Chapters 5 and 6 Review
1.
An enterprise which sells goods to customers is known as a
2.
Two categories of expenses in merchandising companies are
3.
The primary source of revenue for a service company is
4.
Which of the following expressions is incorrect?
5.
The journal entry to record a return of merchandise purchased on account under a perpetual inventory
system would credit
6.
Under a perpetual inventory system, acquisition of merchandise for resale is debited to the:
7.
In a perpetual inventory system, cost of goods sold is recorded when; at the end of the period or on a daily
basis when sales occur?
8.
Under a perpetual inventory system, the following entry would be made to record the purchase of inventory
on account:
a. Merchandise Inventory .............................................................................
Accounts Payable .......................................................................
b. Purchases .................................................................................................
Accounts Payable .......................................................................
c. Cost of Goods Sold...................................................................................
Accounts Payable .......................................................................
d. Merchandise Inventory .............................................................................
Cost of Goods Sold ....................................................................
9.
Cost of goods sold, in a perpetual inventory system, is calculated using what equation?
10.
Doyle Company sells merchandise on account for $1,200 to Benes Company. Benes Company returns $400
(cost $250) of merchandise that was damaged, along with a cheque to settle the account. What entry does
Doyle Company make upon receipt of the cheque?
a. Cash
...................................................................................................
Accounts Receivable ..................................................................
b. Cash
...................................................................................................
Sales Returns and Allowances .................................................................
Accounts Receivable ..................................................................
c. Cash
...................................................................................................
Sales Returns and Allowances .................................................................
Inventory ...................................................................................................
Accounts Receivable ..................................................................
Cost of Goods Sold ....................................................................
d. Cash
...................................................................................................
Sales Returns and Allowances ...................................................
Accounts Receivable ..................................................................
11.
If goods in transit are shipped FOB shipping point to a carrier named by the buyer
a. the seller has legal title to the goods until they are delivered.
b. the buyer has legal title to the goods when a public carrier accepts the goods from the seller.
c. the transportation company has legal title to the goods while the goods are in transit.
d. no one has legal title to the goods until they are delivered.
12.
If goods in transit are shipped FOB destination
a. the seller has legal title to the goods until they are delivered.
b. the buyer has legal title to the goods when a public carrier accepts the goods from the seller.
c. the transportation company has legal title to the goods while the goods are in transit.
d. no one has legal title to the goods until they are delivered.
13.
The term "FOB" means?
14.
The FIFO inventory method assumes that the cost of the latest units purchased are sold when?
15.
The selection of an appropriate inventory cost flow assumption for an individual company is made by whom?
16.
Which is not a common cost flow assumption used in costing inventory?
17.
The accounting principle that requires that the cost flow assumption be consistent with the physical
movement of goods is
18.
The Doyle Company uses the perpetual inventory system and the moving average method to value
inventories. On August 1, there were 10,000 units valued at $20,000 in the beginning inventory. On August
1st, 10,000 units were purchased for $7 per unit. On August 20, 8,000 units were sold for $15 per unit. The
amount charged to cost of goods on August 20 was
19.
Which of the following is not true of a perpetual inventory system?
a. It allows for the monitoring of the quantities of inventory on hand.
b. Two entries are required when a sale is made.
c. Inventory subsidiary ledgers make computers less essential.
d. It allows for greater control over inventories.
20.
The cost of goods available for sale is allocated to the cost of goods sold and the
4/1
4/3
4/4
4/10
4/16
4/19
4/25
4/30
Beginning inventory
Purchase
Sales
Purchase
Sales
Sales
Sales
Purchase
Units
100
40
300
70
Purchases
Unit Cost
$20
$25
Units
Sales
Selling Price/Unit
70
$170
80
80
50
$180
$180
$180
$28
$32
Instructions
(a) Using the FIFO assumption, calculate the amount charged to cost of goods sold for March. (Show
calculations)
(b) Prepare the journal entry to record the sale (all on account)
(c) Using the weighted average method, calculate the amount assigned to the inventory on hand on
April 31.
On November 2, EB Games had an inventory of 10 Wii’s at a cost of $150 each. During the month of
November the following transactions occurred.
Nov.
3
Purchased 20 games at a cost of $150 each from Ninetendo, terms n/30.
6
Sold 10 games to Walmart for $250 each, terms n/30.
7
Received credit from Nintendo for the return of 2 defective games.
13
Issued a credit to Walmart for the return of a defective bicycle.
19
Purchased 10 games from eBay at a cost of $125, terms n/30.
20
Paid freight of $80 on the November 19 purchase.
Prepare the journal entries to record the transactions assuming that EB Games uses a periodic inventory
system.
On January 1, Cambridge Supply had an inventory of 15 hard hats at a cost of $20 each. The
company uses a perpetual inventory system. During January, the following transactions and events
occurred.
Jan.
3 Purchased 40 hard hats at $20 each from Fackoury’s.
Jan.
6 Received credit of $75 for the return of 4 hard hats purchased on Jan. 3 that were defective.
Jan.
7 Paid for the Jan. 3 purchase.
Jan.
9 Sold 20 hard hats for $30 each to Doyle Homebuild Program.
Jan.
13 Sold 15 hard hats for $30 each to Benes Homebuild Program.
Jan.
21 Purchased 25 hard hats at $18 each from Westrock Supplies.
Jan.
30 A physical inventory count indicated an ending inventory balance of $300.
Journalize the January transactions for Cambridge Supply, using a perpetual inventory system.
Bridgefield Custom Homes has sales in 2012 of $5,400,000. During the year, the company had $100,000
in sales returns. The cost of these sales was $2,800,000. Operating expenses excluding salaries and
wages were $550,000 and salaries and wages incurred during the year were $400,000. Bridgefield
Custom Homes uses a perpetual inventory system.
Instructions
Prepare a multiple-step income statement for Bridgefield Custom Homes for the year ended December
31, 2012.