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Ch. 5 - 232 on Test

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1.
What are the categories listed in the multiple-step income statement for nonoperating activities?
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2.
What is the ethics issue in disclosing nonoperating activities?
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3.
Why is multiple-step financial statement ?called that?
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4.
Where are returns and allowances listed in a periodic inventory system?
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5.
What does it mean to make closing entries? p. 232
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6.
What steps are included in a multiple-step income statement?
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7.
What are two forms of financial statements used by merchandising companies?
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8.
What are nonoperating activities?
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9.
How do you record sales revenues under a perpetual inventory system for a merchandising company?
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10.
What is called the "bottom line" of a company's income statement?
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11.
How do you get net sales?
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12.
How do you the figure for operating expenses in a multiple-step income statement?
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13.
Where are purchase discounts recorded in a periodic system?
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14.
Why doesn't the perpetual inventory system give a completely accurate count of inventory on hand?
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15.
What represents the merchandising profit of a company?
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16.
How do you record merchandise transactions in a periodic inventory system?
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17.
How is cost of goods sold determined for a company using a periodic inventory system? 5A-1, 5A-2 p. 242
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18.
What does it mean to adjust Inventory and Cost of Goods Sold?
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19.
How does are freight costs recorded for a periodic inventory system?
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20.
What happens to the Retained Earnings after making closing entries for a merchandising company? p. 233
A.
Companies record revenues from sales when the sales are made, as in perpetual system, but they don't record the cost of the goods sold on the same date. They do that at the end of the period.
B.
Gross profit minus operating expenses equals net income. 5-11, p. 236
C.
Cost of goods sold is determined at the end of the period. A count is made to determine the ending balance of inventory. Beinning inventory plus cost of goods purchase minus cost of goods available for sale(ending inventory) = cost of goods sold.
D.
multiple-step income statement and single-step income statement.
E.
They are revenues and expenses and gains and losses unrelated to the company's main income-generating activities.
F.
Co. sells inventory and debits Accounts Receivable (or Cash); credits Sales REvenue for selling price of merchandis. Debits Cost of Goods Sold and credits Inventory for cost of the inventory items sold; debit sales returns, allowances and discounts.
G.
1) presents sales revenue; then it deducts contra-reveneue accounts (sales returns and allowances and sales discounts) - to get net sales. 2) GROSS PROFIT; 3) operating expenses 4) nonoperating activities p. 234-237
H.
There are several steps shown to determine the net income. It also makes a difference between operating and nonoperating activities. It highlights intermediate copmonents of income and shows subgroupings of expenses. p. 234
I.
The gross profit. Operating expenses are not deducted yet, but managers and tohers do watch the trend of gross profit and compare it to other periods.
J.
Sales revenue less sales returns and sllowances and sales discounts - illustration 3-8.
K.
If the gain and loss of nonoperating activities is not listed as such the company can give a false impression of their control of operating expenses and the source of their profits. For stock holders and auditing purposes this is important.
L.
They are listed in a temporary account whose normal balance is a credit.
M.
1) Other revenues and gains (interest, dividend, rent revenue and gains from sale of property, plant, equipment); Other expenses and losses (interst, casualty losses, loss from sale or abandonment of property, loss from strikes, etc.)
N.
After the physical inventory is completed and matched to that of the perpetual inventory system, adjustments are entered. See chart middle of 232.
O.
Recording errors, theft or waste create discrepancies.
P.
Freight-in costs are recorded in a temporary Freight-In account - normal balance is a debit. Freight-in is a part of cost of goods purchases. Freight costs are not subject to a purchase discount. Freight-in can also be called transportation-in.
Q.
A merchandising company closes to Income Summary the accounts that affect net income. Identify the temporary accounts by their balances and prepare one entry for credits and one for the debits. After closing entries, temporary accounts- zero balances.
R.
Net income amount is the "bottom line."
S.
Temporary account - Purchase Discounts - balance is normally a credit.
T.
Retained Earnings has a balance - carry it over to the next period. Previous period is closed, but the earnings are carried over.
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21.
It is "closeness to cash;" ability to use cash. Inventory is less close to cash than accounts receivable because good smust first be sold and the customer has to pay.

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