Question 1

On June 1, Johnson Company purchased $8,000 of inventory on account from Schmid Company on June 1. Schmid Company offers a 4% discount if payment is received within 15 days. Johnson Company records the purchase using the net method and the perpetual inventory system. Johnson Company paid for the inventory on June 30. The journal entry on June 30 by Johnson Company includes ________.
A) a debit to Accounts Payable for $7,680
B) a debit to Accounts Payable for $8,000
C) a credit to Interest Expense for $320
D) a credit to Cash for $7,680

Accepted Answer

Johnson Company records the purchase using the net method, which means that the discount is recorded when the invoice is paid. The amount of the discount is $8,000 x 4% = $320. The journal entry on June 30 by Johnson Company includes a debit to Accounts Payable for $7,680 ($8,000 - $320) and a credit to Cash for $7,680.

Question 2

Meyer Co. has the following information available: $$\begin{array} { | l | r | } 
\hline \text { Cost of inventory } & \$ 56,000 \
\hline \text { Freight-in } & 6,000 \
\hline \text { Freight-out } & 2,500 \
\hline \text { Packaging costs } & 550 \
\hline \text { Handling costs } & 700 \
\hline
\end{array}$$ 
What amount of inventory should the company report on the balance sheet?
A) $65,750
B) $63,250
C) $59,750
D) $57,250

Accepted Answer

The answer of Meyer Co. has the following information available:...

Question 3

Smith-Miller Enterprises has inventory of $667,000 in its stores as of December 31. It also has two shipments in-transit that left the suppliers' warehouses by December 28. Both shipments are expected to arrive on January 5. The first shipment of $128,000 was sold f.o.b. destination and the second shipment of $80,000 was sold f.o.b. shipping point. What amount of inventory should Smith-Miller report on its balance sheet as of December 31?
A) $667,000
B) $875,000
C) $795,000
D) $747,000

Accepted Answer

The answer of Smith-Miller Enterprises has inventory of $667,000 in...

Question 4

On August 10, Charles Company purchased 75 refrigerators for $650 each from Appliances Wholesalers. The purchase was on account with terms of 3/10, n/30. Charles Company paid for 50 of the refrigerators on August 18 and the remaining refrigerators on August 30. Charles Company uses the gross method for purchase discounts and the perpetual inventory system to record the transactions. On August 30, Charles Company recorded ________.
A) a debit to Accounts Payable and a credit to Cash
B) a debit to Cash and a credit to Accounts Payable
C) a debit to Accounts Payable and a credit to Inventory
D) a debit to Cash and a credit to Inventory

Accepted Answer

On August 30, Charles Company would record a debit to Accounts Payable for the remaining amount owed and a credit to Cash, as they are paying off the remaining balance without any discount since the payment is made after the discount period.

Question 5

On June 1, Atkinson Company purchased $7,000 of inventory on account from Donnie Company. Donnie Company offers a 5% discount if payment is received within 15 days. Atkinson Company records the purchase using the gross method and the perpetual inventory system. Atkinson Company makes the payment for the inventory on June 10. The journal entry on June 10 by Atkinson Company includes ________.
A) a debit to Cash for $7,000
B) a credit to Cash for $6,650
C) a debit to Inventory for $350
D) a credit to Interest Expense for $350

Accepted Answer

Atkinson Company pays within the discount period, so they receive a 5% discount on the $7,000 purchase, which is $350. Therefore, they pay $6,650 in cash.

Question 6

The following transactions occurred for MM's Jewelry Store during the month:
a. On May 1, the owner purchased 100 rings on account at $6,000 each. Credit terms were 2/10, net 30.
b. On May 2, the owner returned one ring.
c. On May 3, the owner sold three of the rings on account at $8,000 each to one customer. The credit terms were 2/10, net 30.
d. On May 9, the owner paid the debt due.
e. On May 15, the customer from May 3 paid for the rings.
Required:
Prepare the journal entries for the above transactions.
1. The store uses the perpetual inventory system and the gross method to record purchase discounts. Explanations are not required.
2. The store uses the periodic inventory system and the net method to record purchase discounts. Explanations are not required.

Accepted Answer

The answer of The following transactions occurred for MM's Jewelry...

Question 7

Beck Company has inventory of $743,000 in its stores as of December 31. It also has two shipments in-transit that left the suppliers' warehouses by December 28. Both shipments are expected to arrive on January 5. The first shipment of $217,000 was sold f.o.b. destination and the second shipment of $110,000 was sold f.o.b. shipping point. Beck Company also has consigned goods of $73,000 awaiting sale with Meyer Company. What amount of inventory should Beck Company report on its balance sheet as of December 31?
A) $743,000
B) $926,000
C) $1,070,000
D) $1,143,000

Accepted Answer

Beck Company should include the inventory in its stores ($743,000), the second shipment ($110,000) since it was sold f.o.b. shipping point, and the consigned goods ($73,000). The first shipment is not included as it was sold f.o.b. destination. Total inventory = $743,000 + $110,000 + $73,000 = $926,000.

Question 8

Chet Company provides the following information: $$\begin{array} { | l | r | } 
\hline \text { Beginning Inventory } & \$ 120,000 \
\hline \text { Purchases } & 530,000 \
\hline \text { Freight-In } & 21,000 \
\hline \text { Freight-Out } & 14,000 \
\hline \text { Purchase Discounts } & 5,800 \
\hline \text { Purchase Returns } & 8,000 \
\hline \text { Ending Inventory } & 128,000 \
\hline
\end{array}$$
 What is the cost of goods sold?
A) $657,200
B) $529,200
C) $671,000
D) $537,200

Accepted Answer

The answer of Chet Company provides the following information: \[\begin{array}...

Question 9

On June 1, Kennedy Company purchased $8,000 of inventory on account from Sterner Company. Sterner Company offers a 5% discount if payment is received within 15 days. Kennedy Company records the purchase using the net method and the perpetual inventory system. The journal entry on June 1 by Kennedy Company includes ________.
A) a debit to Inventory for $8,000
B) a credit to Accounts Payable for $8,000
C) a credit to Cash for $7,600
D) a debit to Inventory for $7,600

Accepted Answer

Under the net method, Kennedy Company records the inventory purchase at the net amount, considering the discount. Therefore, the inventory is recorded at $7,600 ($8,000 - 5% of $8,000).

Question 10

The specific identification inventory method is used by companies that sell high-dollar products.

Accepted Answer

The specific identification inventory method is used for tracking each individual item in inventory, which is practical for companies dealing with high-dollar, unique, or easily distinguishable products.

Question 11

The moving-average method of determining inventory is used with the perpetual system of inventory.

Accepted Answer

The moving-average method is compatible with the perpetual inventory system as it continuously updates the average cost of inventory with each purchase.

Question 12

Yankee Company uses the net method of recording purchase discounts on inventory and the perpetual inventory system. Yankee Company records a payment within the discount period. Which journal entry is prepared?
A) Debit Accounts Payable and credit Cash for the gross amount of the purchase.
B) Debit Accounts Payable and credit Cash for the net amount of the purchase.
C) Debit Accounts Payable, credit Cash and credit Inventory.
D) Debit Accounts Payable, credit Cash and credit Interest Revenue.

Accepted Answer

Under the net method, purchases are recorded at the net amount, assuming the discount will be taken. When payment is made within the discount period, Accounts Payable is debited and Cash is credited for the net amount of the purchase.

Question 13

The Wysocki Company has undertaken a physical count of inventory on hand on December 31, 2015. The cost of the inventory on hand is $445,993.
Additional information follows:
1. Wysocki Company received goods costing $32,000 on January 2, 2019. The goods were shipped f.o.b. shipping point, and left the seller's business on December 30, 2018.
2. Wysocki Company received goods costing $40,000 on January 3, 2019. The goods were shipped f.o.b. destination, and left the seller's business on December 30, 2018.
3. Wysocki Company sold goods costing $20,000 on December 29, 2018. The goods were picked up by the common carrier on December 29 and shipped f.o.b. destination. The goods arrived on January 2, 2019. The retail price of the goods was $30,000.
4. Wysocki Company sold goods costing $30,000 on December 31, 2018. The goods were picked up by the common carrier on December 31 and shipped f.o.b. shipping point. The goods were not included in Wysocki's physical count at December 31, 2018. The goods arrived on January 4, 2019. The retail price of the goods was $60,000. Wysocki paid the shipping costs of $433 on December 31.
5. Wysocki Company was the consignee for some goods from Walmart. The goods cost Walmart $100,000 and had a retail price of $300,000. These goods were included in Wysocki's physical count on December 31, 2018 at the retail price.
6. Wysocki Company had some goods on consignment at Walmart. The goods cost $50,000 and had a retail price of $100,000. These goods were not included in Wysocki's physical count at December 31, 2018 because the goods were not on the company's premises.
7. Wysocki Company sold goods costing $22,000 on December 31, 2018. The goods were not picked up by the common carrier until January 2, 2019. The retail price of the goods was $42,000; the wholesale price was $33,000. The goods were included in the physical count at December 31, 2018. The terms of the sale were f.o.b. shipping point.
Required:
1. For each item listed above, indicate the amount and sign of the adjustment to the inventory balance at December 31, 2018. If no adjustment is required, for an item, enter 0.
2. Determine the correct amount of inventory for Wysocki Company at December 31, 2018.

Accepted Answer

The answer of The Wysocki Company has undertaken a physical...

Question 14

The inventory allocation method that assigns the most recent costs to ending inventory and the oldest costs to cost of goods sold is the ________.
A) specific identification method
B) LIFO method
C) moving-average method
D) FIFO method

Accepted Answer

The answer of The inventory allocation method that assigns the...

Question 15

Inventory costs do not include ________.
A) freight-out costs
B) freight-in costs
C) packaging costs
D) handling costs

Accepted Answer

Freight-out costs are considered selling expenses, not inventory costs, as they are incurred to deliver goods to customers.

Question 16

On June 1, Addison Company purchased $9,000 of inventory on account from Garrison Company. Garrison offers a 5% discount if payment is received within 15 days. Addison records the purchase using the gross method and the perpetual inventory system. The journal entry on June 1 by Addison Company includes ________.
A) a debit to Inventory for $8,550
B) a credit to Accounts Payable for $8,550
C) a debit to Inventory for $9,000
D) a credit to Cash for $9,000

Accepted Answer

Under the gross method, Addison Company records the purchase at the full invoice price of $9,000, debiting Inventory for $9,000.

Question 17

The first-in, first-out inventory method assigns the most recent costs to the cost of goods sold.

Accepted Answer

The first-in, first-out (FIFO) inventory method assigns the oldest costs to the cost of goods sold, not the most recent costs.

Question 18

Walker Company provides the following information: $$\begin{array} { | l | r | } 
\hline \text { Beginning Inventory } & \$ 119,000 \
\hline \text { Purchases } & 510,000 \
\hline \text { Freight-In } & 24,000 \
\hline \text { Freight-Out } & 19,000 \
\hline \text { Purchase Discounts } & 5,200 \
\hline \text { Purchase Returns } & 8,000 \
\hline \text { Ending Inventory } & 130,000 \
\hline
\end{array}$$ 
What is the cost of goods available for sale?
A) $639,800
B) $658,800
C) $769,800
D) $672,000

Accepted Answer

Cost of goods available for sale = Beginning inventory + Purchases + Freight-in - Freight-out - Purchase discounts - Purchase returns= 119,000 + 510,000 + 24,000 - 19,000 - 5,200 - 8,000= $639,800

Question 19

Christian Company uses the gross method of recording purchase discounts on inventory and the perpetual inventory system. When Christian Company makes payment for the inventory within the discount period, the bookkeeper will ________.
A) debit Accounts Payable, credit Inventory and credit Cash
B) debit Accounts Payable and credit Inventory
C) debit Inventory and credit Cash
D) debit Accounts Payable and credit Purchases

Accepted Answer

When payment is made within the discount period, Accounts Payable is debited for the full invoice amount, Inventory is credited for the discount amount, and Cash is credited for the net amount paid.

Question 20

Jamison Company sells goods to Matthews Company. When Jamison ships goods to Matthews with terms f.o.b. shipping point, ________.
A) Jamison Company reports the goods in its inventory when the goods are in transit to Matthews Company
B) the title passes from Jamison Company to Matthews Company when the goods are received by Matthews Company
C) the title passes from Jamison Company to Matthews Company when the goods leave Jamison Company
D) Matthews Company does not include the goods in its inventory while the goods are in transit

Accepted Answer

Under f.o.b. shipping point terms, the title and ownership of the goods pass from the seller (Jamison Company) to the buyer (Matthews Company) when the goods leave the seller's shipping dock.

Quiz 10: Short-Term Operating Assets: Inventory

The specific identification inventory method is used by companies that sell high-dollar products.

The moving-average method of determining inventory is used with the perpetual system of inventory.

Yankee Company uses the net method of recording purchase discounts on inventory and the perpetual inventory system. Yankee Company records a payment within the discount period. Which journal entry is prepared?

The inventory allocation method that assigns the most recent costs to ending inventory and the oldest costs to cost of goods sold is the ________.

Inventory costs do not include ________.

The first-in, first-out inventory method assigns the most recent costs to the cost of goods sold.

Christian Company uses the gross method of recording purchase discounts on inventory and the perpetual inventory system. When Christian Company makes payment for the inventory within the discount period, the bookkeeper will ________.

Jamison Company sells goods to Matthews Company. When Jamison ships goods to Matthews with terms f.o.b. shipping point, ________.