Since payment is made within the ten day discount period the journal entry to

Since payment is made within the ten day discount

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days of the invoice date; otherwise the net amount of the invoice is due in 30 days. Since payment is made within the ten-day discount period, the journal entry to record the payment is: Accounts Payable 1,200 Inventory 24 Cash 1,176 14. D The terms “1/10, n/30” mean that a 1% discount is available if payment is made within ten days of the invoice date; otherwise, the net amount of the invoice is due in 30 days. Since payment was not made within the ten-day discount period, the net amount is due. The journal entry to record the payment is: Accounts Payable 1,600 Cash 1,600 15. C You are required to work backwards. Since Net Sales - Cost of Goods Sold = Gross Margin; therefore, Net Sales = Gross Margin + Cost of Goods Sold. III. Completion 1.merchandise inventory 2.Cost of Goods Sold 3.perpetual 4.Both systems require a physical count. In a perpetual inventory system, this verifies that the inventory listed in the accounting records actually exists. 5.FOB destination 6.conservatism (The LCM rule ensures that a business reports its inventory at its replacement cost if that is lower than its original cost. This rule ensures that assets are not overstated and that declines in inventory value are reported on the income statement in the period of the decline.) 7.FOB shipping point 8.LIFO (The oldest and therefore lower prices are used to value ending inventory.) 9.specific unit cost 10.LIFO (The oldest and therefore higher prices are used to value ending inventory.) 11.invoice (To the seller, the invoice results in a sale being recorded. To the purchaser, the same invoice results in a purchase being recorded.) 12.periodic (In a periodic system, Purchases is debited and Cash (or Accounts Payable) is credited.) 13. Gross Margin or Gross Profit (The basic income statement formula for a merchandising company is: Sales - Cost of Goods Sold= Gross margin - Operating expenses= Net income (Net loss)14. perpetual (Under the perpetual system, all merchandise is debited to the Inventory account when acquired and credited to the Inventory account when sold.) 15. gross margin divided by net sales 16. cost of goods sold divided by average inventory
Accounting for Merchandise Inventory, Cost of Goods Sold, and the Gross Margin165IV. True/False 1. T 2. F A LIFO Reserve will be present only when the company uses LIFO costing 3. F Inventory and Cost of Goods Sold accounts are features of a perpetual inventory system. 4. F Quantity discounts are used to encourage volume purchases. 5. T 6. F While gross margin and gross profit are synonymous terms, the denominator in the calculation for the gross margin rate is net sales revenue, not cost of goods sold. 7. F FOB destination means the seller pays the transportation costs. 8. T 9. F Inventory transactions are operating activities, not investing activities. 10. T 11. T 12. F With rising costs, FIFO results in the highest value for ending inventory because FIFO assigns the most recent costs (and therefore the highest) to ending inventory.

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