Question 1

A firm uses the perpetual inventory system. The inventory account balance is $50 000. An actual count of inventory reveals that actual inventory is $43 000. Which of the following would be included in the required adjusting entry?

Accepted Answer

The difference between the inventory account balance and the actual count is $7,000. To adjust the inventory account to reflect the actual count, a $7,000 credit to Inventory is required.

Question 2

Sales revenues were $20 000, Sales Returns and allowances were $300, Sales discounts were $700, Cost of sales were $12 000, and all other expenses totaled $4 500. The second closing entry would include which of the following line items?

Accepted Answer

The answer of Sales revenues were $20 000, Sales Returns...

Question 3

In a descriptive format income statement, overhead expenses are often classified into distribution, administration, marketing and finance expenses.

Accepted Answer

The answer of In a descriptive format income statement, overhead...

Question 4

The general ledger shows a balance of $23 678 in the Inventory account at the end of the period. A physical inventory shows a count of $22 078. The adjusting entry would be a:

Accepted Answer

The physical inventory count is less than the ledger balance, indicating a loss or shrinkage. The adjusting entry should reduce the Inventory account and increase the Cost of Sales to reflect the actual inventory used or lost.

Question 5

Cost of sales appears on both a descriptive format income statement and a functional format income statement.

Accepted Answer

Cost of sales is a key expense that appears on both the descriptive and functional format income statement, as it is necessary to calculate gross profit and net income in both formats.

Question 6

Where do Inventory and Cost of sales appear?

Accepted Answer

Inventory appears on the balance sheet as a current asset, while Cost of Sales appears on the income statement as an expense.

Question 7

The general ledger shows a balance of $65 300 in the Inventory account at the end of the period. A physical inventory shows a count of $67 900. The adjusting entry would be a:

Accepted Answer

The physical inventory count is higher than the ledger balance, indicating an under-recording of inventory. To adjust, debit Inventory to increase it and credit Cost of sales to decrease it, reflecting the correct inventory value.

Question 8

If a physical count of inventory indicates that the Inventory account is overstated, an additional adjusting entry is required.

Accepted Answer

If the physical count shows that inventory is less than what is recorded in the inventory account, it means that the inventory account is overstated and an adjusting entry is needed to reduce the balance of the account to its actual amount.

Question 9

A business has Beginning capital of $100 000. During the year, sales revenues were $20 000, Sales returns and allowances were $300, Sales discounts were $700, Cost of sales were $12 000, and all other expenses totaled $4 500. $1 000 of drawings were taken. The ending balance in Capital, after closing entries, would be:

Accepted Answer

The ending capital is calculated as: Beginning capital ($100,000) + Net income (Sales revenues $20,000 - Sales returns $300 - Sales discounts $700 - Cost of sales $12,000 - Other expenses $4,500) - Drawings ($1,000) = $101,500.

Question 10

Which of the following is subtracted from Gross profit to arrive at Net profit?

Accepted Answer

Overhead expenses are subtracted from Gross profit to arrive at Net profit, as they are part of operating expenses.

Question 11

Sales revenues were $20 000, Sales returns and allowances were $300, Sales discounts were $700, Cost of sales were $12 000, and all other expenses totaled $4 500. The first closing entry would include which of the following line items?

Accepted Answer

The answer of Sales revenues were $20 000, Sales returns...

Question 12

Which of the following accounts is used ONLY at the end of the accounting period?

Accepted Answer

The Income Summary account is used only at the end of the accounting period to close temporary accounts and transfer their balances to permanent accounts.

Question 13

A business has beginning Capital of $100 000. During the year, Sales revenues were $20 000, Sales returns and allowances were $300, Sales discounts were $700, Cost of sales were $12 000, and all other expenses totaled $4 500. $1 000 of drawings were taken. The fourth closing entry would include which of the following line items?

Accepted Answer

The fourth closing entry involves closing the drawings account to the capital account. Therefore, a debit to Capital of $1,000 is needed to reflect the drawings taken.

Question 14

The Income summary account has a $25 000 credit balance after the revenue and expense accounts have been closed. To which account is this balance closed?

Accepted Answer

The Income Summary account's credit balance, representing net income, is closed to the Capital account to update the owner's equity.

Question 15

Sales revenues were $20 000, Sales returns and allowances were $300, Sales discounts were $700, Cost of sales were $12 000, and all other expenses totaled $4 500. The third closing entry would include which of the following line items?

Accepted Answer

The third closing entry involves closing the expense accounts to the Income Summary. Total expenses are the sum of Cost of Sales ($12,000) and other expenses ($4,500), which equals $16,500. The Income Summary should be debited by the net income, which is Sales Revenues ($20,000) minus Sales Returns and Allowances ($300), Sales Discounts ($700), and Total Expenses ($16,500), resulting in a net income of $2,500.

Question 16

Net profit is Gross profit plus any other revenues minus overhead expenses.

Accepted Answer

Net profit is calculated by adding any other revenues to the gross profit and then subtracting all overhead expenses, taxes, and interest.

Question 17

Which of the following is subtracted from Net sales revenue to arrive at Gross profit?

Accepted Answer

Gross profit is calculated by subtracting the cost of sales (also known as cost of goods sold) from net sales revenue.

Question 18

The entry to close Sales discounts and Sales returns and allowances results in a debit to Income summary.

Accepted Answer

When closing the Sales discounts and Sales returns and allowances accounts, the total amounts are debited to the Income summary account. This is because these accounts represent reductions in revenue, and therefore need to be subtracted from the total revenue earned during the period in order to determine the net income.

Question 19

The entry to close Cost of sales results in a debit to Income summary.

Accepted Answer

The cost of sales is subtracted from revenue to determine gross profit. Closing the cost of sales account involves transferring its balance to the income summary account, which results in a debit to income summary.

Question 20

Which of the following is subtracted from Sales revenue to arrive at Net sales revenue?

Accepted Answer

Sales discounts and returns/allowances are subtracted from sales revenue to arrive at net sales revenue. Overhead expenses, cost of goods available for sale, and cost of sales are not subtracted from sales revenue to arrive at net sales revenue.

Quiz 5: Retailing Operations