We note the following adjusted trial balance totals: Cash $21,000, Accounts Receivable $20,000, Allowance for Doubtful Accounts $2,000, Merchandise Inventory $20,000, Accounts Payable $16,000, Capital $3,000, Sales $80,000, Sales Returns $6,000, Cost of Goods Sold $24,000 and other Expenses $10,000. Based on this information, answer questions 11 13

11. Gross profit is:

$56,000

$50,000

$80,000

$74,000

12. Which method of accounting for inventories was used?

Cost

Fair Market Value

Periodic

Perpetual

13. If we noted an actual Merchandise Inventory balance of $19,900 based on an actual count, we should:

Debited Cost of Goods Sold and Credited Merchandise Inventory for $100.

Credited Cost of Goods Sold and Debited Merchandise Inventory for $100.

Debited Inventory Shrinkage and Credited Merchandise Inventory for $100

Taken no action as this method requires none.

14. A major difference between the Periodic and Perpetual Inventory methods is:

We have to use two journal entries when we record sales, sales returned and customer collections under the Periodic method.

We use General Ledger Accounts such as Cost of Goods Sold, Purchases, Purchase Returns, Purchase Discounts and under the Periodic method.

We use the Merchandise Inventory account when we record the purchasing of inventory under the Periodic method.

We must calculate Cost of Goods Sold at year end under the Periodic method.

15. We bill a customer on March 1, 2011 for $10,000 of goods. The invoice contains the terms 4/7, net 30. If the bill is paid on March 5^th, what is the amount of the cash paid?

$4,000

$9,600

$14,000

None of the above

16. We use the perpetual inventory method and are billed for new inventory with the terms FOB destination. Total freight costs amount to $100. Based on this information we should:

Debit Freight Expense $100

Debit Transportation-in for $100

Debit merchandise Inventory for $100

Do nothing as we are not responsible for the freight cost

17. We sell $40,000 of Merchandise Inventory that had a cost of $27,300 with terms1/30, n60. Our customers return $3,000 of our sale (retail) with an associated cost of $2,400. When we receive full payment within 30 days from our customer we should:

Can not record until inventory accounting method is known.

Record $2,400 as a purchase return.

Record $3,000 as a purchase return.

Record Sales Discount for $400.

Record Sales Discount for $370.

18. Using the information from question 17, how should the product return be recorded under the perpetual method of accounting for inventory?

Debit Sales Returns for $3,000 and credit Merchandise Inventory for $3,000.

Credit Sales Returns for $3,000 and debit Cost of Goods Sold.

Debit Cost of Goods Sold and credit Sales Returns.

Debit Sales Returns and Credit Accounts Receivable.

19. We noted our beginning inventory valued at cost of $10,000 with a retail value of $50,000. We added to that purchases at a cost of $30,000 with an associated retail value of $50,000. Sales for the period at retail were $80,000. What is the estimated value of our ending inventory using the Retail Method?

$20,000

$10,000

$8,000

$4,000

20. If our ending inventory is overstated by $10,000, which statement is true?

Assets and Cost of Goods Sold are overstated.

Assets and Cost of Goods Sold are understated.

Assets and Net Income are overstated.

Assets and Net Income are understated