1. 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?
Cash 2,550 Accounts Receivable 2,550
Cash 2,940 Sales Discounts 60 Sales Returns and Allowances 450 Accounts Receivable 2,550
Cash 2,499 Sales Returns and Allowances 501 Accounts Receivable 3,000
Cash 2,499 Sales Returns and Allowances 450 Sales Discounts 51 Accounts Receivable 3,000
2. 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 $2,700 credit to Cost of Goods Sold.
a $4,500 credit to Cash.
a $2,700 credit to Inventory.
a $4,500 debit to Accounts Receivable.
3. Income from operations is gross profit less
other expenses and losses.
4. If a company determines cost of goods sold each time a sale occurs, it
must have a computer accounting system.
uses a combination of the perpetual and periodic inventory systems.
uses a perpetual inventory system.
uses a periodic inventory system.
5. The collection of a $800 account after the 2 percent discount period will result in a
debit to Cash for $784.
credit to Accounts Receivable for $800.
credit to Cash for $800.
debit to Sales Discounts for $16.
6. When goods are returned that relate to a prior cash sale,
Sales Returns and Allowances will be credited.
the cash account will be credited.
Accounts Receivable will be credited.
the Sales Returns and Allowances account should not be used.
7. 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
Accounts Payable 7,000 Purchase Returns and Allowances 140 Cash 6,860
Accounts Payable 6,860 Cash 6,860
Accounts Payable 7,000 Inventory 140 Cash 6,860
Accounts Payable 7,000 Cash 7,000
8. Indrisano’s Used Cars uses the specific identification method of costing inventory. During March, Indrisano purchased three cars for $6,000, $7,200, and $9,600, respectively. During March, two cars are sold for a total of $17,300. Indrisano determines that at March 31, the $7,200 car is still on hand. What is Indrisano’s gross profit for March?
9. Which of the following statements is correct with respect to inventories?
The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
Under FIFO, the ending inventory is based on the latest units purchased.
It is generally good business management to sell the most recently acquired goods first.
FIFO seldom coincides with the actual physical flow of inventory.
10. Netta Shutters has the following inventory information.
Nov. 1 Inventory 15 units @ $8.00
8 Purchase 60 units @ $8.30
17 Purchase 30 units @ $8.40
25 Purchase 45 units @ $8.80
A physical count of merchandise inventory on November 30 reveals that there are 45 units on hand. Assume a periodic inventory system is used. Cost of goods sold (rounded to the nearest dollar) under the average-cost method is
11. At May 1, 2013, Kibbee Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows: 400 units at $7 300 units at $8 The company sold 500 units during the month for $12 per unit. Kibbee uses the average cost method. The average cost per unit for May is
12. The convergence issue that will be most difficult to resolve in the area of inventory accounting is:
ownership of goods.
costs to include in inventory.
13. A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $250 and used FIFO costing, the gross profit for the period would be
14. GAAP defines market for lower-of-cost-or market essentially as
estimated selling price in the ordinary course of business.
net realizable value.
replacement cost less costs of disposal.
15. Partridge Bookstore had 500 units on hand at January 1, costing $18 each. Purchases and sales during the month of January were as follows:
Date Purchases Sales
Jan. 14 375 @ $28
17 250 @ $20
25 250 @ $22
29 260 @ $32
Partridge does not maintain perpetual inventory records. According to a physical count, 365 units were on hand at January 31. The cost of the inventory at January 31, under the FIFO method is: