Question

The credit terms, 2/10, n/30, indicate that a:

Select one:

a. 10% discount can be deducted from the invoice if paid within 2 days following the date of sale.

b. 2% discount can be deducted from the invoice if paid within 30 days following the date of sale.

c. 2% discount can be deducted from the invoice if paid within 10 days following the date of sale.

d. 2% of the invoice is due in 10 days, the remainder is due in 30 days.

Question 12

Not yet answered

Marked out of 2.50

Flag question

Question text

What is meant by "market" in lower-of-cost-or-market calculations?

Select one:

a. The amount of gross margin earned by selling merchandise.

b. The amount the goods were sold for during the period.

c. The amount that would have to be paid to replace the merchandise.

d. The amount originally paid for the merchandise.

Question 13

Not yet answered

Marked out of 2.50

Flag question

Question text

A Clothing Store sold a piece of land for $38,000. The land had an original cost of $32,500. How would this be recorded on the Income Statement?

Select one:

a. As an increase in Gross Profit by $5,500.

b. As an increase in Operating Income by $5,500.

c. As a decrease in Gross Profit by $5,500.

d. As an increase in Non-Operating Income by $5,500.

Question 14

Not yet answered

Marked out of 2.50

Flag question

Question text

A company reported the following inventory transactions during the year:

1/1/2015	Beginning Inventory	10 units	@ $20
2/10/2015	Purchase	20 units	@ $18
2/22/2015	Purchase	16 units	@ $14
3/7/2015	Sale	18 units	@ $30

What is the cost of goods sold using the FIFO cost flow method?

Select one:

a. $344

b. $260

c. $307

d. $540

Question 15

Not yet answered

Marked out of 2.50

Flag question

Question text

Using the below information, which inventory cost flow method would result in the lowest net income for the year?

1/1/2015	Beginning Inventory	10 units	@ $20
2/10/2015	Purchase	20 units	@ $18
2/22/2015	Purchase	16 units	@ $14
3/7/2015	Sale	18 units	@ $30

Select one:

a. FIFO

b. LIFO

c. Weighted Average

d. Net Income would be the same

Answer 1

11) The credit terms, 2/10, n/30, indicate that a 2% discount can be deducted from the invoice if paid within 10 days following the date of sale and no discount will be allowed after the expiry of 10 days and the payment is due within 30 days. Hence the correct option is c. 2% discount can be deducted from the invoice if paid within 10 days following the date of sale.

12) The "market" in lower-of-cost-or-market calculations means the amount that would have to be paid to replace the merchandise. Hence the correct option is c. The amount that would have to be paid to replace the merchandise.

13) Sale of land is a part of non operating activity, hence the gain from sale of land will increase the non operating income by $5,500 ($38,000 - $32,500). Hence the correct option is d. As an increase in Non-Operating Income by $5,500.

14) Under FIFO method, the goods purchased first are sold first. In this question sale of 18 units will be 10 units from the beginning inventory and remaining 8 units from the goods purchased on 2/10/2015. Hence the cost of goods sold is calculated as follows:-

Cost of goods sold = (10 units*$20)+(8 units*$18)

= $200+144 = $344

Hence the cost of goods sold using the FIFO cost flow method is $344. Therefore the correct option is a. $344.

15) The net income will be lowest when cost of goods sold is highest. As the cost of inventory per unit is decreasing, the cost of goods sold will be highest in FIFO method and this will result in lowest net income. Hence the correct option is a. FIFO.