Chapter 4 theory
What is the perpetual inventory system?
A system that updates inventory records continuously.
If sales revenue is $59,000, beginning inventory is $7,500, purchases are $34,000, and ending inventory is $3,000, what is COGS?
COGS = $38,500
What journal entry is recorded when a company purchases inventory on account?
Debit Inventory, Credit Accounts Payable
What does FOB shipping point mean?
Ownership transfers when the seller ships the goods.
Using FIFO, what is COGS if a company sells the first item purchased for $500?
$500
Merchandisers record revenue when they...?
a.deliver the goods and collect the cash from their customers
b.fulfill their performance obligations by transferring control of the goods to customers
c.receive the order to deliver goods to customers
d.receive cash in advance from their customers
b. fulfill their performance obligations by transferring control of the goods to customers
What is the gross profit percentage if sales revenue is $160,000 and COGS is $77,000?
52%
What journal entry is recorded when a company pays off its accounts payable?
Debit Accounts Payable, Credit Cash
Which costing method assumes the oldest inventory is sold first?
FIFO
Find the weighted average cost per unit for 200 units at $17 each and 300 units at $18 each.
$17.60 per unit
Using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a(n) ______.
a.decrease in assets and stockholders' equity
b.decrease in liabilities and an increase in stockholders' equity
c.increase in assets and stockholders' equity
d.decrease in assets and liabilities
d.decrease in assets and liabilities
If Net Sales is $60,000, Beginning Inventory is $7,000, Purchases are $35,000, and Ending Inventory is $5,000, what is COGS?
COGS = $37,000
What journal entry is recorded when a customer returns inventory that was previously sold on account?
Debit Sales Returns & Allowances, Credit Accounts Receivable; Debit Inventory, Credit COGS
Which inventory method results in the beginning purchases being recorded in ending inventory?
LIFO
Calculate FIFO COGS if 1 diamond is sold from an inventory of 1 diamond at $500, 2 at $550, and 2 at $600.
$500
If Accounts Payable is debited and Cash is credited, then the company is recording a ______.
a.sale of goods on account to its customer
b.payment of amounts owed for purchases made on account
c.purchase on account
d.collection from a customer for sales made on account
b.payment of amounts owed for purchases made on account
If beginning inventory is $20,000, purchases are $81,000, and ending inventory is $24,000, what is COGS?
COGS = $77,000
Record the journal entry for selling merchandise on account for under the perpetual system.
Debit Accounts Receivable, Credit Sales Revenue; Debit COGS, Credit Inventory
When costs to purchase inventory are rising, does LIFO report higher or lower net income than FIFO?
Lower
A company purchases 10 units at $5 May 2. Then they buy 20 units at $10 on May 8 and sells 5 using LIFO on May 12th. What is COGS?
$50
What happens if shrinkage occurs?
Inventory is lower than expected due to theft, loss, or error.
Calculate shrinkage if beginning inventory is $3,300, purchases are $34,000, sales cost $25,800, and ending inventory is $10,900.
Shrinkage = $600
What journal entry is recorded for collecting an accounts receivable payment within the discount period (using gross method)?
Debit Cash
Debit Sales Discounts
Credit Accounts Receivable
What does the days-to-collect ratio measure?
The average number of days to collect receivables.
Using LIFO periodic, find COGS if Mountain Made starts with 3 quilts at $200, buys 20 at $210, and sells 18.
$3,780