Final Study Guide
1.) During the current year, merchandise is sold for $31,850,000. The cost of goods
sold is $24,206,000.
A.) What is the amount of the gross profit?
7,644,000
B.) Compute the gross profit percentage (gross profit divided by sales).
31.59%
2.) For the fiscal year, Nike reported sales of $40,339,000. Its gross profit was
$9,047,000. What was the amount of Nike’s cost of goods sold?
31292000
3.) For the fiscal year, sales were $919,350,000 and the cost of goods sold was
$114,800,000. What was the amount of the gross profit?
804550000
4.) The Wheatland Company purchased merchandise on Account from a supplier
for $30,000, terms 1/10, n/30. What is the amount of cash required for the payment
within the discount period?
29,700
5.) Journalize the entries for the following transactions:
A.) Sold merchandise for cash, $116,300. The cost of gods sold was $72,000
Cash
116,300
Sales
COGs
Inventory
116,300
72,000
72,000
B.) Sold merchandise on account, $755,000. The cost of goods sold was
$400,000
Accounts receivable
755,000
Sales
COGs
755,000
400,000
Inventory
400,000
C.) Sold merchandise to customers who used Mastercard and Visa,
$1,950,000. The cost of goods sold was $1,250,000
Cash
1,950,000
Sales
COGs
1,950,000
1,250,000
Inventory
1,250,000
D.) Sold merchandise to customers who used American Express, $330,000.
The cost of goods sold was $230,000
Cash
330,000
Sales
COGs
Inventory
330,000
230,000
230,000
E.) Paid $81,500 to National Clearing House Credit Co. for service fees for
processing MasterCard, Visa, and American Express sales.
Credit Card Fees
81,500
Cash
81,500
6.) After the amount due on a sale of $28,000, terms 2/10, n/30, is received from a
customer within the discount period, the seller consults to the return of the entire
shipment for a cash refund. The cost of the merchandise returned was $16,000.
A.) What is the amount of the refund owed to the customer?
27,440
7.) The following expenses were incurred by a retail business during the year. In
which expense section of the income statement should each be reported: selling,
administrative, or other?
A.) Advertising expense - selling
B.) Depreciation expense on store equipment - Selling
C.) Insurance expense on office equipment - admin
D.) Interest expense on notes payable - Other
E.) Rent expense on office building - Admin
F.) Salaries of office personnel - Admin
G.) Salary of sales manager - Selling
H.) Sales supplies used – Selling
8.) On March 31, 2020, the balances of the accounts appear in the ledger for White
House Black Market, are as follows:
Administrative Expense
$216,000
Cost of Goods Sold
$1,520,000
Interest Expense
4,000
Inventory
$392,000
Sales
$2,564,000
Selling Expense
$286,000
Prepare a multiple-step Income Statement for the year ended March 31, 2020.
White House Black Market
Income Statement
Years ended March 31, 2020
Sales
2,564,000
COGs
1,520,000
1,044,000
Gross Profit
Selling Expense
286,000
Admin Expense
216,000
Total Operating Expenses
(502,000)
Operating Income
Interest Expense
542,000
(4,000)
(4,000)
Total Non-Operating
Net Income
538,000
9.) Summary operating data for Custom Clothing & Accessory Company during
the year ended May 31, 2018, are as follows:
Cost of Goods Sold
$6,100,000
Administrative Expense
$740,000
Interest Expense
$25,000
Rent Revenue
$60,000
Sales
$9,332,500
Selling Expense
$1,250,000
Prepare a single-step Income Statement for the year ended May 31, 2018.
Custom Clothing & Accessory Company
Income Statement
Year Ending May 31, 2018
Revenues
Sales
Rent Revenue
9,332,500
60,000
9,392,500
Expenses
COGs
6,100,000
Selling Expense
1,250,000
Admin Expense
740,000
Interest Expense
25,000
8,115,000
1,277,500
10.) Beginning inventory, purchases, and sales data for portable game players are
as follows:
Inventory
Apr. 1
Purchases
4,000 units
at $40
Sales
Apr. 2
2,500
Apr. 15
4,500 units
at $44
Apr. 19
5,000
Apr. 30
2,000 units
at $46
Assuming that the perpetual inventory system is used, costing by the FI-FO
method, determine the cost of goods sold for each and the inventory balance after
each sale.
Purchases
Date
Quantity
Cost of Goods Sold
Inventory
Unit
Total
Cost
Cost
Unit
Total
Unit
Total
Cost
Cost
Quantity Cost
Cost
Quantity
Apr 1
4,000
40
160,000
Apr 2
4000
2500
40
40
160,000
100,000
2000
2000
5000
40
40
40
80,000
80,000
200,000
92,000 5000
40
200,000
2,500
40
100,000
Apr 15
Apr 19
4,500
5000
Apr 30
40
198,000
200,000
2000
Balances
44
46
290,000
200,000
11.) Beginning inventory, purchases, and sales data for portable game players are
as follows:
Inventory
Apr. 1
Purchases
4,000 units
at $40
Sales
Apr. 2
2,500
Apr. 15
4,500 units
at $44
Apr. 19
5,000
Apr. 30
2,000 units
at $46
Assuming that the perpetual inventory system is used, costing by the LI-FO
method, determine the cost of goods sold for each and the inventory balance after
each sale.
Purchases
Date
Quantity
Cost of Goods Sold
Unit
Total
Unit
Total
Unit
Total
Cost
Cost
Quantity Cost
Cost
Quantity Cost
Cost
4,000
40
160,000
4,000
2,500
198,000 2000
40
40
40
160,000
100,000
80,000
Apr 1
2
2,500
40 100,000
4,500
15
19
5,000
30
44
40 200,000
2000
40
80,000
5,000
40
200,000
2,000
Balances
Inventory
46
92,000 2000
40
80,000
3,000
40
120,000
290,000
200,000
12.) On the basis of the following data, determine the value of the inventory at the
lower cost or market value. Apply lower of cost or market to each inventory item.
Product
Inventory Quantity
Cost per Unit
Market Value per
Unit
A
400
$175
$150
B
350
$185
$230
C
900
$45
$60
D
125
$285
$280
E
999
$28
$34
Product
Cost
Market
LCM
A
70,000
60,000
60,000
B
64,750
80,500
64,750
C
40,500
54,000
40,500
D
35,625
35,000
35,000
E
27,972
33,966
27,972
13.) The following three identical units of Item Beta are purchased during June:
Dates
Item Beta
Units
Cost
2
Purchase
1
$50
12
Purchase
1
$60
23
Purchase
1
$70
Total
3
Average cost
per unit
Assume that one unit is sold on June 27 for $110.
$180
$60
($180 / 3 units)
Determine the gross profit for June and the ending inventory for June 30 using
Gross Profit
Ending Inventory
First in- First out
60
130
Last in- First out
40
110
Weighted Average
50
120
14.) Fonda Motorcycle Shop sells motorcycles, ATVs, and other related supplies
and accessories. During the taking of its physical inventory on December 31, 2021,
Fonda incorrectly counted its inventory as $452,500 instead of the correct amount
of $425,500.
A.) State the effects of the error on the December 31, 2021, balance sheet of
Fonda Motorcycle Shop.
The balance would be at a -27,000 for the balance sheet due to the incorrect
amount
B.) State the effects on the income statement of Fonda Motorcycle Shop for
the year ended December 31, 2021.
There would be no effect on the income statement because inventory is not on the
income statement.
C.) If uncorrected, what would be the effects of the error on the 2022 income
statement?
The cost of goods sold would be undervalued, which would be bad overall.
D.) If uncorrected, what would be the effect of the error on the December
31, 2022, balance sheet?
The inventory would be off, if everything was correctly counted, then there would
be an extra 27,000 in inventory if no correction is made
15.) A former chairman, CFO, and controller of Donnkenny, Ink., an apparel
company that makes sportswear for Pierre Cardin and Victoria Jones, plead guilty
to financial statement fraud. These managers used false journal entries to record
fictional sales, hid inventory in public warehouses so that it could be recorded as
“sold,” and required sales orders to be backdated so that the sale could be moved
back to an earlier period. The combined effect of these actions caused $25 million
out of $40 million in quarterly sales to be phony.
A.) Why might control procedures listed in this chapter be insufficient in
stopping this type of fraud?
B.) How could this type of fraud be stopped?
A third party auditor can check on inventory and sales so there is no bias
16.) The procedures used for over-the-counter receipts are as follows. At the close
of each day’s business, the sales clerks count the cash in their respective cash
drawers, after which they determine the amount recorded by the cash register and
prepare the memo cash form, noting any discrepancies. An employee from the
cashier’s office counts the cash, compares the total with the memo, and takes the
cash to the cashier’s office.
A.) Indicate the weak link in internal control.
The beginning amount of the cash drawer is never stated, there for a cashier can
not input sales and pocket the money
B.) How can the weakness be corrected?
Having a manager count the amount of cash in a drawer so the cashier can not hide
money
17.) The actual cash received from cash sales was $83,452, the amount indicated
by the cash register total was $83,480. Journalize the entry to record the cash
receipts and cash sales.
Cash
Cash Short & Over
Cash Sales
83,452
28
83,480
18.) The actual cash received from the cash sales was $315,280, and the amount
indicated by the register total was $315,150. Journalize the entry to record the cash
receipts and cash sales.
Cash
Cash Short & Over
Cash Sales
315,280
130
315,150
19.) The actual cash received from the cash sales was $425,880, and the amount
indicated by the register total was $425,800. Journalize the entry to record the cash
receipts and cash sales.
Cash
Cash Short & Over
Cash Sales
425,880
80
425,800
20.) The following procedures were recently installed by Raspberry Creek
Company:
A.) After necessary approvals have been obtained for the payment of a voucher,
the treasurer signs and mails the check. The treasurer then stamps the voucher and
supporting documentation as paid and returns the voucher and supporting
documentation to the accounts payable clerk for filling.
B.) The accounts payable clerk prepares a voucher for each disbursement. The
voucher along with the supporting documentation is forwarded to the treasurer’s
office for approval.
C.) Along with petty cash expense receipts for postage, office supplies, ect.,
several postdated employee checks are in the petty cash fund.
D.) At the end of the day, cash register clerks are required to use their own funds to
make up any cash shortages in their registers.
E.) At the end of the day, all cash receipts are placed in the bank’s night
depository.
F.) At the end of each day, an accounting clerk compares the duplicate copy of the
daily cash deposit slip with the deposit receipt obtained from the bank.
G.) All mail is opened by the mail clerk, who forwards all cash remittances to the
cashier. The cashier prepares a listing if the cash receipts and forwards a copy of
the list to the accounts receivable clerk for recording in the accounts.
H.) The bank reconciliation is prepared by the cashier, who works under the
supervision of the treasurer.
Indicate whether each of the procedures of internal control over cash represents a
strength or a weakness.
A
B
C
D
E
F
G
H
Strength
Strength
Weakness
Weakness
Strength
Strength
Weakness
Weakness