Q: A company has 10 units at $$5 each and 15 units at 7 $$each. What is the weighted average cost per unit?

$$\frac{(10 \times 5) + (15 \times 7)}{10 + 15} = \frac{50 + 105}{25} = \frac{155}{25} = 6.20$$

Q: Using FIFO, a company has 5 units at $$10 (first layer), 8 units at 12 ($$second layer), and sells 10 units. What is the Cost of Goods Sold?

$$(5 \times 10) + (5 \times 12) = 50 + 60 = 110$$

Question 1

A company purchases merchandise inventory for $$5,000 with credit terms 2/10, n/30 and pays 200 $$for freight-in. The company returns $500 of inventory. If payment is made within the discount period, what is the total cash paid?

Accepted Answer

$$5,000 + 200$$ = $$5,200; 5$$,200 - $$500 = 4$$,700; $$4,700 	imes 0.98 = 4$$,606

Question 2

Which journal entry correctly records a merchandise return from the buyer’s perspective?

Accepted Answer

Debit Accounts Payable; Credit Merchandise Inventory

Question 3

A company sells merchandise for $$2,000 on account. The cost of the merchandise sold is 1$$,200. Which compound journal entry should the seller record?

Accepted Answer

Debit Accounts Receivable $$2,000; Credit Sales Revenue 2$$,000; Debit Cost of Goods Sold $$1,200; Credit Merchandise Inventory 1$$,200

Question 4

A customer returns $$300 of merchandise previously purchased on account. The cost of the returned merchandise is 180. $$What is the correct journal entry from the seller’s perspective?

Accepted Answer

Debit Sales Returns and Allowances $$300; Credit Accounts Receivable 300$$; Debit Merchandise Inventory $$180; Credit Cost of Goods Sold 180$$

Question 5

A company offers credit terms of 2/10, n/30. If a customer pays a $1,000 invoice within 10 days, what is the cash receipt recorded?

Accepted Answer

$$1,000 	imes 0.98 = 980$$

Question 6

Given Net Sales Revenue of $$50,000 and Cost of Goods Sold of 35$$,000, what is the Gross Profit?

Accepted Answer

$$50,000 - 35$$,000 = $15,000

Question 7

Under FOB Shipping Point, which account does the buyer use to record freight costs?

Accepted Answer

Merchandise Inventory

Question 8

A company’s physical inventory count is $$8,000, but the Merchandise Inventory account shows 8$$,500. What is the inventory shrinkage, and what is the correct journal entry?

Accepted Answer

Shrinkage: $$8,500 - 8$$,000 = $$500; Debit Cost of Goods Sold 500$$; Credit Merchandise Inventory $500

Question 9

Which accounting principle states that information should be disclosed if it would influence the decision of a user of financial statements?

Accepted Answer

Disclosure Principle

Question 10

A company has 10 units at $$5 each and 15 units at 7 $$each. What is the weighted average cost per unit?

Accepted Answer

$$\frac{(10 	imes 5) + (15 	imes 7)}{10 + 15} = \frac{50 + 105}{25} = \frac{155}{25} = 6.20$$

Question 11

Using FIFO, a company has 5 units at $$10 (first layer), 8 units at 12 ($$second layer), and sells 10 units. What is the Cost of Goods Sold?

Accepted Answer

$$(5 	imes 10) + (5 	imes 12) = 50 + 60 = 110$$

Question 12

If the cost of inventory is $$9,000 and the market value is 8$$,500, what value should be reported on the balance sheet under the lower-of-cost-or-market rule?

Accepted Answer

$$8,500$$

Question 13

If ending merchandise inventory is overstated, what is the effect on Cost of Goods Sold and Gross Profit?

Accepted Answer

CoGS is understated; Gross Profit is overstated

Question 14

Which of the following is a book-side adjustment in a bank reconciliation?

Accepted Answer

Bank service charges

Question 15

A company’s Cash account shows $$2,500. After reconciliation, there is a 50 $$bank service charge and a $100 NSF check. What is the adjusted Cash balance?

Accepted Answer

$$2,500 - 50$$ - $$100 = 2$$,350$

Question 16

Which journal entry is required for a bank service charge found during reconciliation?

Accepted Answer

Debit Bank Service Expense; Credit Cash

Question 17

What is the purpose of a petty cash fund?

Accepted Answer

To pay for small, incidental expenses

Question 18

A petty cash fund is replenished and the recorded expenses are $$95, but only 90 $$was spent. How is the cash shortage recorded?

Accepted Answer

Debit Cash Short & Over $5

Question 19

Under the allowance method, what is the nature of the Allowance for Bad Debts account?

Accepted Answer

Contra asset

Principles of Accounting: Exam 3 Study Guide (Chapters 5-7)

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