Test 3 Review

Income Statement

100

How do you calculate gross profit?

Net sales - cost of goods sold

200

How do you find net sales?

Total/gross sales - sales discounts and returns

300

What are the two categories of operating expenses?

1. Selling

2. General/administrative

400

Income from operations is found by subtracting operating expenses from ____?

Gross profit

500

What is one example of an other revenue and one example of an other expense?

gain from sale - revenue/gain

interest expense - expense

interest income - revenue

loss from sale - expense/loss

Inventory Entries

100

We purchase inventory for 200 with cash. What is the journal entry?

Inventory         200

    Cash                   200

200

We return $100 of inventory before paying our invoice. What is the entry to record the return?

Accounts Payable         100

    Inventory                       100

300

We bought merchandise for 500 on credit. We qualified for a 2% discount. What is the entry for when we pay for the merchandise (assume we did not pay in time to get the discount)?

Accounts Payable       500

    Cash                             500

400

We bought merchandise for 500 on credit. We qualified for a 2% discount. What is the entry for when we pay for the merchandise (assume we paid in time to get the discount)?

Accounts Payable        500

    Cash                              10

    Inventory                       490

500

We are the seller, and it is FOB destination. How would we record $50 in shipping? (shipping is paid in cash)

Delivery expense         50

    Cash                            50

Costing Methods

100

What are the four main inventory costing methods?

FIFO, LIFO, weighted average, specific identification

200

What do FIFO and LIFO stand for?

First in first out

Last in first out

300

When using FIFO, the oldest/newest inventories go into cost of goods sold first.

oldest (first in = first to COGS)

400

Ending inventory is found by subtracting cost of goods sold from ____.

merchandise available for sale

500

Which inventory costing method will result in the lowest net income and which method will result in the highest net income?

highest - FIFO

lowest - LIFO

FIFO vs. LIFO

100

Using LIFO, ending inventory is made up of the oldest/newest inventories.

oldest (latest inventory goes out first, so oldest is left in ending inventory)

200

Will cost of goods sold be lower using the FIFO or LIFO method?

FIFO

300

1/1 - beg inv. - 10 units @ $10 each

1/15 - purchases - 5 units @20 each

1/30 - sales - 8 units @ 30 each

What is the merchandise available for sale on 1/20?

5 units @ $20

10 units @ 10

15 @ $200 in Merch. avail. for sale

400

1/1 - beg inv. - 10 units @ $10 each

1/15 - purchases - 5 units @20 each

1/30 - sales - 8 units @ 30 each

What is the cost of goods sold using the FIFO method?

8 units @ $10 

$80 in COGS

500

1/1 - beg inv. - 10 units @ $10 each

1/15 - purchases - 5 units @20 each

1/30 - sales - 8 units @ 30 each

What is the ending inventory using the LIFO method?

0 units @ $20

7 units @ $10 

$70 in ending inventory

Discounts

100

Under the gross method, do we record the discount when we record the purchase of inventory or payment of inventory?

payment of inventory

200

3/10, n/30

Given the above discount, what does the 3 mean?

3 percent discount

300

3/10, n/30

Given the above discount, what does the 10 mean?

the buyer has 10 days to pay in order to qualify for the discount

400

3/10, n/30

Given the above discount, what does the 30 mean?

the payment is due in 30 days

500

2/15, n/35

Tell me what this means.

We can get a 2% discount if paid within 15 days. The payment is due in 35 days.