1) Cyclone Chocolates is a local chocolate shop that also has a website on which it sells its chocolate. The 2010 annual report for Cyclone Chocolates contained the following phrase:
“Our e-commerce operation records revenue upon the estimated customer receipt date of the merchandise.”
Given this information, does Cyclone Chocolates ship items in terms of FOB shipping point or FOB destination? If the company were to change to the other terms of shipment, would it report sales revenue earlier or later?
2) Cy’s is a major retailer which provides merchandise and services to customers through department stores. In 2010, Cy’s reported the following information on its financial statements:
Cost of Goods Sold
Ending Inventory (current year)
Ending Inventory (prior year)
$11,571 million
3,259 million
3,641 million
If you knew that the cost of inventory purchases was $11,289 million, could you estimate the cost of shrinkage during the year? If so, prepare the estimate, and if not, explain why.
3) Which of the following statements is not correct? a. When goods are shipped FOB shipping point, the sale is recorded when the goods leave the seller’s shipping department. b. When goods are shipped FOB shipping point, the seller usually pays for all transportation costs. c. When goods are sold, the transfer of ownership occurs at a time specified in the written sales agreement. d. Merchandisers earn revenues by transferring ownership of merchandiuse to a customer, either for cash or on credit.
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4) Which of the following is the equation for calculating Net Sales? a. Sales Revenue + Sales Returns and Allowances + Sales Discounts = Net Sales b. Sales Revenue + Sales Returns and Allowances – Sales Discounts = Net Sales c. Sales Revenue
– Sales Returns and Allowances + Sales Discounts = Net Sales d. Sales Revenue
– Sales Returns and Allowances – Sales Discounts = Net Sales
5) Campanile Creations sells merchandise to its customers for $1,000, at a cost to the company of $500 per unit. When customers purchase merchandise on account, the invoice terms are 2/10, n/30. The company entered into the following transactions during the year ended December 31, 2010: a. Sold merchandise for cash, $13,000. b. Sold merchandise to Maple Co.; invoice price, $5,000. c. Sold merchandise to Willow, Inc.; invoice price, $3,000. d. Two days after the sale, accepted a return of two items from Maple Co., which received a credit on his account. e. Sold merchandise to Larch, Ltd.; invoice price, $6,000. f. Received full payment from Maple Co. on account nine days after the invoice date. g. Received full payment from Larch, Ltd. twelve days after the invoice date. h. Ten days after receiving payment from Maple Co., accepted a return of two additional units
(because the units ultimately were determined to be defective) and issued a cash refund.
Complete the following table by indicated the effect of each of the transactions listed above. Then, calculate the amount of Net Sales that would have been reported on the income statement for the year ended December 31, 2010.
Transaction Sales Revenue Sales Discounts
Sales Returns and
Allowances a b c d e f g h
Totals
Net Sales =