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ACC111

Exam #2
Study Guide Chapters 5, 6 &7
Terminology
1. Definition of the inventory valuation methods: Specific Identification, FIFO, LIFO,
Weighted Average
2. Know how each inventory valuation method differs, ie LIFO creates a lower net
income when prices are rising
3. Know when to use each special journal: sales journal, purchases journal, cash
receipts journal and cash disbursements journal
4. Special journal: a log used to record and post transactions of a similar type.
5. When companies use special journals, what is the general journal used for?
6. General Ledger: a record that contains all accounts and amounts of a company
7. Subsidiary ledgers: A listing of individual accounts and amounts with a common
characteristic. Examples: A/R Subledger (customers), A/P Subledger
(vendors/suppliers)
8. Schedule of A/R: A listing of all accounts in accounts receivable, the balances and
a total.
9. Physical inventory counts: used to adjust the inventory account to the actual
inventory
10. Lower of cost or market: use replacement cost, GAAP
11. Full Disclosure Principle
12. A/P and A/R in the GL control the A/R and A/P subledgers
13. Calculate gross margin (same as gross profit): Net sales Cost of Goods Sold
14. Inventory: know the definition, current asset, normal debit balance on the
balance sheet.
15. Inventory formula: beginning inventory + net purchases=cost of goods available
for sales-ending inventory=cost of goods sold
16. Credit terms: 2/10, n/30, what does it mean
17. Sales Returns: know the definition, normal debit balance, on the income
statement
18. Net Sales = Sales Sales, Returns & Allowances Sales Discounts
19. Definition of merchandising company: earns net income by buying and selling
merchandise
20. Definition of cost of goods sold: the term used for the cost of buying and
preparing merchandise for sale, normal debit balance, on the income statement
21. Sales SRA SD = Net Sales COGS = GP Operating Expenses = Net Income
Problems

1. A company had sales of $872,000 and cost of goods sold of $437,000. Its gross margin
equals:

2. A company purchased $2,200 of merchandise on December 5. On December 7, it returned


$300 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount.
The amount of the cash paid on December 8 equals:

3. Jones Company had sales of $237,000, sales discounts of $1,500, and sales returns of $2,300.
Jones Company's net sale equals:

4. On October 1, Smith Company sold merchandise in the amount of $6,400 to XYZ Company,
with credit terms of 2/10, n/30. The cost of the items sold is $3,000. Smith uses the perpetual
inventory system. The journal entry or entries that Smith will make on October 1 is:

5. A company has net sales and cost of goods sold of $853,000 and $434,000, respectively. Its
net income is $25,730. The company's gross margin and operating expenses are ________ and
___________, respectively.

6. Anderson Company had $900,000 in net sales, $270,000 in gross profit, and $300,000 in
operating expenses. Cost of goods sold equals:
7. Big Company had $900,000 in sales, sales discounts of $10,000, sales returns and allowances
of $20,000, cost of goods sold of $470,000, and $185,000 in operating expenses. Net income
equals:
8. Big Company had $500,000 in sales, sales discounts of $7,000, sales returns and allowances of
$8,000, cost of goods sold of $250,000, and $155,000 in operating expenses. Gross profit
equals:

9. A company purchased $12,000 of merchandise on June 15 with terms of 3/10, n/45. On June
20, it returned $700 of that merchandise. On June 24, it paid the balance owed for the
merchandise taking any discount it is entitled to. The cash paid on June 24 equals:
10. The Goodluck Company uses special journals and subledgers. Indicate whether
each transaction should be posted to the: GJ, SJ, PJ, CR, or CD. And indicate if the
transaction should be posted to the A/R or A/P Subledger. All transactions are posted
to the general ledger.
Jan 1
Sold merchandise on credit for $7,500, to E&Y Co., Invoice No. 456.
The cost of goods
sold is $5,049.
7
Purchased merchandise on credit for $2,700 from the Johnson Co.,
terms 2/10, n/30
invoice dated January 7th.
10
Sold merchandise for $700 cash to XYZ Corp., Invoice No. 457. The
cost of goods sold is
$438.
14

Collected $7,500 from E&Y Co. from January 1st sale.

16
1011.

Paid amount owed to Johnson Co. from January 7th purchase, Check No.

20
1012

Paid $700 cash from the monthly rent to AMC Properties, Check No.

25
Purchased equipment (GL#250) for $4,100 from Anderson Corp.,
Check No. 1013
3

12. A company had the following purchases during the current year:
January: 15 units at $50
February: 10 units at $60
May: 17 units at $70
September: 12 units at $80
November: 25 units at $90
On December 31, there were 28 units remaining in ending inventory. These 28 units
consisted of 4 from January, 2 from February, 7 from May, 4 from September, and
11 from November. Using the Specific Identification method, what is the cost of the
ending inventory?

13. Gordon Roller Company uses the perpetual inventory system and had the following
transactions during October:
Prepare the journal entries in the general journal that Gordon Roller Company must make to
record these transactions.
October 6: Purchased $3000 of inventory. The sellers credit terms are 2/10, n/30
October 8: Returned $300 worth of defective units and received full credit.
October 15: Paid the amount due, less the returned items

14. Johns Surfboards uses the perpetual inventory system and had the following sales
transactions during April:
April 2 Sold merchandise to Blue Ocean Equipment on credit for $3,700, terms 1/15, n/60. The
items sold had a cost of $1,500
April 4: Blue Ocean Equipment returned merchandise that had a selling price of $400. The cost
of the merchandise returned was $215.
April 12: Blue Ocean Equipment paid for the merchandise sold on April 2, taking any
appropriate discount earned.
5

Prepare the journal entries in the general journal that Johns Surfboards must make to record
these transactions.

15. Using the information given below for a company that uses a periodic inventory
system, calculate the ending inventory on February 28 th using FIFO and LIFO.

Beginning Inventory
Feb 5 purchased
Feb 10 purchased
Feb 15 sold

Units
70
30
40
50

Unit cost
$25
$22
$30
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