................................... Accounts Receivable................................................. 45 Inventory............................................................................. Cost of Goods Sold.................................................... 16 Accounts Receivable.......................................................... Sales Revenue........................................................... Cost of Goods Sold............................................................. Inventory.................................................................... May 13 (8 min.) 26 Cash.................................................................................... Sales Discounts ($225 .04)............................................. Accounts Receivable ($270 $45)........................... 216 9 270 156 45 26 225 BE 195 The income statement for Pepe Serna Company for the year ended December 31, 2012 is as follows: PEPE SERNA COMPANY Income Statement For the Year Ended December 31, 2012 Revenues Sales............................................................................................ Interest revenue........................................................................... Total revenues....................................................................... Expenses Cost of goods sold....................................................................... Salaries and wages expense....................................................... Interest expense.......................................................................... Total expenses....................................................................... Net income............................................................................................... FOR INSTRUCTOR USE ONLY $55,000 3,000 58,000 $33,000 13,000 1,000 47,000 $ 11,000 Accounting for Merchandising Operations BE 195 5 - 41 (Cont.) Prepare the entries to close the revenue and expense accounts at December 31, 2012. You may omit explanations for the transactions. Ans: N/A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 195 Dec. 31 31 (5 min.) Sales Revenue....................................................................... Interest Revenue.................................................................... Income Summary.......................................................... 55,000 3,000 Income Summary................................................................... Cost of Goods Sold....................................................... Salaries and Wages Expense...................................... Interest Expense........................................................... 47,000 58,000 33,000 13,000 1,000 BE 196 Hoyt Company provides this information for the month of November, 2012: sales on credit $150,000; cash sales $70,000; sales discounts $2,000; and sales returns and allowances $9,000. Prepare the sales revenues section of the income statement based on this information. Ans: N/A, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 196 (3 min.) HOYT COMPANY Income Statement (Partial) For the Month Ended November 30, 2012 Sales...................................................................................... Less: Sales Returns and Allowances.................................. Sales Discounts......................................................... Net Sales................................................................................ $220,000 $9,000 2,000 11,000 $209,000 BE 197 During October, 2012, Reds Catering Company generated revenues of $13,000. Sales discounts totaled $200 for the month. Expenses were as follows: Cost of goods sold of $7,700 and operating expenses of $2,000. Calculate (1) gross profit and (2) income from operations for the month. Ans: N/A, SO: 6, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Test Bank for Accounting Principles, Tenth Edition 5 - 42 Solution 197 (4 min.) (1) Gross profit: $5,100 ($13,000 - $200 - $7,700) (2) Income from operations: $3,100 ($5,100 - $2,000) a BE 198 For each of the following, determine the missing amounts. Beginning Inventory Purchases Goods Available for Sale $10,000 ______ ________ $220,000 $ 40,000 $245,000 1. 2. Cost of Goods Sold $25,000 _______ Ending Inventory _______ $40,000 Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA a Solution 198 (4 min.) 1. Purchases $30,000 ($40,000 $10,000), Ending inventory $15,000 ($40,000 $25,000) 2. Beginning inventory $25,000 ($245,000 $220,000), Cost of Goods Sold $205,000 ($245,000 $40,000) a BE 199 Assume that Swann Company uses a periodic inventory system and has these account balances: Purchases $500,000; Purchase Returns and Allowances $14,000; Purchase Discounts $9,000; and Freight-in $15,000. Determine net purchases and cost of goods purchased. Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting a Solution 199 (4 min.) Calculation of Net Purchases and Cost of Goods Purchased Purchases.............................................................................. Less: Purchase returns and Allowances............................. Purchase discounts .................................................. Net Purchases....................................................................... Add: Freight-in....................................................................... Cost of Goods Purchased...................................................... $500,000 $14,000 9,000 23,000 477,000 15,000 $492,000 a BE 200 Assume that Swann Company uses a periodic inventory system and has these account balances: Purchases $600,000; Purchase Returns and Allowances $25,000; Purchase Discounts $11,000; and Freight-in $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000. Determine the cost of goods sold. Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations Solution 200 5 - 43 (6 min.) Inventory, beginning.............................................................. Purchases.............................................................................. Less: Purchase returns and allowances............................. Purchase discounts.................................................... Net purchases........................................................................ Add: Freight-in....................................................................... Cost of goods purchased....................................................... Cost of goods available for sale............................................ Inventory, ending................................................................... Cost of goods sold................................................................. $ 45,000 $600,000 $25,000 11,000 36,000 564,000 19,000 583,000 628,000 55,000 $573,000 a BE 201 Scruffy Brothers Supply uses a periodic inventory system. During May, the following transactions and events occurred. May 13 Purchased 6 motors at a cost of $45 each from Charlie Company, terms 4/10, n/30. The motors cost Charlie Company $26 each. May 16 Returned 1 defective motor to Charlie. May 23 Paid Charlie Company in full. Instructions Journalize the May transactions for Scruffy Brothers. You may omit explanations. Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA a Solution 201 May May May 13 16 23 (6 min.) Purchases........................................................................... Accounts Payable...................................................... 270 Accounts Payable............................................................... Purchase Returns and Allowances........................... 45 Accounts Payable ($270 $45)......................................... Purchase Discounts ($225 .04).............................. Cash........................................................................... 225 FOR INSTRUCTOR USE ONLY 270 45 9 216 Test Bank for Accounting Principles, Tenth Edition 5 - 44 EXERCISES Ex. 202 For each of the following, determine the missing amounts. 1. Cost of Sales Revenue Net Income $100,000 ________ 2. ________ $135,000 Operating Goods Sold Gross Profit Expenses _______ $25,000 $12,000 $120,000 _______ $80,000 Ans: N/A, SO: 1, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 202 (5 min.) 1. Gross Profit = $37,000 ($25,000 + $12,000) Cost of Goods Sold = $63,000 ($100,000 $37,000) 2. Sales = $255,000 ($135,000 + $120,000) Operating Expenses = $40,000 ($120,000 $80,000) Ex. 203 On October 1, Benjis Bicycle Store had an inventory of 20 ten speed bicycles at a cost of $200 each. During the month of October, the following transactions occurred. Oct. 4 Purchased 30 bicycles at a cost of $200 each from Monrue Bicycle Company, terms 1/10, n/30. 6 Sold 18 bicycles to Team Wisconsin for $330 each, terms 2/10, n/30. 7 Received credit from Monrue Bicycle Company for the return of 2 defective bicycles. 13 Issued a credit memo to Team Wisconsin for the return of a defective bicycle. 14 Paid Monroe Bicycle Company in full, less discount. Instructions Prepare the journal entries to record the transactions assuming the company uses a perpetual inventory system. Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 203 Oct. 4 6 (20 min.) Inventory................................................................................ Accounts Payable......................................................... 6,000 Accounts Receivable............................................................. Sales Revenue.............................................................. 5,940 Cost of Goods Sold................................................................ Inventory....................................................................... 3,600 FOR INSTRUCTOR USE ONLY 6,000 5,940 3,600 Accounting for Merchandising Operations Solution 203 (Cont.) 7 Accounts Payable.................................................................. Inventory....................................................................... 13 400 400 Sales Returns and Allowances.............................................. Accounts Receivable.................................................... 330 Inventory................................................................................ Cost of Goods Sold....................................................... 200 Accounts Payable ($6,000 $400)....................................... Cash ($5,600 .99).................................................... Inventory ($5,600 .01)............................................. 14 5 - 45 5,600 330 200 5,544 56 Ex. 204 On September 1, Reid Supply had an inventory of 15 backpacks at a cost of $25 each. The company uses a perpetual inventory system. During September, the following transactions and events occurred. Sept. 4 Purchased 70 backpacks at $25 each from Hunter, terms 2/10, n/30. Sept. 6 Received credit of $150 for the return of 6 backpacks purchased on Sept. 4 that were defective. Sept. 9 Sold 40 backpacks for $35 each to Oliver Books, terms 2/10, n/30. Sept. 13 Sold 15 backpacks for $35 each to Heller Office Supply, terms n/30. Sept. 14 Paid Hunter in full, less discount. Instructions Journalize the September transactions for Reid Supply. Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 204 Sept. Sept. Sept. 4 6 9 (20 min.) Inventory............................................................................. Accounts Payable...................................................... 1,750 Accounts Payable............................................................... Inventory.................................................................... 150 Accounts Receivable.......................................................... Sales Revenue........................................................... 1,400 Cost of Goods Sold............................................................. Inventory.................................................................... 1,000 FOR INSTRUCTOR USE ONLY 1,750 150 1,400 1,000 5 - 46 Test Bank for Accounting Principles, Tenth Edition Solution 204 (Cont.) Sept. 13 Accounts Receivable.......................................................... Sales Revenue........................................................... 525 525 Cost of Goods Sold............................................................. Inventory.................................................................... Sept. 14 375 Accounts Payable ($1,750 $150).................................... Cash ($1,600 .98)................................................... Inventory ($1,600 .02)............................................ 1,600 375 1,568 32 Ex. 205 Sam Wainwright is a new accountant with Ground floor Company. Ground floor purchased merchandise on account for $11,250. The credit terms are 2/10, n/30. Sam has talked with the company's banker and knows that he could earn 8% on any money invested in the company's savings account. Instructions (a) Should Sam pay the invoice within the discount period or should he keep the $11,250 in the money market account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best. (b) If Sam forgoes the discount, it may be viewed as paying an interest rate of 2% for the use of $11,250 for 20 days. Calculate the annual rate of interest that this is equivalent to. Ans: N/A, SO: 2, Bloom: E, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics Solution 205 (10 min.) Dan should pay the invoice within the discount period to save $140: (a) (b) Discount of 2% on $11,250 Interest received on $11,250 (for 20 days at 8%) Savings by taking the discount $225 50 $175 ($11,250 8% 20 360) The equivalent annual interest rate is: 2% 360 20 = 36%. Ex. 206 (a) Karns Company purchased merchandise on account from Bailey Office Suppliers for $87,000, with terms of 2/10, n/30. During the discount period, Karns returned some merchandise and paid $78,400 as payment in full. Karns uses a perpetual inventory system. Prepare the journal entries that Karns Company made to record: (1) the purchase of merchandise. (2) the return of merchandise. (3) the payment on account. (b) Hinds Company sold merchandise to Peter Company on account for $73,000 with credit terms of ?/10, n/30. The cost of the merchandise sold was $43,070. During the discount period, Peter Company returned $3,000 of merchandise and paid its account in full (minus the discount) by remitting $68,600 in cash. Both companies use a perpetual inventory system. Prepare the journal entries that Hinds Company made to record: FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations Ex. 206 (1) (2) (3) 5 - 47 (Cont.) the sale of merchandise. the return of merchandise. the collection on account. Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 206 (a) To compute the amount due after returns but before the discount, divide $78,400 by .98 (100% 2%). $78,400 .98 = $80,000. Subtract $80,000 from $87,000 to determine that $7,000 of merchandise was returned. (1) (2) (3) (b) (20 min.) Inventory................................................................................ Accounts Payable......................................................... 87,000 Accounts Payable.................................................................. Inventory....................................................................... 7,000 Accounts Payable.................................................................. Inventory....................................................................... Cash.............................................................................. 80,000 87,000 7,000 1,600 78,400 Peter Company returns $3,000 of merchandise and owes $70,000 to Hinds Company. $68,600 $70,000 = .98 100% 98% = 2% The missing discount percentage is 2%. $70,000 2% = $1,400 sales discount. $70,000 $1,400 = $68,600 cash received on account. (1) 43,070 Sales Returns and Allowances.............................................. Accounts Receivable.................................................... 3,000 Inventory [$3,000 ($43,070 $73,000)]............................. Cost of Goods Sold....................................................... (3) 73,000 Cost of Goods Sold................................................................ Inventory....................................................................... (2) Accounts Receivable............................................................. Sales Revenue.............................................................. 1,770 Cash....................................................................................... Sales Discounts..................................................................... Accounts Receivable.................................................... 68,600 1,400 FOR INSTRUCTOR USE ONLY 73,000 43,070 3,000 1,770 70,000 Test Bank for Accounting Principles, Tenth Edition 5 - 48 Ex. 207 An inexperienced accountant for Tilly Company made the following errors in recording merchandising transactions. 1. A $270 refund to a customer for faulty merchandise was debited to Sales Revenue $270 and credited to Cash $270. 2. A $310 credit purchase of supplies was debited to Inventory $310 and credited to Cash $310. 3. A $190 sales return was debited to Sales Revenue. 4. A cash payment of $30 for freight on merchandise purchases was debited to Freight-out $300 and credited to Cash $300. Instructions Prepare separate correcting entries for each error, assuming that the incorrect entry is not reversed. (Omit explanations.) Ans: N/A, SO: 2,3, Bloom: AN, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 207 1. 2. 3. 4. (6-8 min.) Sales Returns and Allowances....................................................... Sales Revenue....................................................................... 270 Supplies .......................................................................................... Cash ................................................................................................ Accounts Payable.................................................................. Inventory................................................................................ 310 310 Sales Returns and Allowances....................................................... Sales Revenue....................................................................... 190 Inventory ....................................................................................... Cash ................................................................................................ Freight-out.............................................................................. 30 270 270 310 310 190 300 Ex. 208 Prepare the necessary journal entries to record the following transactions, assuming Dakin Company uses a perpetual inventory system. (a) Purchased $30,000 of merchandise on account, terms 2/10, n/30. (b) Returned $700 of damaged merchandise for credit. (c) Paid for the merchandise purchased within 10 days. Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 208 (a) (b) (6-8 min.) Inventory................................................................ Accounts Payable............................................ 30,000 Accounts Payable.................................................. Inventory.......................................................... 700 30,000 FOR INSTRUCTOR USE ONLY 700 Accounting for Merchandising Operations Solution 208 (c) 5 - 49 (Cont.) Accounts Payable ($30,000 $700) Inventory ($29,300 .02) Cash ($29,300 $586) 29,300 586 28,714 Ex. 209 Prepare the necessary journal entries to record the following transactions, assuming Eustace Company uses a perpetual inventory system. (a) Eustace sells $50,000 of merchandise, terms 1/10, n/30. The merchandise cost $30,000. (b) The customer in (a) returned $4,000 of merchandise to Eustace. The merchandise returned cost $2,400. (c) Eustace received the balance due within the discount period. Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 7, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 209 (a) (7-9 min.) 30,000 Sales Returns and Allowances....................................................... Accounts Receivable............................................................. 4,000 Inventory......................................................................................... Cost of Goods Sold................................................................ (c) 50,000 Cost of Goods Sold......................................................................... Inventory................................................................................ (b) Accounts Receivable...................................................................... Sales Revenue....................................................................... 2,400 Cash ($46,000 $460)................................................................... Sales Discounts ($46,000 .01).................................................... Accounts Receivable............................................................. 45,540 460 50,000 30,000 4,000 2,400 46,000 Ex. 210 Newell Company completed the following transactions in October: Credit Sales Date Amount Oct. 3 $ 600 Oct. 11 1,200 Oct. 17 5,000 Oct. 21 1,400 Oct. 23 1,800 Terms 2/10, n/30 3/10, n/30 1/10, n/30 2/10, n/60 2/10, n/30 Sales Returns Date Amount Oct. 14 Oct. 20 Oct. 23 Oct. 27 FOR INSTRUCTOR USE ONLY $ 400 1,000 200 400 Date of Collection Oct. 8 Oct. 16 Oct. 29 Oct. 27 Oct. 28 5 - 50 Test Bank for Accounting Principles, Tenth Edition Ex. 210 (Cont.) Instructions (a) Indicate the cash received for each collection. Show your calculations. (b) Prepare the journal entry for the (1) Oct. 17 sale. The merchandise sold had a cost of $3,500. (2) Oct. 23 sales return. The merchandise returned had a cost of $140. (3) Oct. 28 collection. Newell uses a perpetual inventory system. Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 210 (20 min.) (a) Oct. 8 $588 [Sales $600 Sales discount $12 ($600 .02)] Oct. 16 $776 [Sales $1,200 Sales return $400 = $800; $800 Sales discount $24 ($800 .03)] Oct. 29 $4,000 [Sales $5,000 Sales return $1,000 = $4,000; (Discount lapsed)] Oct. 27 $1,176 [Sales $1,400 Sales return $200 = $1,200; $1,200 Sales discount $24 ($1,200 .02)] Oct. 28 $1,372 [Sales $1,800 Sales return $400 = $1,400; $1,400 Sales discount $28 ($1,400 .02)] (b) (1) (3) Oct. 28 5,000 3,500 Sales Returns and Allowances............................ Accounts Receivable.................................. 200 Inventory.............................................................. Cost of Goods Sold..................................... Oct. 23 Accounts Receivable........................................... Sales Revenue............................................ Cost of Goods Sold.............................................. Inventory..................................................... (2) Oct. 17 140 Cash..................................................................... Sales Discounts................................................... Accounts Receivable.................................. 1,372 28 FOR INSTRUCTOR USE ONLY 5,000 3,500 200 140 1,400 Accounting for Merchandising Operations 5 - 51 Ex. 211 The following information is available for Moiz Company: Debit Owners Capital Owners Drawings $ 35,000 Sales Revenue Sales Returns and Allowances 20,000 Sales Discounts 7,000 Cost of Goods Sold 290,000 Freight-out 2,000 Advertising Expense 15,000 Interest Expense 19,000 Salaries and Wages Expense 55,000 Utilities Expense 18,000 Depreciation Expense 7,000 Interest Revenue Credit $ 50,000 510,000 23,000 Instructions Using the above information, prepare the closing entries for Moiz Company. Ans: N/A, SO: 4, Bloom: AP, Difficulty: Hard, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 211 (10 min.) Dec. 31 Interest Revenue.................................................................... Sales Revenue....................................................................... Income Summary.......................................................... 23,000 510,000 31 Income Summary................................................................... Sales Returns and Allowances..................................... Sales Discounts............................................................ Cost of Goods Sold....................................................... Freight-out..................................................................... Advertising Expense..................................................... Interest Expense........................................................... Salaries and Wages Expense...................................... Utilities Expense........................................................... Depreciation Expense................................................... 433,000 31 Income Summary................................................................... Owners Capital............................................................. 100,000 31 Owners Capital ..................................................................... Owners Drawings ........................................................ 35,000 FOR INSTRUCTOR USE ONLY 533,000 20,000 7,000 290,000 2,000 15,000 19,000 55,000 18,000 7,000 100,000 35,000 5 - 52 Test Bank for Accounting Principles, Tenth Edition Ex. 212 The adjusted trial balance of J. W. Hatch Company appears below. J. W. HATCH Adjusted Trial Balance December 31, 2012 Cash Accounts Receivable Inventory Building Accumulated Depreciation Building Accounts Payable Owners Capital Owners Drawings Sales Revenue Sales Discounts Sales Returns & Allowances Cost of Goods Sold Operating Expenses Debit 12,000 25,000 35,000 150,000 Credit 20,000 12,000 144,000 30,000 310,000 6,000 8,000 178,000 42,000 486,000 486,000 Instructions Using the information given, prepare the year-end closing entries. Ans: N/A, SO: 4, Bloom: AP, Difficulty: Hard, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 212 Dec. 31 31 31 31 (10 min.) Sales...................................................................................... Income Summary.......................................................... (To close credit balance accounts) 310,000 Income Summary................................................................... Sales Discounts............................................................ Sales Returns and Allowances..................................... Cost of Goods Sold....................................................... Operating Expense....................................................... (To close accounts with debit balances) 234,000 Income Summary................................................................... Owners Capital............................................................. (To transfer net income to capital) 76,000 Owners Capital...................................................................... Owners Drawings......................................................... (To close drawings account to capital) 30,000 FOR INSTRUCTOR USE ONLY 310,000 6,000 8,000 178,000 42,000 76,000 30,000 Accounting for Merchandising Operations 5 - 53 Ex. 213 Kennedy Company had the following account balances at year-end: cost of goods sold $80,000; merchandise inventory $15,000; operating expenses $39,000; sales $144,000; sales discounts $1,600; and sales returns and allowances $2,300. A physical count of inventory determines that merchandise inventory on hand is $14,400. Instructions (a) Prepare the adjusting entry necessary as a result of the physical count. (b) Prepare closing entries. Ans: N/A, SO: 4, Bloom: AP, Difficulty: Hard, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 213 (a) (10 min.) 600 Sales Revenue................................................................................ Income Summary.................................................................. 144,000 Income Summary............................................................................ Cost of Goods Sold................................................................ Operating Expenses.............................................................. Sales Returns and Allowances.............................................. Sales Discounts..................................................................... 123,500 Income Summary ($144,000 $123,500)...................................... Kennedy, Capital.................................................................... (b) Cost of Goods Sold......................................................................... Inventory................................................................................ 20,500 600 144,000 80,600 39,000 2,300 1,600 20,500 Ex. 214 Financial information is presented below for two different companies. Gower Drugs Sales Revenue Sales returns and allowances Net sales Cost of goods sold Gross profit Operating expenses Income from operations Other expenses and losses Net income $90,000 (a) 88,000 56,000 (b) 22,000 (c) 4,000 (d) Martini Food and Liquor $ (e) 3,000 97,000 (f) 36,000 (g) (h) 7,000 13,000 Instructions Determine the missing amounts. Ans: N/A, SO: 5, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 54 Test Bank for Accounting Principles, Tenth Edition Solution 214 (15 min.) (*Missing amount) (a) Sales............................................................................................... Sales returns and allowances......................................................... Net Sales......................................................................................... $ 90,000 2,000* $ 88,000 (b) Net Sales......................................................................................... Cost of goods sold.......................................................................... Gross profit...................................................................................... $ 88,000 56,000 $ 32,000* (c) and (d) Gross profit...................................................................................... Operating expenses........................................................................ Income from operations (c)............................................................. Other expenses and losses............................................................ Net income (d)................................................................................ $ 32,000 22,000 $ 10,000* 4,000 $ 6,000* (e) Sales............................................................................................... Sales returns and allowances......................................................... Net sales......................................................................................... $ 100,000* 3,000 $ 97,000 (f) Net sales......................................................................................... Cost of goods sold.......................................................................... Gross profit...................................................................................... $ 97,000 61,000* $ 36,000 (g) and (h) Gross profit...................................................................................... Operating expenses (g).................................................................. Income from operations (h)............................................................ Other expenses and losses............................................................ Net income ..................................................................................... $ 36,000 16,000* $ 20,000* 7,000 $ 13,000 Ex. 215 Presented below is information for Annie Company for the month of March 2012. Cost of goods sold Freight-out Insurance expense Salary expense $235,000 7,000 5,000 63,000 Rent expense $ 30,000 Sales discounts 8,000 Sales returns and allowances 11,000 Sales 410,000 Instructions (a) Prepare a multiple -step income statement. (b) Compute the gross profit rate. Ans: N/A, SO: 5,6, Bloom: AP, Difficulty: Hard, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations Solution 215 5 - 55 (10 min.) (a) ANNIE COMPANY Income Statement For the Month Ended March 31, 2012 ____________________________________________________________________________________________________________ Sales revenues Sales...................................................................................... Less: Sales returns and allowances.................................... Sales discounts.......................................................... Net sales................................................................................ Cost of goods sold................................................................. Gross profit............................................................................ Operating expenses Salary expense........................................................... Rent expense............................................................. Insurance expense..................................................... Freight-out.................................................................. Total operating expenses........................................... Net income ............................................................................ (b) $410,000 $11,000 8,000 19,000 391,000 235,000 156,000 63,000 30,000 5,000 7,000 105,000 $ 51,000 Gross profit rate = $156,000 $391,000 = 39.9%. Ex. 216 In 2012, Brunetti Company had net sales of $650,000 and cost of goods sold of $390,000. Operating expenses were $150,000, and interest expense was $10,000. Brunetti prepares a multiple-step income statement. Instructions (a) Compute Brunetti's gross profit. (b) Compute the gross profit rate. (c) What is Brunetti's income from operations and net income? (d) If Brunettis prepared a single-step income statement, what amount would it report for net income? Ans: N/A, SO: 5,6, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 216 (a) (b) (c) (d) (10 min.) $650,000 $390,000 = $260,000. $260,000/$650,000 = 40%. Income from operations is $110,000 ($260,000 $150,000), and net income is $100,000 ($110,000 $10,000). The amount shown for net income is the same in a multiple-step income statement and a single-step income statement. Therefore, net income in Brunetti's single-step income statement is also $100,000. FOR INSTRUCTOR USE ONLY 5 - 56 Test Bank for Accounting Principles, Tenth Edition Ex. 217 Argentina Company gathered the following condensed data for the year ended December 31, 2012: Cost of goods sold Net sales Operating expenses Interest expense Dividend revenue Loss from employee strike $ 750,000 1,250,000 275,000 48,000 38,000 185,000 Instructions 1. Prepare a single-step income statement for the year ended December 31, 2012. 2. Prepare a multiple-step income statement for the year ended December 31, 2012. Ans: N/A, SO: 5,6, Bloom: AP, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 217 1. (25 min.) ARGENTINA COMPANY Income Statement For the Year Ended December 31, 2012 Revenues Net sales...................................................................................... Dividend revenue......................................................................... Total revenues....................................................................... Expenses Cost of goods sold....................................................................... Operating expenses..................................................................... Loss from employee strike........................................................... Interest expense.......................................................................... Total expenses....................................................................... $1,250,000 38,000 1,288,000 $750,000 275,000 185,000 48,000 1,258,000 Net income ........................................................................................ 2. $ 30,000 ARGENTINA COMPANY Income Statement For the Year Ended December 31, 2012 Net sales...................................................................... Cost of goods sold....................................................... Gross profit.................................................................. Operating expenses.................................................... Income from operations.............................................. Other revenues and gains Dividend revenue............................................... Other expenses and losses Loss from employee strike................................. Interest expense................................................. Net income.................................................................. $1,250,000 750,000 500,000 275,000 225,000 38,000 $185,000 48,000 FOR INSTRUCTOR USE ONLY 233,000 195,000 $ 30,000 Accounting for Merchandising Operations 5 - 57 Ex. 218 Instructions State the missing items identified by ?. 1. Gross profit Operating expenses = ? 2. Cost of goods sold + Gross profit on sales = ? 3. Sales Revenue (? + ?) = Net sales 4. Income from operations + ? ? = Net income 5. Net sales Cost of goods sold = ? Ans: N/A, SO: 5,6, Bloom: C, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 218 1. 2. 3. 4. 5. (5 min.) Income from operations (or Net income) Net sales Sales discounts, Sales returns and allowances Other revenues and gains, Other expenses and losses Gross profit Ex. 219 The adjusted trial balance of Nick Company contained the following information: Debit Credit Sales Revenue $560,000 Sales Returns and Allowances $ 15,000 Sales Discounts 7,000 Cost of Goods Sold 323,000 Freight-out 2,000 Advertising Expense 15,000 Interest Expense 18,000 Salaries and Wages Expense 65,000 Utilities Expense 28,000 Depreciation Expense 7,000 Interest Revenue 27,000 Instructions 1. Use the above information to prepare a multiple-step income statement for the year ended December 31, 2012. 2. Prepare a single-step income statement for the year ended December 31, 2012. Ans: N/A, SO: 5,6, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Test Bank for Accounting Principles, Tenth Edition 5 - 58 Solution 219 1. (20 min.) NICK COMPANY Income Statement For the Year Ended December 31, 2012 Sales revenues Sales Revenue........................................................... Less: Sales returns and allowances........................ Sales discounts.............................................. Net sales.................................................................... Cost of goods sold..................................................... Gross profit................................................................. Operating expenses Salaries and wages expense......................... Utilities expense............................................. Advertising expense...................................... Depreciation expense.................................... Freight-out...................................................... Total operating expenses.................. Income from operations............................................. Other revenues and gains Interest revenue................................................... Other expenses and losses Interest expense.................................................. Net income ................................................................ 2. $560,000 $ 15,000 7,000 22,000 538,000 323,000 215,000 $65,000 28,000 15,000 7,000 2,000 117,000 98,000 27,000 18,000 9,000 $ 107,000 NICK COMPANY Income Statement For the Year Ended December 31, 2012 Revenues Net sales...................................................................................... Interest revenue........................................................................... Total revenues....................................................................... Expenses Cost of goods sold....................................................................... Salaries and wages expense..................................... Utilities expense......................................................... Advertising expense.................................................. Depreciation expense................................................ Freight-out.................................................................. Interest expense.......................................................................... Total expenses....................................................................... Net income............................................................................................... Ex. 220 The following information is available for Sheldon Leonard Company: Administrative expenses Cost of goods sold Sales $ 30,000 200,000 350,000 FOR INSTRUCTOR USE ONLY $538,000 27,000 565,000 $323,000 $65,000 28,000 15,000 7,000 2,000 18,000 458,000 $ 107,000 Accounting for Merchandising Operations Ex. 220 5 - 59 (Cont.) Sales returns and allowances Selling expenses 16,000 55,000 Instructions Compute each of the following: (a) Net sales (b) Gross profit (c) Income from operations Ans: N/A, SO: 5,6, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 220 (a) (b) (c) (6 min.) Net sales = $334,000 ($350,000 $16,000) Gross profit = $134,000 ($334,000 $200,000) Income from operations = $49,000 ($134,000 $30,000 $55,000) Ex. 221 The income statement of Jues Luggage. includes the items listed below: Net sales Gross profit Beginning inventory Purchase discounts Purchase returns and allowances Freight-in Operating expenses Purchases $900,000 320,000 80,000 15,000 8,000 10,000 300,000 540,000 Instructions Use the appropriate items listed above as a basis for determining: (a) Cost of goods sold. (b) Cost of goods available for sale. (c) Ending inventory. Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 221 (a) (15 min.) Net sales Cost of goods sold = Gross profit $900,000 Cost of goods sold = $320,000 Cost of goods sold = $580,000 (b) Beginning inventory Purchases Less: Purchase discounts Purchase returns and allowances Net Purchases Add: Freight-in Cost of goods purchased Cost of goods available for sale $ 80,000 $540,000 $15,000 8,000 FOR INSTRUCTOR USE ONLY 23,000 517,000 10,000 527,000 $607,000 Test Bank for Accounting Principles, Tenth Edition 5 - 60 Solution 221 (c) a (cont.) Cost of goods available for sale Ending inventory = Cost of goods sold $607,000 Ending inventory = $580,000 Ending inventory = $27,000 Ex. 222 Three items are missing in each of the following columns and are identified by letter. Sales Revenue Sales returns and allowances Sales discounts Net sales Beginning inventory Cost of goods purchased Ending inventory Cost of goods sold Gross profit $ (a) 15,000 10,000 420,000 (b) 220,000 170,000 252,000 (c) $840,000 22,000 15,000 (d) 300,000 (e) 303,000 555,000 (f) Instructions Calculate the missing amounts and identify them by letter. Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting a Solution 222 (a) (b) (c) a (15 min.) $445,000 $202,000 $168,000 (d) (e) (f) $803,000 $558,000 $248,000 Ex. 223 Reineman Supply Company uses a periodic inventory system. During September, the following transactions and events occurred. Sept. 3 Purchased 80 backpacks at $25 each from Zuzu Company, terms 2/10, n/30. Sept. 6 Received credit of $150 for the return of 6 backpacks purchased on Sept. 3 that were defective. Sept. 9 Sold 15 backpacks for $42 each to Bailey Books, terms 2/10, n/30. Sept. 13 Paid Zuzu Company in full. Instructions Journalize the September transactions for Reineman Supply Company. Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations a Solution 223 Sept. Sept. Sept. 3 6 9 Sept. 13 a 5 - 61 (12 min.) Purchases........................................................................... Accounts Payable...................................................... 2,000 Accounts Payable............................................................... Purchase Returns and Allowances........................... 150 Accounts Receivable.......................................................... Sales Revenue........................................................... 630 Accounts Payable ($2,000 $150).................................... Purchase Discounts ($1,500 .02)........................... Cash........................................................................... 1,850 2,000 150 630 37 1,813 Ex. 224 The following information is available for Hopkins Company: Beginning inventory $ 45,000 Ending inventory 70,000 Freight-in 10,000 Purchases 270,000 Purchase returns and allowances 8,000 Instructions Compute each of the following: (a) Net purchases (b) Cost of goods purchased (c) Cost of goods sold Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA a Solution 224 (6 min.) (a) Net purchases = $262,000 ($270,000 $8,000) (b) Cost of goods purchased = $272,000 ($262,000 + $10,000) (c) Cost of goods sold = $247,000 ($45,000 + $272,000 $70,000) FOR INSTRUCTOR USE ONLY 5 - 62 a Test Bank for Accounting Principles, Tenth Edition Ex. 225 The adjusted trial balance of Dailey Music Company appears below. Dailey Music Company prepares monthly financial statements and uses the perpetual inventory method. Instructions Complete the worksheet below. DAILEY MUSIC COMPANY Worksheet For the Month Ended April 30, 2012 Cash Inventory Supplies Equipment Accum. Depreciation Equipment Accounts Payable Owners Capital Owners Drawings Sales Revenue Sales Discounts Cost of Goods Sold Advertising Expense Supplies Expense Depreciation Expense Rent Expense Utilities Expense Adjusted Trial Balance Debit Credit 11,000 21,000 3,500 80,000 Income Statement Debit Credit Balance Sheet Debit Credit 15,000 20,000 92,000 8,000 39,000 2,000 23,000 7,000 6,000 1,000 2,500 1,000 166,000 166,000 Ans: N/A, SO: 8, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations a Solution 225 5 - 63 (15 min.) DAILEY MUSIC COMPANY Worksheet For the Month Ended April 30, 2012 Cash Inventory Supplies Equipment Accum. Depreciation Equipment Accounts Payable Owners Capital Owners Drawings Sales Sales Discounts Cost of Goods Sold Advertising Expense Supplies Expense Depreciation Expense Rent Expense Utilities Expense Adjusted Trial Balance Debit Credit 11,000 21,000 3,500 80,000 Income Statement Debit Credit 15,000 20,000 92,000 15,000 20,000 92,000 8,000 8,000 39,000 2,000 23,000 7,000 6,000 1,000 2,500 1,000 166,000 166,000 39,000 2,000 23,000 7,000 6,000 1,000 2,500 1,000 42,500 Net Loss 42,500 a Balance Sheet Debit Credit 11,000 21,000 3,500 80,000 39,000 3,500 42,500 123,500 3,500 127,000 127,000 127,000 Ex. 226 Prepare the necessary journal entries to record the following transactions, assuming a periodic inventory system: (a) Purchased $400,000 of merchandise on account, terms 2/10, n/30. (b) Returned $30,000 of damaged merchandise for credit. (c) Paid for the merchandise purchased within 10 days. Ans: N/A, SO: 7, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY 5 - 64 a Test Bank for Accounting Principles, Tenth Edition Solution 226 (a) (b) (c) (6 min.) Purchases....................................................................................... Accounts Payable............................................................... 400,000 Accounts Payable........................................................................... Purchase Returns and Allowances.................................... 30,000 Accounts Payable ($400,000 $30,000)....................................... Purchase Discounts ($370,000 .02)................................ Cash ($370,000 $7,400).................................................. 370,000 400,000 30,000 7,400 362,600 COMPLETION STATEMENTS 227. A ________________ buys and sells goods rather than performing services to earn a profit. Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 228. Cost of goods sold is deducted from net sales revenue for the period in order to arrive at ________________. Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting , AICPA PC: None, IMA: Business Economics 229. Inventory on hand can be obtained from detailed inventory records when a ________________ inventory system is maintained. Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics 230. The acquisition of inventory is debited to the ____________ account when a perpetual inventory system is used. Ans: N/A, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 231. The freight cost incurred by a seller to deliver goods sold to a customer is called ________________. Ans: N/A, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 232. When a customer returns merchandise previously purchased on credit, the entry for the seller to record the return requires a debit to the ________________ account and a credit to the ________________ account. Ans: N/A, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 233. Sales Returns and Allowances and Sales Discounts are both ______________ accounts and have _______________ normal balances. Ans: N/A, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 234. 5 - 65 Every sales transaction should be supported by a ________________ that provides written evidence of the sale. Ans: N/A, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Internal Controls 235. Gross profit is obtained by subtracting ________________ from ________________. Ans: N/A, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 236. Income from operations is determined by subtracting total operating expenses from ________________. Ans: N/A, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Answers to Completion Statements 227. 228. 229. 230. 231. 232. merchandising company gross profit perpetual Inventory freight-out Sales Returns and Allowances, Accounts Receivable 233. 234. 235. 236. contra revenue, debit business document cost of goods sold, net sales gross profit FOR INSTRUCTOR USE ONLY 5 - 66 Test Bank for Accounting Principles, Tenth Edition MATCHING 237. Match the items below by entering the appropriate code letter in the space provided. A. B. C. D. E. Net Sales Sales discounts Purchase invoice Periodic inventory system FOB destination F. G. H. I. J. FOB shipping point Freight-out Gross profit Operating expenses Income from operations ______ 1. An incentive to encourage customers to pay their accounts early. ______ 2. Expenses incurred in the process of earning sales revenue. ______ 3. Freight terms that require the seller to pay the freight cost. ______ 4. Sales revenue less sales returns and allowances and sales discounts. ______ 5. A document that supports each credit purchase. ______ 6. Net sales less cost of goods sold. ______ 7. Freight cost to deliver goods to customers reported as a selling expense. ______ 8. Requires a physical count of goods on hand to compute cost of goods sold. ______ 9. Gross profit less total operating expenses. ______ 10. Freight terms that require the buyer to pay the freight cost. Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Answers to Matching 1. 2. 3. 4. 5. B I E A C 6. 7. 8. 9. 10. H G D J F SHORT-ANSWER ESSAY QUESTIONS S-A E 238 A merchandiser frequently has a need to use contra accounts related to the sale of goods. Identify the contra accounts that have normal debit balances and explain why they are not considered expenses. Ans: N/A, SO: 3, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 5 - 67 Solution 238 The contra accounts that have normal debit balances are Sales Discounts and Sales Returns and Allowances. These accounts have debit balances but are not expenses because they are adjustments of sales, not operating, selling, or administrative expenses. They are an adjustment of the inflow from sale of goods, rather than a cost used to help earn revenue. S-A E 239 Distinguish between FOB shipping point and FOB destination. Identify the freight terms that will result in a debit to Inventory by the purchaser and a debit to Freight-out by the seller. Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics Solution 239 The letters FOB mean Free on Board. FOB shipping point means that goods are placed free on board the carrier by the seller. The buyer then pays the freight and debits Inventory. FOB destination means that the goods are placed free on board to the buyer's place of business. Thus the seller pays the freight and debits Freight-out. S-A E 240 Adrland Caselotti believes revenues from credit sales may be earned before they are collected in cash. Do you agree? Explain. Ans: N/A, SO: 3, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Solution 240 Agree. In accordance with the revenue recognition principle, sales revenues are generally considered to be earned when the goods are transferred from the seller to the buyer; that is, when the exchange transaction occurs. The earning of revenue is not dependent on the collection of credit sales. S-A E 240 In a single-step income statement, all data are classified under two categories: (1) Revenues, or (2) Expenses. If the income statement is recast in a multiple-step format, what additional information or intermediate components of income would be presented? Ans: N/A, SO: 5, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Solution 241 The items reported in a multiple-step income statement that are not reported in a single-step income statement are: gross revenues as well as net revenues, gross profit, detailed operating expenses, income from operations, and other revenues and gains, and other expenses and losses. S-A E 242 You are at a company picnic and the company president starts a conversation with you. The president says Since we use the perpetual inventory system, there is no reason to take a physical count of our inventory. What is your response to the presidents remarks? Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY 5 - 68 Test Bank for Accounting Principles, Tenth Edition Solution 242 You have made a very good observation, but human and mechanical shortcomings need to be considered. The perpetual inventory system maintains detailed records of each inventory purchase, sale and return. This does not mean that everything has been correctly recorded. Some possible causes of discrepancies between the goods on hand and the amounts shown in the accounting system include (1) inventory items were coded incorrectly, (2) cashiers failed to properly scan inventory items, (3) inventory items were damaged or stolen, or (4) goods returned by customers were not properly entered in the accounting records. It is necessary to reconcile amounts in the ledger to actual quantities. Discrepancies should be properly accounted for and investigated. S-A E 243 The income statement for a merchandising company presents five amounts not shown on a service companys income statement. Identify and briefly explain the five unique amounts. Ans: N/A, SO: 5, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Solution 243 The items reported for a merchandising company that are not reported for a service company are sales, revenue, sales returns and allowances, sales discounts, cost of goods sold, and gross profit. Sales revenue, sales returns and allowances, and sales discounts comprise net sales. Cost of goods sold represents the total cost of merchandise sold during the period. Gross profit is the excess of net sales over the cost of goods sold. S-A E 244 (Ethics) Holmes Corporation manufactures electronic components for use in many consumer products. Their raw materials are purchased literally from all over the world. Depending on the country involved, purchase terms vary widely. Some suppliers, for example, require full prepayment, while others are content to receive payment within six months of receipt of the goods. Because of this situation, Holmes never closes its books until at least ten days after month end. In this way, it can sort out ownership of goods in transit, and document which goods were received by month end, and which were not. Manya Andre, a new accountant, was asked to record about $70,000 in inventory as having been received before month end. She argued that the shipping documents clearly showed that the goods were actually received on the 8th of the current month. Her boss, busy with month-end reports, curtly tells Ann to check the shipping terms. She did so, and found the notation "FOB shipper's dock" on the document. She hadn't seen that particular notation before, but she reasoned that if the selling company considered it shipped when it reached their dock, Holmes should consider it received when it reached Holmes's dock. She did not record the purchase until after month end. Required: 1. Why are accountants concerned with the timing in the recording of purchases? 2. Was there a violation of ethical standards here? Explain. Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting FOR INSTRUCTOR USE ONLY Accounting for Merchandising Operations 5 - 69 Solution 244 1. Accountants are concerned with timing because they seek to make sure that sales are recorded in the proper period so that revenues and expenses are properly matched; to make sure that goods recorded as owned by the company actually are owned as of the last date of the period; and to make certain that sales recorded have been actually completed. 2. The only ethical principle that may be involved is one of competence. Monya does not appear to know enough about reading shipping documents to make a proper determination of ownership. The goods were owned by Buzz as soon as they left the shipper's dock. Otherwise, the goods would have been owned by no one while in transit. It does not appear that Monya compromised her integrity or that she sought some sort of gain from her mistake. It does seem likely that she should have known better how to interpret the shipping documents. S-A E 245 (Communication) Ellen Corhy and Bryn Davis, two salespersons in adjoining territories, regularly compete for bonuses. During the last month, their dollar volume of sales, on which the bonuses are based, was nearly equal. On the last day of the month, both made a large sale. Both orders were shipped on the last day of the month and both were received by the customer on the fifth of the following month. Ellen's sale was FOB shipping point, and Bryn's was FOB destination. The company "counts" sales for purposes of calculating bonuses on the date that ownership passes to the purchaser. Ellens sale was therefore counted in her monthly total of sales, Bryns was not. Jill is quite upset. She has asked you to just include it, or to take Ellen's off as well. She also has told you that you are being unethical for allowing Ellen to get a bonus just for choosing a particular shipping method. Write a memo to Bryn. Explain your position. Ans: N/A, SO: 1, Bloom: S, Difficulty: Easy, Min: 5, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics Solution 245 MEMO TO: Bryn Davis FROM: Helen Dictison, Accounting RE: Sales Bonuses DATE: June 15, 200x As you know, sales bonuses are based upon the revenue generated by each salesperson. Your total sales for the month was $110,000. This total does not include the $19,000 sale you made May 31 because of the policy to count sales on the date that title transfers to the customer. I can understand your being upset that this large sale was not counted, while someone else's sale on the same date was counted, because of the shipping terms. However, I am sure you agree that the policy is not unethical, but it is instead more fair than our trying to make a determination in the midst of month-end closing. I do understand your disappointment, but this sale does count in Juneand it just may make the difference in June's bonus. Please call me if I can be of further help. FOR INSTRUCTOR USE ONLY

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234ThreadsFigure 28.3: Performance of Traditional vs. Sloppy CountersScalable CountingAmazingly, researchers have studied how to build more scalable counters for years [MS04]. Even more amazing is the fact that scalablecounters matter,
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C HAPTER 2THE RECORDING PROCESSSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT55566722KCKKKKKK113.114.115.116.117.118.119.120.121.122.123.124.125.126.127.128.129.
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C HAPTER 4COMPLETING THE ACCOUNTING CYCLESUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT66666712CKKKKKKKItemSOBT33.34.sg35.sg36.sg37.23666KKCKK150.151.a152
FIT - BUS - 2212
C HAPTER 12ACCOUNTING FOR PARTNERSHIPSSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItemSOBT56666711KKCCCCKKsg23567KCKKK113.114.115.116.117.118.119.120.a12
FIT - BUS - 2212
C HAPTER 8FRAUD, INTERNAL CONTROL, AND CASHSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT67778812CKCKKKKK117.118.119.120.121.122.123.124.125.126.127.128.129.130.131
FIT - BUS - 2212
C HAPTER 11CURRENT LIABILITIES AND PAYROLL ACCOUNTINGSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItemSOBT78888912KCCCKKKKsg356789KCKKKK117.118.119.120.121.
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C HAPTER 7ACCOUNTING INFORMATION SYSTEMSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT4444112CKKKKKK83.84.85.86.87.88.89.90.91.92.93.94.95.96.97.98.99.444444444
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C HAPTER 10PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETSSUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItemSOBT77888889991010CKKKKKKKKKKK49. 1050.1sg51.2sg52.
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C HAPTER 14CORPORATIONS: DIVIDENDS, RETAINED EARNINGS,AND INCOME REPORTINGSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItemSOBT445555KKKKKK25.26.sg27.sg28.sg29.sg30.5
FIT - BUS - 2212
C HAPTER 15LONG-TERM LIABILITIESSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItemSOBT44567811KKKKKKKKsg33.34.sg35.sg36.sg37.sg38.223556KKKKKK120.121.
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C HAPTER 1ACCOUNTING IN ACTIONSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBT11122222KKCKKCKC9.10.11.12.13.14.15.16.22222234KKKKKKKKItemSOBTItemSOBT66777788KKKC
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C HAPTER 3ADJUSTING THE ACCOUNTSSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemsgstSOBTItemSOBTItemSOBTItemSOBTTrue-False Statements1.1C9.2C17.5C25.5K2.1K10.2K18.5K26.6K3.1K11.3C19.5C27.
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C HAPTER 17STATEMENT OF CASH FLOWSSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT56666622CCKCKKKK112.113.114.115.116.117.118.119.120.121.122.123.a124.a125.a126.a
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C HAPTER 16INVESTMENTSSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItemSOBT5666123CKKCKKKsg29.30.sg31.456CKC98.99.100.101.102.103.104.105.106.107.108.109.
FIT - BUS - 2212
C HAPTER 18FINANCIAL STATEMENT ANALYSISSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT55667723CCKKKKKK55555555555555555555566666666APAPAPAPAPAPA
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C HAPTER 19MANAGERIAL ACCOUNTINGSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT67788812CCKKKKKK107.108.109.110.111.112.113.114.115.116.117.118.119.120.121.122.123.
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C HAPTER 26INCREMENTAL ANALYSIS AND CAPITAL BUDGETINGSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBT1.2.3.4.5.6.7.8.12222233KKCKKCCC9.10.11.12.13.14.15.16.34445566CCKCCCC
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C HAPTER 25STANDARD COSTS AND BALANCED SCORECARDSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItem55699912CKCCCCKKsg114.115.116.117.118.119.120.121.122.123.124.125.
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C HAPTER 23BUDGETARY PLANNINGSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT45566612KCCKCCKK112.113.114.115.116.117.118.119.120.121.122.123.124.125.126.127.128.12
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C HAPTER 20JOB ORDER COSTINGSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBTItemSOBT4445555CKCCKKK29.30.sg31.sg32.sg33.sg34.sg35.6612346CCCKKKK105.106.
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C HAPTER 21PROCESS COSTINGSUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMYItemSOBTItemSOBTItemSOBTItemSOBT788891012KKKKKKKK107.108.109.110.111.112.113.114.115.116.117.118.119.120.121.122.123.124.
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Ex. 221One item is omitted in each of the following summaries of balance sheet and income statementdata for three different sole proprietorships, X, Y, and Z. Determine the amounts of the missingitems, identifying each proprietorship by letter.Proprie
University of Michigan - ENGLISH - 125
Advertising in the modern age, specifically in America, has become a backbone of the worldeconomy. It is predicted that in this year, 2010, the world is projected to spend over $450 billion onadvertising. Advertisement has become a staple in our society
University of Michigan - ENGLISH - 125
According to Merriam-Webster, a commercial is an advertisement broadcast on radio ortelevision. Now what is an advertisement? According to Dictionary.reference.com, anadvertisement is a notice, such as a poster or a paid announcement in the print, broad
University of Michigan - ENGLISH - 125
Every year advertising executives and marketing managers set out to develop new and moreeffective ways to spread their message to consumers. According to TNS media Intelligence, over $11.79billion dollars was spent on food advertising in the U.S. media
University of Michigan - ENGLISH - 125
Ads made for television have a painstaking amount of attention paid to them. There is a great deal of cash flowbetween agencies making commercials for companies; commercials that will convince consumers to buy saidcompanys products. It is an extremely c
University of Michigan - ENGLISH - 125
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University of Michigan - ENGLISH - 125
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Hedgingsheltering behind ambiguous meanings sothat the sense can be changed later;advanced preparation for a definitionalretreat by putting forward two or moredifferent statements under the guise of oneinstead of the argumentHominem (abusive), atta
University of Michigan - ENGLISH - 125
novitam,argumentum adnewness of something is afactor contributing to itssoundnessnumeram,argumentum adideas which have masssupport are more likely to beright"50 million Frenchmen can'tbe wrong!"one-sidedassessmentwhen only one side of theca
University of Michigan - ENGLISH - 125
the runaway trainwhen an argument used tosupport a course of actionwould also support more of itsecundum quidhasty generalization; when a generalizationis reached on the basis of a very few andpossibly unrepresented casesshifting groundwhen someo
University of Michigan - ENGLISH - 125
Now-a-days, there are associations between many different kinds of foods and drinks withdifferent diseases and eating habits. For example, it is said that soda pop causes cancer due to thehigh levels of benzene present (CBS News, 2006), drinking water m
UT Arlington - BIOLOGY - 3315
LING 2301 Introduction to the Study of Human LanguageWelcome!What is Linguistics Anyhow?Lecture #1What is Linguistics? LinguisticsThe systematic study of language forms, meaning, and use. So.Who / What are "linguists"? What do they do?3Some Sen
UT Arlington - LING - 2301
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UT Arlington - LING - 2301
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UT Arlington - LING - 2301
Lecture #09. an abnormal neurologic condition in which languagefunction is defective or absent because of an injury tocertain areas of the cerebral cortex. The deficiency may be sensory or receptive, in which language is not understood, or expressive o
UT Arlington - LING - 2301
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UT Arlington - LING - 2301
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UT Arlington - LING - 2301
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UT Arlington - LING - 2301
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UT Arlington - LING - 2301
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UT Arlington - LING - 2301
LING 2301Homework Assignment #3 Due Date: Tuesday, November 1, 2011 Speech Varieties 1. Choose one of the following English speech varieties to analyze in more depth: Spanglish African American English Male vs. Female speech Any American dialect 2. Find
UT Arlington - LING - 2301
Akinde KadjoAFRICAN AMERICAN ENGLISHAfrican American English is mostly spoken by black people. The vast majority of them are the descendants of captive slave Africans, blacks from the Caribbean whose ancestors immigrated, or Africans who immigrated to t
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Akinde Kadjo Tanya Newman Daniel Peart William Ramos Brittany Rose Kristin Truhan Group 3 Key Terms Exam 2 1. Lateralization Localization of function attributed to either the right or left side of the brain. 2. Contralaterlization Left part of the brain c
UT Arlington - LING - 2301
Arcuate fasciculous Wernick's area Broca's area Angulous gyrus Auditory cortex motor cortex Visual cortex Corpus collusum Contralateral
UT Arlington - LING - 2301
Language EcologyAgenda Overview Language Endangerment Language RevitalizationA Census of Widely-Spoken Languages (Ethnologue 1999)Languages 1 2 Chinese (Mandarin) Hindi L1 Speakers (millions) 874 366 L1+L2 spk (millions) 1,052 48734 5 6 7SpanishEn
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Ling 2301, Assignment 1: Morphology 1. For each sign, provide an analysis of its form, meaning and function. Also indicate if each sign is iconic, indexical, symptomatic, arbitrary, or a combination of types. [3 2 ea = 6 pts]a.b.c.3. Divide the follow
UT Arlington - LING - 2301
+Semantics: Lexical/Sentential MeaningLecture #4+2Semantics vs. Pragmatics Semantics-meaningsentences conveyed by words andLexical-the sense (dictionary meaning) of individual words Sentential or truth-conditional-the meaning of the assertion; d
UT Arlington - LING - 2301
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University of Michigan - ASTRO - 115
Lecture 3According to the book Abducted How People Come to Believe They were Kidnapped byAliens by Susan Clancy- 93% of Americans believe aliens exist- 27% believe they have visited Earth- 85% of adults believe evidence of life on other planets exist
University of Michigan - ASTRO - 115
Lecture 4Fact: an observation that has been repeatedly confirmed and for all practical purposes acceptedas true- Even facts can change if new information comes along (e.g. Fact: Pluto is the 9th planet)Law: a descriptive generalization about how some
University of Michigan - ASTRO - 115
Lecture 5How do we know the age of the Universe?- Radioactive dating of elementso Very precise measurements, but requires knowledge of galaxy evolution, so isuncertaino Age is 11.5 17.5 billion years- Ages of the oldest starso 10 15 billion years-
University of Michigan - ASTRO - 115
Lecture 7Wavelength and frequency- Wavelength x freequency = speed of light = constantParticles of light- Particles of light are called photons- Each photo has a wavelength and a frequency- The energy of a photo depends on its frequencyE = h x f =