Chapter 6

Question 1

Inventory is reported as a blank on the blank

Answer 1

Current asset/ balance sheet only

Question 2

Selling inventory on account and selling inventory for cash will – – – the inventory account

Answer 2

Decrease

Question 3

In a perpetual system, the – – – account is debited when a company purchases merchandise on account

Answer 3

Inventory

Question 4

Type of company that sells services rather than physical goods

Answer 4

Service companies

Question 5

Type of company that sells goods that have been obtained from a supplier

Answer 5

Merchandising company’s

Question 6

Type of company that sells goods that they have made themselves

Answer 6

Manufacturing companies

Question 7

A company has net sales of $60,000, beginning inventory of $7000, purchases of $35,000 and ending inventory of $5000. The cost of goods sold is – – –

Answer 7

$37,000

Question 8

Purchases, freight in, beginning balance, would all be found on the — side of the inventory T account

Answer 8

Debit

Question 9

What is the formula for cost of goods sold

Answer 9

Beginning inventory plus purchases minus ending inventory

Question 10

The journal entry to record the payment for merchandise previously purchased on account includes a – – – / – – –

Answer 10

Credit to cash/debit two accounts payable

Question 11

Sales discounts should appear in the financial statement as a – – –

Answer 11

Deduction from sales

Question 12

Under the – – – inventory system, the inventory account is updated every time inventory is spot, sold, or returned.

Answer 12

Perpetual

Question 13

In a perpetual inventory system, the purchaser should record freight in as – – –

Answer 13

An asset, inventory

Question 14

In a perpetual inventory system, the seller should record freight out as

Answer 14

A selling expense

Question 15

Purchase transactions affect the – – –

Answer 15

Balance sheet and not the income statement

Question 16

In a perpetual inventory system, the return of merchandise recently purchased on account will have the following affects on the accounting equation

Answer 16

Assets will decrease/liabilities will decrease

Question 17

When a company provides $1000 of service to a customer on account with payment terms of 2/10, n/30, the entry it records when it record the sales include a debit to – – – and a credit to – – –

Answer 17

Accounts receivable for $1000/sales for $1000

Question 18

A company had cost of goods sold of $2000. If beginning inventory was $2100 and ending inventory was $500, the companies purchases must have been – – –

Answer 18

$400

Question 19

A multistep income statement is useful to financial statement users because it —

Answer 19

Separate cost of goods sold from other operating expenses, which allows the calculation of gross profit

Question 20

Goods are owned by the buyer when they leave the sellers place of business

Answer 20

FOB shipping point

Question 21

True or false: gross profit is a stockholders equity account and is credited with goods are delivered to customers

Answer 21

False

Question 22

A companies bookkeeper record of the purchase of merchandise on account with a debit to cost of good sold and a credit to cash. As a result – – –/– – –/– – –

Answer 22

Liabilities are understated/assets are understated/stockholders equity is understated

Question 23

On May 3 Botit purchase merchandise on account for $1000, FOB shipping point, with terms 1/10, n/30 from Cellar. On May 6 Botit receive the merchandise, along with an invoice for $1000. In addition, $100 in shipping cost was owed to We Deliver. On May 12 Botit paid all amounts owed, which amounted to – – –

Answer 23

$1090

Question 24

Company B bought inventory from company S, FOB destination. On December 31 the last day of the accounting year, the goods were on a truck owned by Company C, and not expected to arrive until January 2. Which company should include these goods and it’s December 31 inventory?

Answer 24

Company S

Question 25

– – – Consists of all costs needed to get the inventory ready for sale

Answer 25

Inventory

Question 26

In a perpetual system, the entry to record a purchase of merchandise on account includes – – –/– – –

Answer 26

Credit two accounts payable/debit to inventory

Question 27

Inventory records are updated only at the end of the accounting period in the — inventory system

Answer 27

Periodic

Question 28

A company has sales of $50,000, cost of good sold of $30,000, and selling expenses of $5000. It’s gross profit is —

Answer 28

$20,000

Question 29

True or false: inventory and supplies are interchangeable account titles and have the same meaning

Answer 29

False

Question 30

A company sold merchandise for $5000, with payment terms of 2/10, n/30. If the customer pays within the discount period and take the discount, the company will receive – – –

Answer 30

$4900

Question 31

In a perpetual system, the – – – account is debited went up company purchases merchandise on account.

Answer 31

Inventory

Question 32

The recording of a company’s purchase returns and purchases allowances are similar in that both may result in a – – –/– – –

Answer 32

Decrease in accounts payable/decrease in inventory

Question 33

A company that uses a perpetual inventory system recorded a debit to sales returns and allowances and a credit to accounts receivable, along with a debit to inventory and a credit to cost of goods sold. What business event must have taken place?

Answer 33

The customer received a damaged product and returned it

Question 34

The operating cycle is a series of activities that the company under takes to generate – – – and, ultimately, cash.

Answer 34

Sales

Question 35

A companies journal entry to record the return of merchandise previously purchased on account by the company was recorded by debiting inventory and crediting accounts payable. As a result of this entry, – – –/– – –

Answer 35

Liabilities will be overstated/assets will be overstated

Question 36

A company uses a perpetual inventory system. On May first, beginning inventory was $100,000. During May, the company purchased $35,000 of inventory and sold $71,000 of inventory. After the store closed on May 31, employees counted the inventory in the store and found that $60,000 of inventory remained unsold. What was the companysinventory shrinkage?

Answer 36

$4000

Question 37

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a –/–/–/–/.

Answer 37

Credit sales revenue/debit to cost of goods sold/credit to inventory/debit to accounts receivable