Exam 3

Question 1

How to calculate income statement

Answer 1

Sales Revenue- Cost of Goods Sold= Gross Profit - Operating Expenses=Net Income

Question 2

FIFO calcualtion

Answer 2

take the ending inventory and go backwards up the inventory list

Question 3

LCM

Answer 3

LCM is applied after one of the cost flow assumptions has been applied.

LCM is an example of a company choosing the accounting method that will be least likely to overstate assets and income.

The LCM basis uses current replacement cost because a decline in this cost usually leads to a decline in the selling price of the inventory item.

Question 4

goods on consignment

Answer 4

?

Question 5

NET SALES

Answer 5

SALES REVENUE - RETURNS AND ALLOWANCES

Question 6

INTEREST EXPENSE WOULD BE UNDER

Answer 6

OTHER EXPENSES AND LOSSES.

Question 7

PERPETUAL INVENTORY -WHY ARE DISCOUNTS CREDITED TO INVENTORY?

Answer 7

The discounts reduce the cost of the inventory.

Question 8

Under the perpetual inventory system, which of the following accounts would not be used?

Answer 8

PURCHASES. WHY? BECAUSE PERPETUAL INVENTORY ONLY DEALS WITH

Question 9

FREIGHT IN AND IS IT DEBITED OR CREDITED?

Answer 9

?

Question 10

GROSS PROFIT

Answer 10

NET SALES - COST OF GOODS SOLD

Question 11

NET INCOME

Answer 11

SALES(REV-DISCOUNTS) MINUS COST OF GOODS SOLD = GROSS PROFIT MINUS EXPENSES THEN PLUS OTHER REVS AND GAINS MINUS OTHER EXPENSES AND -LOSSES = NET INCOME

Question 12

IN A PERIODIC SYSTEM WHEN IS THE INVENTORY DETERMINED?

Answer 12

The amount of ending inventory is determined on the last day of the accounting period

Question 13

Which of the following accounts has a normal credit balance

Answer 13

SALES REVENUE

Question 14

WHAT IS 3/15 N/45.

Answer 14

IF YOU PAY WITHIN 45 DAYS YOU GET 5% OFF.

Question 15

ERRORS IN INVENTORY

Answer 15

beginning inventory understated: COGS understated and net income overstated (if inventory was overstated, it will be switched around)
Ending inventory understated: COGS Overstated and Net income understated ( everything is switched if it was overstated)

Question 16

Ending Inventory Error Overstated

Answer 16

Assets are overstated, Liabilities have no affect, Equity is overstated as well

Question 17

Ending inventory error understated

Answer 17

Assests and Equity are understated and liabilties have no affect.

Question 18

Cost og Goods sold

Answer 18

Beginning inventory + Cost of Goods Purchased - Ending inventory

Question 19

inventory Turnover

Answer 19

Cost of goods sold divided by average invenotry

Question 20

weighted average unit cost

Answer 20

cost off good availabe for sale divided by total units available for sale.

Question 21

Sales allowance:

Answer 21

there may have been an error in pricing the product and the customer needs to be credited.

Question 22

Shipping-In

Answer 22

Added to the inventory in the periodic system

Question 23

Shipping-In

Answer 23

Added to the inventory in the periodic system and is debited

Question 24

multistep income statment ending in net income

Answer 24

Sales (sales rev-returns)= NET SALES. Then less COST OF GOODS SOLD. equals GROSS PROFIT. then less OPERATING EXPENSES, add OTHER REVNUES AND GAINS, less OTHER EXPENSES and LOSsES = NET INCOME

Question 25

single step income

Answer 25

Find net sales by taking sales rev minus sales returns and allowances and discounts

Question 26

FIFO does what during increase of prices

Answer 26

reports lower costs and higher margins (this will benefit company’s records not taxes) you add LIFO reserve to LIFO to get FIFO.

Question 27

LIFO during increase of prices

Answer 27

reports higher costs and lower margins (companies use this for tax benefits)