CHAPTER SIX REVIEW QUESTIONS:

Marvin Corp uses its periodic inventory system and the following information is available:

Sales $27,000

Inventory- Beginning 4,000

Inventory- Ending 3,000

Purchases 16,000

1. Calculate the cost of goods sold:

A) $10,000.

B) $ 9,000.

C) $17,000.

D) $18,000.

2. Calculate the gross profit.

A) $10,000

B) $ 9,000

C) $17,000

D) $18,000

3. Effects of transactions upon the accounting equation

Listed below are selected transactions of Ruffles, a retail store which uses a perpetual inventory system:

a) Purchased merchandise on account.

b) Made an entry to recognize the revenue from a sale of merchandise on account. (Ignore the cost of goods sold.)

c) Recognized the cost of goods sold relating to the sale in Transaction b.

d) Collected in cash the account receivable from the customer in Transaction b.

e) Following the taking of a physical inventory at year-end, made an adjusting entry to record a normal amount of inventory shrinkage.

Indicate the effects of each of these transactions upon the elements of the company's financial statements. Organize your answer in tabular form, using the column headings shown below. (Notice that the cost of goods sold is shown separately from all other expenses.) Use the code letters I for increase, D for decrease, and NE for no effect. The answer for transaction a is provided as an example.

Income Statement Balance Sheet

Transaction Net Sales - COGS - All other exps = Net Income Assets = Liabilities + O.E.

(a) NE NE NE NE I I NE

(b)

(c )

(d)

(e)

4. Perpetual inventory system: basic entries

Magnum Company uses a perpetual inventory system. A partial chart of accounts is shown below, followed by a series of merchandising transactions. Indicate the accounts that should be debited and credited in recording each transaction. (Ignore sales taxes.)

1 Cash 50 Sales

2 A/R 60 Cost of Goods Sold

5 Inventory XX All other Expense accounts

30 Accounts payable

Transactions Account Account

Debited Credited

Example Sold merchandise for cash 1, 60 50, 5

(a)Purchased merchandise on account

(b)Sold merchandise on account

(c)Paid the supplier of the merchandise in transaction (a)

(d)Collected cash from the customer in transaction (b)

(e)The physical inventory taken at year-end disclosed a

Normal amount of inventory shrinkage

5. Periodic inventory system

Parker Fish & Tackle Shop uses a periodic inventory system. At the end of 2001, the accounting records include the following information:

Inventory, December 31, 2000 $7,400

Inventory, December 31, 2001 4,100

Net Sales 200,000

Purchases 88,700

Compute the following for 2000:

a) Cost of goods sold. $________________

b) Gross profit. $________________

6. Net sales and gross profit

Office Supply Corp. had gross sales revenue of $2,800,000, cost of goods sold of $1,300,000, sales returns and allowances of $45,000, and allowed sales discounts of $18,000.

Compute for the year:

(a) Net sales. $________________

(b) Gross profit. $________________

(c)Gross profit rate._________%