Ratio Analysis
The gross profit rate if a company has $40,000 sales revenue, $1,000 Sales Discounts, $9,000 Sales Returns & Allowances, $9,000 Cost of Goods Sold and $2,000 Operating Expenses
Answer: What is 70%?
Calculation: Gross Profit/Net Sales = .70 or 70% = $21,000/$30,000
Net Sales = $40,000 - $1,000 - $9,000 = $30,000
Gross Profit = $30,000 - $9,000 = $21,000
This journal entry is prepared by a merchant selling goods on November 1 if the merchant uses a perpetual system, sells $200 of goods on account and records a cost of goods sold of $40
What is a $200 debit to Accounts Receivable and a $200 credit to Sales Revenue and a $40 debit to Cost of Goods Sold and a $40 credit to Inventory?
This formula is used to calculate cost of goods sold in a periodic system
What is Beginning Inventory + Net Purchases* + Freight-in - Ending Inventory?
*Net Purchases =
Purchases - Purchase Discounts - Purchase Returns & Allowances
Beginning Inventory + Net Purchases + Freight-in = Cost of Goods Available for Sale
The classification for Interest Expense on a merchant's multiple-step income statement
What is Other Expenses and Losses?
The reason for performing horizontal analysis
What is an evaluation of financial statement data over a period of time to track trends?
This ratio is useful in deciding whether a company is able to pay its short-term obligations?
What is the current ratio?
The required entry on November 1 if a business using a perpetual inventory system buys $30,000 of goods on account
What is a $30,000 debit to Inventory and a $30,000 credit to Accounts Payable?
The amount of inventory shown on a balance sheet if a company determines that $50,000 of goods remain on hand based on a physical inventory and $20,000 of inventory purchases with terms FOB Destination remain in transit at the end of the period
What is $50,000?
Goods purchased FOB Destination are owed by the seller until the goods arrive at the buyer's place of business.
The amount of gross profit that results if sales revenue is $50,000; Sales Returns & Allowances is $15,000; Sales Discount is $5,000, and cost of goods sold is $8,000
What is gross profit of $22,000?
Gross Profit = Net Sales - Cost of Goods Sold
Net Sales = $50,000 - $15,000 - $5,000 = $30,000
Gross Profit = $30,000 - $8,000
Gross Profit = $22,000
If Frida Company uses 2024 as the base year and reports net sales of $654,000 in 2024, net sales of $730,500 in 2025, and net sales of $791,340 in 2026, the percentage of the base year that Frida's 2026 net sales represents
What is 121%?
$791,340/$654,000 = 1.21 or 121%
The current ratio that results if a company has $100,000 of current assets, $150,000 of total assets, $50,000 of current liabilities and $200,000 of total liabilities and the company pay $50,000 cash for new equipment
What is 1.0 or 100%?
($100,000-$50,000/$50,000) = 1.0
Tia Company's required entry on November 11 if Tia uses a perpetual system, purchases $5,000 of goods on account on November 1 with terms 2/10, n/30, returns $200 of goods on November 5 and pays for the goods on November 11
What is a $4,800 debit to Accounts Payable, $96 credit to Inventory and $4,704 credit to Cash?
Discount = ($5,000-$200) x .02 = $96
The amount of cash collected by Folly Company if Folly sells $20,000 of goods on November 1 with terms 2/10, n/30, the buyer returns $8,000 of the goods and Folly collects payment on November 11.
What is $11,760?
Accounts Receivable = $20,000 - $8,000 = $12,000
Discount = .02 x $12,000 = $240
Cash collected = $12,000 - $240 = $11,760
Utilities Expense is listed under this classification on a multiple-step income statement
What are operating expenses?
The reason companies rely on inventory turnover and accounts receivable turnover
What is an assessment of liquidity?
A possible reason why a company's earnings per share has declined over time
What is a decrease in net income?
What is an increase in the number of common shares outstanding?
(sample answers)
An explanation for why a company using a perpetual inventory system takes a physical inventory
What is an opportunity to check for errors in recording inventory, theft and damaged goods?
The primary differences between a periodic and a perpetual inventory system
What is a perpetual system's continuous updating of inventory and cost of goods sold accounts as inventory is purchased and sold?
Other responses:
What is a periodic user's reliance on a physical inventory to determine ending inventory and calculate cost of goods sold at the end of the period?
This formula is used to calculate a company's gross profit rate
What is gross profit divided by net sales?
Other responses:
What is (Net sales - Cost of Goods Sold)/Net Sales?
A conclusion that results from a business having a low inventory turnover ratio
What is an inventory management problem?
Other answers:
What is weak demand for goods?
What is inventory spoilage?
What is a high number of days in inventory?
What is an inventory quality problem?
The profit margin that results if a company has $150,000 gross profit, $100,000 operating income, $550,000 net income, $300,000 sales revenue, $20,000 Sales Discount and $5,000 Sales Returns & Allowances
What is 2.0 or 200%?
Profit Margin = Net Income/Net Sales
Profit Margin= $550,000/$275,000 = 2.0
Net Sales=$300,000- $20,000 - $5,000 = $275,000
The required entry for a merchant using a perpetual system to record collection of payment on October 20 if the merchant sells $50,000 of goods with terms 2/15, n/30 on October 1, $10,000 of goods are returned and the merchant collects payment on October 20.
What is a $40,000 credit to Accounts Receivable and a $40,000 debit to Cash?
LB Company's required entry on October 11 if LB uses a perpetual system and sells $2,000 of goods on October 1 with terms 4/10, n/30, records a $500 allowance on October 5 and receives payment on October 11
What is a 1,500 credit to Accounts Receivable, $60 debit to Sales Discount and a $1,440 debit to Cash?
The operating income/operating loss that results if net sales is $50,000, cost of goods sold is $10,000, depreciation expense is $1,000, and Loss on the sale of equipment is $500
What is operating income of $39,000?
$50,000 net sales - $10,000 cost of goods sold =
Gross Profit of $40,000
Gross Profit $40,000 - $1,000 deprec. expense =
Operating Income of $39,000
This type of ratio provides useful information to a supplier evaluating whether to sell goods to a customer on account
What is a liquidity ratio?
Other answers:
What is the current ratio?
What is the receivables turnover ratio?
What is the inventory turnover ratio?