Q: Which formula correctly calculates the Cost of Goods Sold (COGS) for a merchandising company?

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

Q: If a company’s sales discounts increase by 6% in the forecasted year, what is the correct formula to calculate the new sales discounts amount?

$$\text{New Sales Discounts} = \text{Old Sales Discounts} \times 1.06$$

Question 1

Grant Ltd. expects a 6% increase in sales, sales discounts, and sales returns and allowances for 2019. If the sales revenue for 2018 was $120,000, what is the forecasted sales revenue for 2019?

Accepted Answer

$127,200

Question 2

When preparing a forecasted income statement, which of the following best describes how to apply a percentage variance to an expense account?

Accepted Answer

Multiply the previous year's expense by $$(1 + 	ext{percentage variance})$$

Question 3

Arista Western Wear forecasts a 12% increase in sales for 2019. If sales in 2018 were $250,000, what is the forecasted sales for 2019?

Accepted Answer

$280,000

Question 4

If Grant Ltd.'s advertising expense in 2018 was $10,000 and the forecasted variance for 2019 is -21%, what is the forecasted advertising expense for 2019?

Accepted Answer

$7,900

Question 5

Which formula correctly calculates the Cost of Goods Sold (COGS) for a merchandising company?

Accepted Answer

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

Question 6

In a comparative income statement with horizontal analysis, what does a positive percentage change in an expense account from 2017 to 2018 indicate?

Accepted Answer

The expense increased from 2017 to 2018

Question 7

If Arista Western Wear's purchases in 2018 were $60,000 and the forecasted variance for 2019 is +4%, what is the forecasted purchases amount for 2019?

Accepted Answer

$62,400

Question 8

Grant Ltd. estimates its ending merchandise inventory for 2019 at $$6,800. If the beginning inventory was 7$$,200 and purchases for the year are $50,000, what is the forecasted Cost of Goods Sold (COGS) for 2019?

Accepted Answer

$50,400

Question 9

Which of the following best describes the purpose of a comparative income statement?

Accepted Answer

To compare financial performance across multiple periods

Question 10

If office supplies expense for Grant Ltd. was $2,000 in 2018 and the forecasted variance for 2019 is -5%, what is the forecasted office supplies expense for 2019?

Accepted Answer

$1,900

Question 11

When preparing a forecasted income statement, which of the following accounts would NOT typically be adjusted by a forecasted variance?

Accepted Answer

Depreciation expense if no new assets are purchased

Question 12

Arista Western Wear forecasts a 17% decrease in advertising expenses for 2019. If the advertising expense in 2018 was $5,000, what is the forecasted advertising expense for 2019?

Accepted Answer

$4,150

Question 13

If a company’s sales discounts increase by 6% in the forecasted year, what is the correct formula to calculate the new sales discounts amount?

Accepted Answer

$$	ext{New Sales Discounts} = 	ext{Old Sales Discounts} 	imes 1.06$$

Question 14

Which of the following is a key step in preparing a comparative income statement with horizontal analysis?

Accepted Answer

Calculate the percentage change for each account between periods

Question 15

If Grant Ltd. forecasts a 2% increase in all other expenses and the total of these expenses in 2018 was $15,000, what is the forecasted total for 2019?

Accepted Answer

$15,300

Question 16

Which of the following best describes the effect of an increase in purchases discounts on the cost of goods sold?

Accepted Answer

It decreases the cost of goods sold

Question 17

If Arista Western Wear’s ending inventory for 2019 is estimated at $$7,400, beginning inventory is 8$$,000, and purchases are $62,400, what is the forecasted cost of goods sold?

Accepted Answer

$63,000

Question 18

Which of the following is NOT a reason to prepare a forecasted income statement?

Accepted Answer

To record actual historical transactions

Question 19

When preparing a comparative income statement, why is it important to include both dollar and percentage changes for each account?

Accepted Answer

To provide a clearer picture of financial trends and materiality

Question 20

If Grant Ltd. had sales returns and allowances of $3,000 in 2018 and expects a 6% increase in 2019, what is the forecasted amount for 2019?

Accepted Answer

$3,180

Guidance for Preparing Forecasted and Comparative Income Statements

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