Exam #2 review (In class) Flashcards
Revenue Recognition:
When should revenue be recorded and reported? Regardless of when the cash payment is received.
When it is EARNED
How do you compute COST OF GOODS AVAILABLE to sell (COGA)?
Beginning Inventory
+ Purchases
= Cost of goods available to sell
How do you compute COST OF GOODS SOLD (COGS)?
Then Cost of goods available to sell (COGA)
- ending inventory
= COGS
What is the current ratio?
Current Assets: $2,500
Current Liabilities: $1,500
CA ($2,500)
/ CL ($1,500)
= 1.67 (Every $1 of liabilities, you have $1.67 in assets to pay )
How much working capital?
Current Assets: $3,000
Current Liabilities: $2,000
CA $3,000
- CL $2,000
= $1,000 (If paid all liabilities, you have $1,000 left for normal operations.)
Under which method of cash flows is the ending inventory assumed to be composed of the most recent costs?
- FIFO
- LIFO
- AVERAGE
- SPECIFIC IDENTIFICATION
FIFO
Under inventory costing method results in the lowest net income during a period of rising unit prices?
- FIFO
- LIFO
- AVERAGE
- SPECIFIC IDENTIFICATION
LIFO
Which accounts are debited and credited to record the purchase of merchandise for cash?
Inventory: ___
Cash:___
Inventory DB
Cash CR
You bought goods with a list price of $2,000, terms 3/10,n30. The perpetual method is used. Five (5) days later you returned goods totaling $400 for credit. If you paid the amount due within the discount period, what is the correct journal entry to record the payment?
ACCOUNTS PAYABLE
Account Payable $1,600
Inventory $48
Cash Difference = $1,552
DB CR
$2,000
$400
= $1,600
x .03%
= $48 in savings
At the beginning of the year you have $30,000 in inventory. During the year you purchase an additional $70,000 of inventory but returned $10,000 for full credit. A physical count of the inventory at year-end revealed an inventory on hand of $15,000. Calculate cost of goods sold for the period.
$30,000 Beginning Inventory
+ $70,000 Purchase
($10,000) Returns
= $90,000 COGA
- $15,000 Ending Inventory
= $75,000 COGS
You sell $5,000 merchandise for cash. The state sales tax is 8%. The cost of merchandise sold is $3,000. Record this transaction.
Cash $5,400
Sales (Revenue) $ 5,000 x .08% = $400
Sales Tax Payable $ 400 (collect)
$ 5,400
COGS $3,000
Inventory $3,000
During the fiscal year, sales were $8,100, sales discounts were $800, sales returns and allowances were $500 and the cost of merchandise sold was $5,100. Calculate gross profit.
$ 8,100 Sales
($ 800) Discounts
($ 500) Returns
= $ 6,800 Net Sales
($ 5,100) COGS
= $ 1,700 Gross Profit
Name two purposes of closing entries?
- To zero temporary accounts
- Transfer temporary account balances to capital
Name three temporary accounts
- Revenue
- Expenses
- Drawing
Which financial statement are temporary accounts transfered to?
Income Statement
Baker Company had the following purchases and sales transactions during the month of March. Prepare Journal entries to record these transactios.
Purchase Transactions
- March 3 - Purchased $25,000 of inventory on account, terms 2/10, n/30
- March 5 - Returned $5,000 of merchandise purchases on account March 3
- March 12 - Paid for the March 3 purchase, less the return and the discount.
Baker Company had the following purchases and sales transactions during the month of March. Prepare Journal entries to record these transactios.
Sales Transactions
- Mar 13 - Sold merchandise on account to Smith co, $50,000 terms 1/10, n/30. The cost of the merchandise sold was $35,000/
- Mar 15 - Received merchandise returned on account from Smith Co., for $8,000. The cost of merchandise returned was $5,600
- Mar 22 - Received payment in full from Smith Co., less return and discount.
How does a merchandising company’s multi-step income statement differ from that of a service company?
