Practice Midterm Quiz 12 Flashcards
- Purchased goods costing $1,000. The purchase was made on account with terms of 4/10, n/30. The original purchase was recorded with a DEBIT to Inventory and a CREDIT to Accounts Payable for $1,000. – The account was paid in cash after 23 days. Which ONE of the following is included in the journal entry to record the payment of cash on account after 23 days?
a. DEBIT to Accounts Payable for $960
b. DEBIT to Cash for $960
c. CREDIT to Inventory for $40
d. CREDIT to Accounts Payable for $1,000
e. CREDIT to Accounts Payable for $960
f. CREDIT to Cash for $1,000
38.
Solution = F
The payment was made outside the discount period, so the entire $1,000 was paid.
Accounts Payable 1,000 Cash 1,000
- Sold goods costing $1,200 for $300 cash with the remaining $1,700 on account. After two weeks the customer returned the goods. There is nothing wrong with the goods; the customer just changed his mind, and you have a return policy that allows customers to return their purchases at any time for any reason. – Which ONE of the following is included in the journal entries necessary to record this return? Note: You are recording the RETURN; assume that the initial sale was recorded correctly. Also, note that the initial sale was partially a cash sale and partially a credit sale.
a. CREDIT to Sales Returns for $1,700
b. CREDIT to Sales Revenue for $2,000
c. CREDIT to Cash for $2,000
d. DEBIT to Sales Returns for $1,700
e. DEBIT to Sales Revenue for $1,200
f. DEBIT to Cash for $300
g. DEBIT to Sales Returns for $2,000
39.
Solution = G
Sales Returns 2,000 Cash 300 Accounts Receivable 1,700 Inventory 1,200 Cost of Goods Sold 1,200
- Sold goods costing $1,200 for $2,000 cash. After two weeks the customer returned the goods. The goods are defective; you estimate that you will be able to resale them for about $350. This $350 amount is the amount at which the inventory should be recorded in your books once it is returned by the customer. – Which ONE of the following is included in the journal entries necessary to record this return? Note: You are recording the RETURN; assume that the initial sale was recorded correctly. Also, note that the initial sale was a cash sale.
a. CREDIT to Inventory for $1,200
b. CREDIT to Inventory for $350
c. CREDIT to Inventory for $850
d. CREDIT to Cost of Goods Sold for $1,200
e. CREDIT to Cost of Goods Sold for $350
f. CREDIT to Cost of Goods Sold for $850
40.
Solution = E
Sales Returns 2,000 Cash 2,000 Inventory 350 Cost of Goods Sold 350
Note: After these journal entries, there still remains Cost of Goods Sold of $850 ($1,200 - $350) on the books from the original sale. This reflects the loss suffered because Inventory purchased for $1,200 we now have back, and we won’t be able to sell it for more than $350.
Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on January 1.]
Purchased on January 1 – 100 units, $9 cost per unit
Purchased on January 16 – 300 units, $8 cost per unit
Purchased on January 25 – 400 units, $7 cost per unit
Sold on January 31 – 500 units, $10 selling price per unit
41. Assume that the company uses FIFO. Compute GROSS MARGIN for January.
a. $1,000
b. $1,100
c. $1,400
d. $2,500
e. $2,100
41.
Solution = A
Cost of Goods Sold Ending Inventory FIFO 100 x $9 = $900 300 x $7 = $2,100 300 x $8 = $2,400 100 x $7 = $700 Total = $4,000
Sales $5,000 - $4,000 Cost of Goods Sold = $1,000 Gross Margin
LIFO
400 x $7 = $2,800 100 x $9 = $900
100 x $8 = $800 200 x $8 = $1,600
Total = $3,600 Total = $2,500
Average Cost
$6,100 / 800 units = $7.625
500 x $7.625 = $3,813 300 x $7.625 = $2,287
Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on January 1.]
Purchased on January 1 – 100 units, $9 cost per unit
Purchased on January 16 – 300 units, $8 cost per unit
Purchased on January 25 – 400 units, $7 cost per unit
Sold on January 31 – 500 units, $10 selling price per unit
42. Assume that the company uses LIFO. Compute COST OF GOODS SOLD for January.
a. $3,600
b. $3,700
c. $3,500
d. $1,600
e. $2,500
42. Solution = A Cost of Goods Sold Ending Inventory LIFO 400 x $7 = $2,800 100 x $9 = $900 100 x $8 = $800 200 x $8 = $1,600 Total = $3,600 Total = $2,500
Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on January 1.]
Purchased on January 1 – 100 units, $9 cost per unit
Purchased on January 16 – 300 units, $8 cost per unit
Purchased on January 25 – 400 units, $7 cost per unit
Sold on January 31 – 500 units, $10 selling price per unit
43. The company uses AVERAGE COST. Compute ENDING INVENTORY for January.
a. $2,787
b. $3,000
c. $2,287
d. $3,813
e. $3,106
43.
Solution = C
Cost of Goods Sold Ending Inventory
Average Cost
$6,100 / 800 units = $7.625
500 x $7.625 = $3,813 300 x $7.625 = $2,287
Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on January 1.]
Purchased on January 1 – 100 units, $9 cost per unit
Purchased on January 16 – 300 units, $8 cost per unit
Purchased on January 25 – 400 units, $7 cost per unit
Sold on January 31 – 500 units, $10 selling price per unit
44. The company uses AVERAGE COST. Compute GROSS MARGIN for January.
a. $2,787
b. $3,813
c. $2,287
d. $1,187
e. $1,000
f. $1,100
44.
Solution = D
Cost of Goods Sold Ending Inventory
Average Cost
$6,100 / 800 units = $7.625
500 x $7.625 = $3,813 300 x $7.625 = $2,287
Sales $5,000 - $3,813 Cost of Goods Sold = $1,187 Gross Margin
- Which ONE of the following statements is FALSE?
a. In times of INFLATION, FIFO results in the highest INCOME TAXES.
b. In times of INFLATION, LIFO results in the lowest INCOME TAXES.
c. In times of DEFLATION, FIFO results in the lowest ending INVENTORY.
d. In times of DEFLATION, AVERAGE COST results in the highest ending INVENTORY.
e. In times of INFLATION, LIFO results in the lowest ending INVENTORY.
45.
Solution = D
In times of steady inflation or deflation, the average cost values typically fall between the FIFO and the LIFO values.
- Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on January 1.]
Purchased on January 1 – 100 units, $10 cost per unit
Purchased on January 16 – 300 units, $10 cost per unit
Purchased on January 25 – 400 units, $10 cost per unit
Sold on January 31 – 500 units, $15 selling price per unit
A physical inventory count has revealed that only 220 units are in ending inventory on January 31. Which ONE of the following is included in the journal entry necessary to record the fact that some inventory is missing?
a. DEBIT to Bad Debt Expense for $800
b. DEBIT to Inventory for $800
c. DEBIT to Inventory Shrinkage for $800
d. DEBIT to Sales Revenue for $800
e. DEBIT to Cost of Goods Sold for $1,800
f. DEBIT to Inventory for $1,800
g. DEBIT to Inventory Shrinkage for $1,800
h. DEBIT to Sales Revenue for $1,800
46.
Solution = C
800 units purchased minus 500 units sold = 300 units that should be remaining
300 units minus 220 units actually remaining = 80 units missing
80 units × $10 per unit = $800 cost of inventory missing
Inventory Shrinkage (an expense) 800 Inventory 800
