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Assume that sales discounts in the current year exceed sales discounts in the prior year.Assume that nothing else changes. Required: Determine the impact of an increase in sales discounts on the company's gross profit percentage (that is,whether it will increase,decrease,or not be affected).Include a simple example to prove your answer.

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Recall the formula for the gross profit ...

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FAD Company uses a periodic inventory system and its inventory records for the period contain the following information: FAD Company uses a periodic inventory system and its inventory records for the period contain the following information: -Use the information above to answer the following question.The journal entry necessary at the end of the period to adjust cost of goods sold for the ending inventory still on hand will include which of the following? A) Debit Inventory for $6,250 B) Credit Cost of Goods Sold for $11,250 C) Credit Purchases for $10,200 D) Credit Inventory for $5,000 -Use the information above to answer the following question.The journal entry necessary at the end of the period to adjust cost of goods sold for the ending inventory still on hand will include which of the following?


A) Debit Inventory for $6,250
B) Credit Cost of Goods Sold for $11,250
C) Credit Purchases for $10,200
D) Credit Inventory for $5,000

E) All of the above
F) A) and C)

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BetterBuy purchases computers from companies like Hewlett Packard and IBM and sells them to consumers.BetterBuy is a:


A) merchandising company at the retail level.
B) service company.
C) merchandising company at the wholesale level.
D) manufacturer.

E) None of the above
F) A) and B)

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Shockglass Company had a beginning inventory of $15,000.During the year,the company recorded inventory purchases of $45,000 and cost of goods sold of $50,000.The ending inventory must equal:


A) $10,000.
B) $25,000.
C) $26,000.
D) $27,000.

E) A) and B)
F) C) and D)

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Flynn Company uses a perpetual inventory system and had the following transactions during November: -November 6 - Purchased $5,800 of inventory on account, terms 2/10, n/30. -November 8 - Returned $800 of defective units and received full credit. -November 15 - Paid the amount due. -Use the information above to answer the following question.What journal entry will be recorded by Flynn Company on November 6?


A) Debit Inventory and credit Accounts Payable for $5,800
B) Debit Cost of Goods Sold and credit Accounts Payable for $5,684
C) Debit Purchases and credit Accounts Payable for $5,800
D) Debit Inventory and credit Accounts Payable for $5,684

E) A) and D)
F) A) and C)

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Beginning inventory plus purchases minus ending inventory equals:


A) net sales.
B) cost of goods sold.
C) goods available for sale.
D) net purchases.

E) All of the above
F) B) and D)

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The perpetual inventory method of tracking inventory is considered superior to the periodic method because the perpetual method:


A) makes calculations easier and less technology can be deployed.
B) tells what inventory a company should have at any point in time.
C) saves a company from ever having to count the goods in inventory.
D) is more consistent with how companies calculated inventory in the past.

E) A) and B)
F) B) and C)

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Use the information above to answer the following question.What journal entry (entries) will Darin prepare on October 1 to record this sale?


A) Debit Accounts receivable and credit Sales Revenue for $6,500
B) Debit Sales Revenue for $6,500 and credit Accounts Receivable and credit for $6,500; debit Cost of Goods Sold and credit Inventory for $4,200
C) Debit Cost of Goods Sold for $4,200, debit Gross Profit for $2,300, and credit Sales Revenue for $6,500
D) Debit Accounts Receivable and credit Sales Revenue for $6,500; debit Cost of Goods Sold and credit Inventory for $4,200

E) All of the above
F) A) and C)

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Which of the following statements regarding sales returns and allowances is correct?


A) Recording sales returns and allowances in a separate account is an important internal control that allows management to evaluate the volume of returns and allowances as a potential indicator of the quality of their products.
B) The Sales Returns & Allowances account balance should be added to the Sales account balance when computing net sales.
C) The Sales Returns & Allowances account is an example of a contra-asset account.
D) Recording a sales allowance requires two entries.

E) B) and C)
F) A) and C)

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Which of the following is an activity common to the operations of merchandising,manufacturing,and service companies?


A) Producing the product
B) Incurring operating expenses
C) Buying goods or raw materials
D) Selling a physical product

E) C) and D)
F) A) and D)

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Which of the following costs should be added to the buyer's Inventory account?


A) Freight-in costs with terms FOB shipping point
B) Freight-out costs with terms FOB destination
C) Freight-in costs with terms FOB destination
D) Freight-out costs with terms FOB shipping point

E) B) and C)
F) C) and D)

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Alpha Company bought inventory from Omega Company,FOB shipping point.On December 31,the last day of the accounting year,the goods were on a truck owned by Theta,Inc.,exactly halfway between Alpha and Omega.Which company should include these goods in its December 31 inventory?


A) Omega
B) Alpha
C) Theta
D) Alpha and Omega should each include half of the goods in inventory

E) All of the above
F) A) and B)

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On June 15,Oakley Inc.sells inventory on account to Sunglass Hut (SH) for $1,000,terms 2/10,n/30.On June 20,SH returns to Oakley inventory that SH had purchased for $300.On June 24,SH completely fulfills its obligation to Oakley by making a cash payment.What is the amount of cash paid by SH to Oakley?


A) $680
B) $686
C) $700
D) $1,000

E) None of the above
F) A) and D)

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Purrfect Pets uses the perpetual inventory system.At the beginning of the quarter,Purrfect Pets has $30,000 in inventory.During the quarter the company purchases $7,900 of new inventory from a vendor,returned $700 of inventory to the vendor,and took advantage of discounts from the vendor of $200.At the end of the quarter the balance in inventory is $26,500.What is the cost of goods sold?


A) $10,500
B) $11,400
C) $3,500
D) $11,900

E) A) and C)
F) A) and B)

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Which of the following is a correct statement?


A) The Sales Discounts account is a contra-asset account.
B) The Sales Returns & Allowances account is a contra-revenue account.

C) A) and B)
D) undefined

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The gross profit percentage is computed by dividing operating income by net sales.

A) True
B) False

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If merchandise purchased on credit is returned to the seller for a full refund,what would be the effect on the accounts listed below?


A) Increase Inventory; No effect on Cost of Goods Sold; Decrease Accounts Payable
B) Decrease Inventory; Decrease Cost of Goods Sold; No effect on Accounts Payable
C) No effect on Inventory; Decrease Cost of Goods Sold; Decrease Accounts Payable
D) Decrease Inventory; No effect on Cost of Goods Sold; Decrease Accounts Payable

E) A) and C)
F) A) and B)

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A company using a perpetual inventory system made the following entry: Debit Accounts Payable for $3,000,credit Inventory for $60,and credit Cash for $2,940.What does this entry reflect?


A) A purchase of inventory at a discount.
B) A return of inventory for credit.
C) A sale of inventory on account.
D) A payment within the discount period for inventory previously purchased on credit.

E) All of the above
F) B) and C)

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Sales discounts are discounts that consumers get from buying clearance items at a reduced price.

A) True
B) False

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Two different companies,Ripper and Berners,entered into the following inventory transactions during December.Both companies use a perpetual inventory system. -December 3 - Ripper Corporation sold inventory on account to Berners Corp.for $480,000,terms 2/10,n/30.This inventory originally cost Ripper $320,000. -December 8 - Berners Corp.returned inventory to Ripper Corporation for a credit of $30,000.Ripper returned this inventory to inventory at its original cost of $20,000. -December 12 - Berners Corp.paid Ripper Corporation for the amount owed. Required: Part a.Prepare the journal entries to record these transactions on the books of Ripper Corporation. Part b.What is the amount of net sales to be reported on Ripper Corporation's income statement? Part c.What is the Ripper Corporation's gross profit percentage?

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Part a
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Part b
Net sales = Sales Reven...

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