Q: Gallant Company uses a periodic inventory system. Given the following balances: Purchases $$450,000, Purchase Returns and Allowances 13$$,000, Purchase Discounts $$8,000, and Freight-In 16$$,000, what is the correct formula to calculate net purchases?

$$\text{Net Purchases} = \450$$,000 - \$$13,000 - \8$$,000 + \$$16,000$$

Q: Using the information from Gallant Company (Purchases $$450,000, Purchase Returns and Allowances 13$$,000, Purchase Discounts $$8,000, Freight-In 16$$,000, Beginning Inventory $$60,000, Ending Inventory 90$$,000, Net Sales $730,000), what is the correct formula for Cost of Goods Sold (COGS)?

$$\text{COGS} = \text{Beginning Inventory} + \text{Net Purchases} - \text{Ending Inventory}$$

Q: Vareen Company purchased $$8,000 of merchandise on account, FOB shipping point, terms 3/10, n/30. They paid 400 $$freight and returned $300 of goods. If they pay within the discount period, what is the amount paid to Harrah Company?

$$8,000 - 300 = 7,700; 3\%$$ discount: $$7,700 \times 0.97 = 7,469; \text{Amount paid} = \7$$,469$

Q: Kader Company reports: Sales revenue $$510,000, Sales returns and allowances 15$$,000, Cost of goods sold $$330,000, Operating expenses 110$$,000. What is the formula for net sales?

$$\text{Net Sales} = \text{Sales Revenue} - \text{Sales Returns and Allowances}$$

Q: Given Kader Company's data: Net Sales $$495,000$$, Cost of Goods Sold $$330,000$$, Operating Expenses $$110,000$$, what is the gross profit rate (rounded to one decimal place)?

$$\text{Gross Profit Rate} = \frac{\text{Gross Profit}}{\text{Net Sales}} = \frac{495,000 - 330,000}{495,000} = 33.3\%$$

Q: Arndt Company had sales on credit $$280,000, cash sales 100$$,000, sales discounts $$5,000, and sales returns and allowances 11$$,000. What is the formula for net sales?

$$\text{Net Sales} = (\text{Credit Sales} + \text{Cash Sales}) - (\text{Sales Discounts} + \text{Sales Returns and Allowances})$$

Q: Dana and Eric are considering changes to improve Family Department Store's net income. If Dana's changes increase net sales by 6% and gross profit rate to 24%, what is the new gross profit amount?

$$\text{New Net Sales} = 700,000 \times 1.06 = 742,000; \text{Gross Profit} = 742,000 \times 0.24 = 178,080$$

Question 1

Gallant Company uses a periodic inventory system. Given the following balances: Purchases $$450,000, Purchase Returns and Allowances 13$$,000, Purchase Discounts $$8,000, and Freight-In 16$$,000, what is the correct formula to calculate net purchases?

Accepted Answer

$$	ext{Net Purchases} = \450$$,000 - \$$13,000 - \8$$,000 + \$$16,000$$

Question 2

Using the information from Gallant Company (Purchases $$450,000, Purchase Returns and Allowances 13$$,000, Purchase Discounts $$8,000, Freight-In 16$$,000, Beginning Inventory $$60,000, Ending Inventory 90$$,000, Net Sales $730,000), what is the correct formula for Cost of Goods Sold (COGS)?

Accepted Answer

$$	ext{COGS} = 	ext{Beginning Inventory} + 	ext{Net Purchases} - 	ext{Ending Inventory}$$

Question 3

Vareen Company purchased $$8,000 of merchandise on account, FOB shipping point, terms 3/10, n/30. They paid 400 $$freight and returned $300 of goods. If they pay within the discount period, what is the amount paid to Harrah Company?

Accepted Answer

$$8,000 - 300 = 7,700; 3\%$$ discount: $$7,700 	imes 0.97 = 7,469; 	ext{Amount paid} = \7$$,469$

Question 4

Which of the following journal entries correctly records the adjusting entry for Litwin Company when the perpetual inventory records show $$98,000 but the actual count is 95$$,700?

Accepted Answer

Debit Cost of Goods Sold $$2,300; Credit Inventory 2$$,300

Question 5

Kader Company reports: Sales revenue $$510,000, Sales returns and allowances 15$$,000, Cost of goods sold $$330,000, Operating expenses 110$$,000. What is the formula for net sales?

Accepted Answer

$$	ext{Net Sales} = 	ext{Sales Revenue} - 	ext{Sales Returns and Allowances}$$

Question 6

Given Kader Company's data: Net Sales $$495,000$$, Cost of Goods Sold $$330,000$$, Operating Expenses $$110,000$$, what is the gross profit rate (rounded to one decimal place)?

Accepted Answer

$$	ext{Gross Profit Rate} = \frac{	ext{Gross Profit}}{	ext{Net Sales}} = \frac{495,000 - 330,000}{495,000} = 33.3\%$$

Question 7

Which of the following best describes where 'Interest Expense' appears on a multiple-step income statement?

Accepted Answer

Other expenses and losses section, after income from operations

Question 8

Hudson Company has Sales Revenue $$195,000, Sales Discounts 2$$,000, and Cost of Goods Sold $117,000. What is the correct closing entry for Sales Discounts?

Accepted Answer

Debit Income Summary $$2,000; Credit Sales Discounts 2$$,000

Question 9

Arndt Company had sales on credit $$280,000, cash sales 100$$,000, sales discounts $$5,000, and sales returns and allowances 11$$,000. What is the formula for net sales?

Accepted Answer

$$	ext{Net Sales} = (	ext{Credit Sales} + 	ext{Cash Sales}) - (	ext{Sales Discounts} + 	ext{Sales Returns and Allowances})$$

Question 10

Which of the following would NOT be included in the operating expenses section of a multiple-step income statement?

Accepted Answer

Interest Revenue

Question 11

Dana and Eric are considering changes to improve Family Department Store's net income. If Dana's changes increase net sales by 6% and gross profit rate to 24%, what is the new gross profit amount?

Accepted Answer

$$	ext{New Net Sales} = 700,000 	imes 1.06 = 742,000; 	ext{Gross Profit} = 742,000 	imes 0.24 = 178,080$$

Question 12

Which of the following is the correct sequence for preparing a multiple-step income statement?

Accepted Answer

Net Sales, Gross Profit, Operating Expenses, Income from Operations, Other Revenues and Expenses, Net Income

Question 13

Which of the following best describes the effect of taking purchase discounts on the cost of goods sold?

Accepted Answer

Purchase discounts reduce the cost of goods sold by lowering the cost of inventory purchased.

Question 14

In a perpetual inventory system, which of the following entries is made when goods are returned by a customer?

Accepted Answer

Debit Sales Returns and Allowances; Credit Accounts Receivable

Question 15

Which of the following items would appear in the 'Other Revenues and Gains' section of a multiple-step income statement?

Accepted Answer

Gain on sale of equipment

Question 16

If a company wants to improve its gross profit rate, which of the following strategies would be most effective?

Accepted Answer

Increase selling prices while keeping cost of goods sold constant

Question 17

Which of the following is the correct formula for calculating income from operations?

Accepted Answer

$$	ext{Income from Operations} = 	ext{Gross Profit} - 	ext{Operating Expenses}$$

Question 18

Which of the following best describes the treatment of a casualty loss from vandalism on the income statement?

Accepted Answer

It is reported in the 'Other expenses and losses' section, after income from operations

Question 19

Which of the following is the correct closing entry for Cost of Goods Sold in a periodic inventory system?

Accepted Answer

Debit Income Summary; Credit Cost of Goods Sold

Financial Accounting Study Guide: Inventory, Income Statements, and Merchandising

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