ACTIVITY 1-1

Fill in the blanks

1.In the periodic inventory system, all purchases of merchandise during the period is recorded in the account.

2.A continuous record of inventory is kept in a system.

3.When using the periodic system, will remain unchanged.

4.represents a liability on the balance sheet and records money received for a sale of service not yet performed.

5.Transportation in is to the cost of goods sold.

6.Net sales less cost of sales equals .

7.Net purchases equals Purchases less and .

8.Sales returns and allowances are used in calculating .

9.Ending inventory represents goods not .

10.Gross profit less equals profit.

ACTIVITY 1-2 TRUE OR FALSE

1. When merchandise inventory is purchased with credit terms of 2/10, n/60, the credit period is 60 days from date of the invoice.

2. Merchandise purchased on June 8 with credit terms of 2/10, n/30, must be paid sooner than with credit terms of n/10 EOM.

3. n inventory system in which the business has up-to-date data as to the quantity of goods on hand is called a periodic inventory system.

4. A deduction allowed from the invoice price of goods if payment is made within a specified period of time is called a trade discount.

5. Merchandise with a list price of P100, subject to a trade discount of 40 percent and sold with credit terms of 2/10, n/60, would cost the buyer P58.80 if payment is made within the discount period.

6. When goods are shipped under freight terms of FOB shipping point (FOB factory), the buyer of the goods pays the freight charges.

7. The cost of goods sold is determined by adding the cost of purchases to the beginning merchandise inventory and subtracting the ending merchandise inventory.

8. In a periodic inventory system, transportation charges for merchandise are added to net purchases to determine the cost of goods purchased.

9. In a perpetual inventory system, transportation charges are recorded with a debit to the merchandise inventory account.

10. Transportation-In, Freight-In, and Delivery Expense are all the same account.

11. If net sales for the business totals P150,000, gross profit is P65,000, and net income is P40,000, then the cost of goods sold will total P25,000.

12. The income statement for the period shows a net loss for the year of P4,500. When the closing entries are prepared, this net loss will be closed into the Capital account of a proprietorship business with a debit to the Income Summary account and a credit to the Capital account.

13. Merchandise with a list price of P2,000 is sold with a trade discount of 30% and cash terms of 2/10, n/30. If the merchandise is paid for within the discount period, the total cost will be P1,372.

14. Merchandise is purchased FOB shipping point. The seller will pay the freight charges.

15. The ending inventory of one period is the beginning inventory of the next period.