ACG 2021 Chapter 5 Review Questions and Correct Answers
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Course
ACG 2021
Institution
ACG 2021
Components of the operating cycle of a merchandising company - purchasing inventory for cash - selling inventory to a customer - receiving cash from a customer - paying for inventory
NOT PAYING INTEREST ON A BANK LOAN, PAYING A DIVIDEND, OR PAYING RENT ON A WAREHOUSE USED TO STORE INVENTORY
Compo...
ACG 2021 Chapter 5 Review Questions
and Correct Answers
Components of the operating cycle of a merchandising company ✅- purchasing
inventory for cash
- selling inventory to a customer
- receiving cash from a customer
- paying for inventory
NOT PAYING INTEREST ON A BANK LOAN, PAYING A DIVIDEND, OR PAYING
RENT ON A WAREHOUSE USED TO STORE INVENTORY
Components or steps of the operating cycle for a service company ✅- record an
increase to accounts receivable when services are performed for customers on account
- perform services for customers
- receive cash payments from customers
NOT BUY INVENTORY TO BE RESOLD TO CUSTOMERS
Which inventory system will likely be used by a company with merchandise that has a
high per unit value? ✅perpetual inventory system
If a company is given credit terms of 2/10, n/30, it will ✅receive a 2% discount if
payment is made within 10 days of the invoice date. Otherwise, the invoice price is due
30 days from the invoice date
When goods sold for cash are returned to the selling company, the selling company
should.... ✅debit sales returns and allowances
Contra revenue accounts include... ✅sales discounts
Sales returns and allowances
A corporation uses a perpetual inventory system. On may 1 it sells merch on account
for $10,000 w terms 2/10, n/30. The corporation had paid $6,000 to acquire the merch.
On May 7, the customer returns merch w/ an invoice price of $1,000 to the corp. The
merch returned to it had cost the corp $600. On may 10, the corp receives payment for
the merch retained by the customer. How would the corp record the return of the merch
from the customer on May 7? ✅Record 2 journal entries
Debit sales returns and allowances for $1000; credit accounts receivable for $1,000
Debit inventory $600 and credit cost of goods sold for $600
, Selling inventory = credit sales revenue for the invoice price of the merch sold
Return merch = debit sales returns & allowances for the invoice price of the portion of
the merch returned
Immediately increases inventory & decreases cost of goods sold by the cost of the
inventory returned
Interest revenue would be classified on a multiple-step income statement under the
heading ✅other revenues and gains
Under what inventory system is cost of goods sold determined at the end of an
accounting period ✅periodic inventory system
A company's gross profit rate increased in the current year relative to the prior year.
Which of the following would be possible explanation for this change? ✅the company's
global sourcing efforts at the beginning of the current year resulted in lower cost of
merchandise sold
Which would be considered a merchandizing operating? ✅purchasing and selling
inventory to customers
Purchasing & selling to other business that resell to consumers
NOT performing services as source of revenue
The operating cycle of a merchandising company is usually longer than the operating
cycle of a service company bc it has an extra asset account involved in its operating
cycle. What is that extra asset account? ✅inventory
If a company determines cost of goods sold each time a sale occurs, it ✅uses a
perpetual inventory system
In the credit terms of 1/10, n/30, the "1" represents the ✅cash discount as a
percentage of the invoice price
A company uses the perpetual inventory system. It sellers merchandise to a customer &
it pays a common carrier (ex Fedex) to ship merch to the customer. Besides a cash
account, what account will the seller record when it pays the common carrier? ✅freight
out
A journal entry to record a sale of $700 on account with terms of 2/10, n/30 will include
a ✅debit: accounts receivable for $1200
Credit: sales revenue for $1200
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