Chapter 6

Question 1

FOB shipping terms

Answer 1

FOB Destination and FOB Shipping point

Question 2

FOB Destination

Answer 2

Seller pays shipping
* If the seller pays for shipping, it is an freight out*

Question 3

FOB Shipping point

Answer 3

Buyer pays shipping
* If buyer pays for shipping, it gets added to the cost of Inventory*

Question 4

If purchaser returns merch

Answer 4

Inv. goes down, cash goes up, or A/P goes down

Question 5

“net 30”

Answer 5

pay whole amount in 30 days

Question 5

Purchaser agrees to keep “off” merchandise called an “Allowance”

Answer 5

Inv. goes down, cash goes up, A/P goes down

Question 6

2/10 net 30

Answer 6

buy within 10 days, take a 2% discount, otherwise pay whole amount in 30 days

Question 6

Applying 2/10 net 30 discount:
ex. cost was 610,000

Answer 6

610,000x0.02= 12,200
then subtract it from cost

Question 7

Sold goods on account

Answer 7

A/R goes up, Rev. goes up

Question 8

Remove goods from inv.

Answer 8

inv. goes down, cost of goods sold goes down

Question 9

Selling Inv.

Answer 9

cash goes up or A/R goes up, Revenue goes up

Question 10

After selling, remove inv.

Answer 10

Inv. goes down, GOGS goes down

Question 11

Multi-step I/S

Answer 11

Sales rev.
- sales returns/allowances
-sales discounts
=Net sales
-COGS
=Gross Profit
-operating exp. (rent exp., insurance exp., utilities exp.)
+/- other income exps. (interest exp.)
=Income before income tax
-income tax expense
=Net Income

Question 12

Gross Profit Rate

Answer 12

Gross Profit/ Net sales

Question 13

Profit Margin

Answer 13

Net Income/ Net sales