Question

1.

Edison's dress shop buys dresses from McGuire Manufacturing. Edison purchased dresses from McGuire on July 18, and received an invoice with a list price amount of $8,000 and payment terms of 2/10, n/30. Edison uses the net method to record purchases. Edison should record the purchase at:

A. $7,840

B. $8,000

C. $6,400

D. $8,160

2.

When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded:

A. As a reduction in the investment account.

B. As dividend income.

C. As a contra item to stockholders' equity.

D. As an increase in the investment account.

3.

In a perpetual inventory system, the return of purchases is debited to:

A. Cost of goods sold.

B. Purchase return.

C. Inventory.

D. Accounts payable.

4.

Howard's Supply Co. suffered a fire loss on April 20, 2013. The company's last physical inventory was taken on January 30, 2013, at which time the inventory totaled $220,000. Sales from January 30 to April 20 were $600,000 and purchases during that time were $450,000. Howard's consistently reports a 30% gross profit. The estimated inventory loss is:

A. $490,000.00

B. $238,000.00

C. $250,000.00

D. None of the above is correct.

5.

Which of the following is a characteristic of a perpetual inventory system?

A. Cost of goods sold is determined as the amount of purchases less the change in inventory.

B. Inventory records are not kept for every item.

C. Inventory purchases are debited to a Purchases account.

D. Cost of goods sold is recorded with each sale.

Answer 1

1	Answer is A
	Purchases Amount	8000
	Less discount for payment within 10 days (2/10, n/30)	160
	Purchases Amount to be recorded	7840
2	Answer is A
	Since the dividend income is already recorded in books, hence the same is reduced from investment account rather than recording income
3	Answer is D
	It is debited in accouts payable account and credited to inventory account.
4	Answer is C
	Sales	6,00,000
	Profit (30% of sales) (30% of 600,000)	1,80,000
	COGS	4,20,000
	Physical Inventory as on Jan 30, 2013	2,20,000
	Add: Purchases	4,50,000
	Less: COGS	-4,20,000
	Balance Stock	2,50,000
	Loss would be $ 250,000
5	Answer is D
	Under prepatual system, inventory need to be updated in immediately, hence as soon as sales is incurred the sames is recorded in COGS so as to maintain updated stock.