Q: A company purchases inventory for $$10,000, pays 500 in $$freight-in, returns $1,000 of inventory, and takes a 2% purchase discount on the remaining balance. What is the net cost of inventory purchased?

$$10,000 + 500$$ - $$1,000 = 9$$,500; $$9,500 \times 0.98 = 9$$,310

Q: A company uses the weighted average method. Beginning inventory is 100 units at $$5 each. Purchases are 200 units at 7 $$each. What is the weighted average cost per unit?

$(100 \times 5 + 200 \times 7) \div 300 = 6.33

Question 1

A company purchases $5,000 of merchandise inventory on account with credit terms 2/10, n/30. The company pays within the discount period. What is the correct journal entry to record the payment?

Accepted Answer

Debit Accounts Payable $$5,000; Credit Cash 4$$,900; Credit Inventory $100

Question 2

A retailer returns $800 of merchandise to a supplier. Which is the correct journal entry from the buyer’s perspective?

Accepted Answer

Debit Accounts Payable $$800; Credit Inventory 800$$

Question 3

A company sells merchandise for $$2,000 on account. The cost of the merchandise sold is 1$$,200. What is the correct compound journal entry to record this sale?

Accepted Answer

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

Question 4

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

Accepted Answer

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

Question 5

A company purchases inventory for $$10,000, pays 500 in $$freight-in, returns $1,000 of inventory, and takes a 2% purchase discount on the remaining balance. What is the net cost of inventory purchased?

Accepted Answer

$$10,000 + 500$$ - $$1,000 = 9$$,500; $$9,500 	imes 0.98 = 9$$,310

Question 6

A company’s beginning inventory is $$8,000, purchases are 20$$,000, and ending inventory is $6,000. What is the Cost of Goods Sold (CoGS) using the periodic system?

Accepted Answer

$$8,000 + 20$$,000 - $$6,000 = 22$$,000

Question 7

A company’s sales revenue is $$50,000, sales returns and allowances are 2$$,000, and sales discounts are $1,000. What is the Net Sales Revenue?

Accepted Answer

$$50,000 - 2$$,000 - $$1,000 = 47$$,000

Question 8

A company’s ending inventory is understated by $3,000. What is the effect on Cost of Goods Sold (CoGS) and Gross Profit (GP)?

Accepted Answer

CoGS is overstated by $$3,000; GP is understated by 3$$,000

Question 9

A company uses the weighted average method. Beginning inventory is 100 units at $$5 each. Purchases are 200 units at 7 $$each. What is the weighted average cost per unit?

Accepted Answer

$(100 	imes 5 + 200 	imes 7) \div 300 = 6.33

Question 10

A company’s merchandise inventory has a cost of $$12,000 and a market value of 10$$,500. According to the lower-of-cost-or-market rule, what value should be reported on the balance sheet?

Accepted Answer

$10,500

Question 11

Which of the following best describes the materiality concept in accounting?

Accepted Answer

Only information that would influence a decision-maker needs to be disclosed

Question 12

A company’s bank statement shows an ending balance of $$8,000. Outstanding checks total 1$$,200, and deposits in transit are $500. What is the adjusted bank balance?

Accepted Answer

$$8,000 - 1$$,200 + $$500 = 7$$,300

Question 13

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

Accepted Answer

Bank service charges

Question 14

A petty cash fund is established for $$300. At the end of the month, the fund contains 40 in $$cash and receipts for $255. What is the cash over/short amount, and how is it recorded?

Accepted Answer

Cash short $$5; Debit Cash Short & Over 5$$

Question 15

Which of the following best describes the Allowance for Bad Debts account?

Accepted Answer

A contra-asset account that reduces Accounts Receivable

Question 16

A company estimates bad debts expense as 2% of $100,000 credit sales. What is the adjusting journal entry under the percent-of-sales method?

Accepted Answer

Debit Bad Debts Expense $$2,000; Credit Allowance for Bad Debts 2$$,000

Question 17

A $5,000 account is written off as uncollectible under the allowance method. What is the correct journal entry?

Accepted Answer

Debit Allowance for Bad Debts $$5,000; Credit Accounts Receivable 5$$,000

Question 18

A previously written-off account of $1,200 is recovered. What are the correct journal entries under the allowance method?

Accepted Answer

Debit Accounts Receivable $$1,200; Credit Allowance for Bad Debts 1$$,200; then Debit Cash $$1,200; Credit Accounts Receivable 1$$,200

Question 19

A company has Accounts Receivable of $$50,000, Allowance for Bad Debts of 2$$,000 (credit), and writes off $1,000. What is Accounts Receivable, Net after the write-off?

Accepted Answer

$$50,000 - 2$$,000 = $48,000

Question 20

A 90-day, $10,000 note receivable is issued at 6% annual interest. What is the interest revenue at maturity? (Assume a 360-day year.)

Accepted Answer

$$10,000 	imes 0.06 	imes \frac{90}{360} = 150$$

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

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