WGU D103
Intermediate Accounting I
OA2 (Units 5-7)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢100 OA Exam Questions w/ Answers
➢ Complete Units 5, 6, and 7
➢ Unit 5 - Time Value of Money = 20%
➢ Unit 6 - Cash & Receivables = 40%
➢ Unit 7 - Inventory = 40%
Take and pass the OA :)
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,A customer signs a noninterest-bearing note, promising to pay the company
$11,664 in two years. The payment amount is based on an annual interest rate of
8%, which the company believes is appropriate, resulting in the present value of
the note of $11,664 × 0.85734 = $10,000.
Which amount should the company record as sales revenue from this transaction
to be in accordance with generally accepted accounting principles (GAAP)?
The note is recorded at its present value of $10,000. No calculation is required.
Accounting Rule: A note received in exchange for goods is valued at its present value.
A company requires $8,000 cash in a savings account earning 2% interest at the
end of the year. Assuming an annual interest rate of 2% is appropriate, the
implied annual interest is $8,000 × 0.02 = $160, and the present value of the
savings is $8,000 × 0.98039 = $7,843.
What amount should be deposited into the savings account at the beginning of
the year?
The present value of $8,000 at the beginning of the year is $7,843. No calculation is
required.
This is a single-sum problem that requires determining the unknown present value of a
known single sum of money in the future that is discounted for a certain number of
periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce a
known future value. It is always a smaller amount than the given future value.
A company collects $1,500 of rent from a tenant at the end of the year. The
company invests the rent money in an investment earning 4% interest per year.
Assuming a 4% annual interest rate is appropriate, the implied annual interest is
$1,500 × 0.04 = $60, and the present value of the rent is $1,500 × 0.96154 = $1,442.
What is the discounted value of this rent at the beginning of Year 1?
Discounting is the process of reducing the face/principal amount to a present value. The
present value of $1,500 at the beginning of the year is $1,442. No calculation is
required.
,Continental bank: $ (42,000)
Petty cash: $ 450
3-month treasury bill: $ 60,000
CD maturing in 18 months: $ 100,000
What is the amount of cash and cash equivalents that should be reported?
$204,450 = $127,000 + $17,000 + $450 + $60,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
The bank overdraft for Continental bank is reported as a current liability. It cannot be
offset against the other banks’ cash account. However, the overdraft could be offset if
the company had another cash account with Continental bank.
A company has the following items at year-end:
cash in bank: $30,000
petty cash: $500
short-term paper with maturity of two months: $7,000
postdated checks: $2,000
What amount should be reported as cash and cash equivalents in the balance
sheet?
$37,500 = $30,000 + $500 + $7,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months. (Note: 3 months is interpreted to mean 90 days or less.)
Postdated checks are reported as receivables.
,A company issues a $7,000, noninterest-bearing note for the sale of inventory.
The market rate at the time of the sale is of 8%. The note is due in full at the end
of three years. Assuming an annual interest rate of 8% for three years is
appropriate, the present value of the principal is $7,000 × 0.79383 = $5,557.
Assuming an annual interest rate of 8% for eight years is appropriate, the present
value of the principal is $7,000 × 0.78941 = $5,527.
What is the journal entry to record this sale?
Debit notes receivable for $7,000; credit revenue for $5,557; credit discount on notes
receivable for $1,443.
Accounting Rule: A noninterest-bearing note is a note with no stated interest rate on its
face. The interest is implied in the face value of the note. The note is issued for a lessor
amount than its face value, and cash or sales revenue is credited for this amount. The
face value of the note at maturity includes both principal and interest. Hence, the note
receivable is always debited for is face value. Account for problems like this as the
present value of a single sum.
A company issues a $4,000, four-year, zero-interest-bearing note for the sale of
inventory. Assuming an annual interest rate of 4% for four years is appropriate,
the present value of the principal is $4,000 × 0.85480 = $3,419.
What is the journal entry to record this sale?
Debit notes receivable for $4,000; credit revenue for $3,419; credit discount on notes
receivable for $581.
Accounting Rule: A noninterest-bearing note is a note with no stated interest rate on its
face. The interest is implied in the face value of the note. The note is issued for a lessor
amount than its face value, and cash or sales revenue is credited for this amount. The
face value of the note at maturity includes both principal and interest. Hence, the note
receivable is always debited for is face value. Account for problems like this as the
present value of a single sum.
A company sold goods in exchange for a $5,000, two-year, zero-interest-bearing
note. The note is issued to a high-risk customer and the market rate for a note of
similar risk is 7%. Assuming an annual interest rate of 7% for two years is
appropriate, the present value of the principal is $5,000 × 0.87344 = $4,367.
What is the journal entry to record this sale?
,How many days does it take the company to collect its accounts receivable,
rounded to the nearest one decimal place?
156.6 days = (365 / ($1,340,000 / (($500,000 + $650,000) / 2)))
Accounting Rule: The days to collect accounts receivable is also known as the average
collection period and measures the number of days on average it takes to collect
accounts receivable during the period. Companies frequently use the average collection
period, also known as days’ outstanding, to assess the effectiveness of a company’s
credit and collection policies.
A company wants to assess the effectiveness of a company's credit and
collection policies.
What ratio should it use?
Days to collect accounts receivable.
Accounting Rule: The days to collect accounts receivable is also known as the average
collection period and measures the number of days on average it takes to collect
accounts receivable during the period. Companies frequently use the average collection
period, also known as days’ outstanding, to assess the effectiveness of a company’s
credit and collection policies.
A company has current year sales of $500,000, net accounts receivable of
$35,000, and prior year net accounts receivable of $43,000.
What is the average number of days to collect receivables, rounded to the nearest
one decimal place?
28.5 = 365 / ($500,000 / (($35,000 + $43,000) / 2))
Accounting Rule: The days to collect accounts receivable is also known as the average
collection period and measures the number of days on average it takes to collect
accounts receivable during the period. Companies frequently use the average collection
period, also known as days’ outstanding, to assess the effectiveness of a company’s
credit and collection policies.
A company has current year sales of $200,000, net accounts receivable of
$30,000, and prior year net accounts receivable of $50,000.
,Accounting Rule: Accounting Rule: The journal entry to record uncollectible accounts
receivable using the allowance method is debit bad debt expense and credit allowance
for doubtful accounts.
What is the journal entry when writing-off an account as uncollectible under the
allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
Accounting Rule: The journal entry to record the write-off of an uncollectible account
using the allowance method is debit allowance for doubtful accounts and credit
accounts receivable. The allowance for doubtful accounts is a contra asset account to
the accounts receivable account with a credit balance.
Which of the following is included in the journal entry to record the collection of
accounts receivable previously written off when using the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
Accounting Rule: Two entries are needed. First, an entry is needed to reverse the write-
off of the account receivable and restore it, debit accounts receivable, credit allowance
for doubtful accounts. Second, an entry is needed to record collection of the account,
debit cash, credit accounts receivable.
As of December 31, a company has an uncollectible account of $10,000. The
accountant uses the direct write-off method to account for bad debts.
What is the journal entry for the write off of the account?
Debit bad debt expense; credit accounts receivable.
Accounting Rule: The direct write-off method is simple and convenient to apply, debit
bad debt expense and credit accounts receivable. However, this method does not
provide for the matching of expenses with current revenues and does not report
,What is the cost of goods sold (COGS) and the value of ending inventory for
October?
$4,975 = COGS: (350 x $8.50) + (250 x $8.00). Ending Inventory: $8,225 = (200 x $7) +
((500 -250) x 8) + ((600 - 350) x $8.5) + (300 x $9)
Accounting Rule: The specific identification inventory valuation method tracks every
single item in an inventory individually from the time it enters the inventory until the time
it leaves it. This inventory method is suitable for companies with expensive, easily
distinguishable low-volume merchandise such as jewelry, fur coats, automobiles, unique
furniture, special manufactured made products.
A company that used the periodic inventory system overstated its beginning
inventory but correctly stated its ending inventory.
What will be the effect of this error on the financial statements at the end of the
period?
The cost of goods sold will be overstated and gross profit/net income will be
understated. The ending inventory on the balance sheet is correct according to the
facts.
Accounting Rule: Inventory errors come in two forms: understatements or
overstatements.
Beginning inventory errors affect only the income statement because cost of goods sold
is calculated using beginning inventory + purchases – ending inventory.
Ending inventory errors affect both the income statement and the balance sheet and will
affect two periods because 1) the ending inventory of one period will become the
beginning inventory for the following period, and 2) the calculation of the cost of goods
sold is beginning inventory + purchases – ending inventory.
As shown in the table below, errors in calculating beginning inventory have
a direct effect on cost of goods sold and inverse effect on gross profit and net income.
On the other hand, errors in calculating ending inventory have an inverse effect on
cost of goods sold and a direct effect on gross profit and net income. Errors in
purchases have the same effect as errors in beginning inventory, that is a direct effect
on cost of goods sold and inverse effect on gross profit and net income
company did not record the credit purchases of inventory and did not include this
item in the ending inventory balance.
,c. cost of goods available for sale of $70,000.
Accounting Rule: Beginning inventory plus purchases equals goods available for sale.
Cost of sales and cost of goods sold mean the same thing and are used
interchangeably.
Make sure you know the following formula
Beginning Inventory
(+) Net Purchases1
(=) Goods Available for Sale
(-) Ending Inventory
(=) Cost of Goods Sold
1 Net Purchases = Purchases + Freight In- Purchase Discounts – Purchase Returns
and Allowances
The ending inventory of a merchandiser is $50,000. The beginning inventory was
$200,000.
If the income statement for the year reported cost of goods sold of $350,000, how
much were purchases during the year?
200,000+P=350,000+50,000, and thus P=$200,000
Accounting Rule: Purchases is calculated as beginning inventory minus ending
inventory plus cost of goods sold.
Make sure you know the following formula
Beginning Inventory
(+) Net Purchases1
(=) Goods Available for Sale
(-) Ending Inventory
(=) Cost of Goods Sold
, What are the journal entries to record the purchase and the payment using the
net method?
Jan 10 debit purchases for $4,950; credit accounts payable for $4,950
Jan 18 debit accounts payable for $4,950; credit cash for $4,950
Accounting Rule: The net method records the purchase net of the cash discount. In
other words, the net method assumes that the customer will take advantage of the cash
or early payment discount.
A company purchased dresses on July 17th and received an invoice with a list
price amount of $6,000 and payment terms of 2/10, n/30. The company uses the
net method to record purchases. The company should record the purchase at
a. $5,940.
b. $5,880.
c. $6,000.
d. $6,120.
b. $5,880.
$5,880 = $6,000 - ($6,000 x 2%)
The following information is available for a company that uses a perpetual
inventory system:
October 1: Beginning inventory consisted of 300 units at a cost of $5 each.
October 5: 200 units were sold for $12 each.
October 15: 250 units were purchased at a cost of $6 each.
October 21: 75 units were purchased at a cost of $7 each.
October 25: 150 units were sold for $15 each.
What is the cost of goods sold and ending inventory using the last-in, first-out
(LIFO) method?
$1,975 = COGS: (75 x $7) + (75 x $6) + (200 x $5).
$1,550 = Ending Inventory: (175 x $6) + (100 x $5)
Accounting Rule: LIFO is the acronym for last-in, first-out, which is a cost flow
assumption. Under LIFO, the most recent costs of products purchased (or
manufactured) are the first costs to be removed from inventory and matched with the
Intermediate Accounting I
OA2 (Units 5-7)
Actual Questions with Verified Answers
Pass the Exam with Confidence
What You Will Get:
➢100 OA Exam Questions w/ Answers
➢ Complete Units 5, 6, and 7
➢ Unit 5 - Time Value of Money = 20%
➢ Unit 6 - Cash & Receivables = 40%
➢ Unit 7 - Inventory = 40%
Take and pass the OA :)
, Preview Pages Below
Get the Complete PDF After Purchase
"If you require further clarification or in need of any study resources,
feel free to Message me."
Digital preview sample - complete document available after purchase
,A customer signs a noninterest-bearing note, promising to pay the company
$11,664 in two years. The payment amount is based on an annual interest rate of
8%, which the company believes is appropriate, resulting in the present value of
the note of $11,664 × 0.85734 = $10,000.
Which amount should the company record as sales revenue from this transaction
to be in accordance with generally accepted accounting principles (GAAP)?
The note is recorded at its present value of $10,000. No calculation is required.
Accounting Rule: A note received in exchange for goods is valued at its present value.
A company requires $8,000 cash in a savings account earning 2% interest at the
end of the year. Assuming an annual interest rate of 2% is appropriate, the
implied annual interest is $8,000 × 0.02 = $160, and the present value of the
savings is $8,000 × 0.98039 = $7,843.
What amount should be deposited into the savings account at the beginning of
the year?
The present value of $8,000 at the beginning of the year is $7,843. No calculation is
required.
This is a single-sum problem that requires determining the unknown present value of a
known single sum of money in the future that is discounted for a certain number of
periods at a certain interest rate.
Accounting Rule: Present value is the amount that must be invested now to produce a
known future value. It is always a smaller amount than the given future value.
A company collects $1,500 of rent from a tenant at the end of the year. The
company invests the rent money in an investment earning 4% interest per year.
Assuming a 4% annual interest rate is appropriate, the implied annual interest is
$1,500 × 0.04 = $60, and the present value of the rent is $1,500 × 0.96154 = $1,442.
What is the discounted value of this rent at the beginning of Year 1?
Discounting is the process of reducing the face/principal amount to a present value. The
present value of $1,500 at the beginning of the year is $1,442. No calculation is
required.
,Continental bank: $ (42,000)
Petty cash: $ 450
3-month treasury bill: $ 60,000
CD maturing in 18 months: $ 100,000
What is the amount of cash and cash equivalents that should be reported?
$204,450 = $127,000 + $17,000 + $450 + $60,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months (90 days).
The bank overdraft for Continental bank is reported as a current liability. It cannot be
offset against the other banks’ cash account. However, the overdraft could be offset if
the company had another cash account with Continental bank.
A company has the following items at year-end:
cash in bank: $30,000
petty cash: $500
short-term paper with maturity of two months: $7,000
postdated checks: $2,000
What amount should be reported as cash and cash equivalents in the balance
sheet?
$37,500 = $30,000 + $500 + $7,000
Accounting Rule: Cash is coin, currency, bank deposits including checking and savings
accounts, and negotiable instruments such as money orders, cashiers’ checks, personal
checks, and bank drafts. Petty cash funds and change funds are also cash.
Cash equivalents is treasury bills, commercial paper, money market funds, money
market savings certificates, certificates of deposit, and similar types of deposits with
liquidity of less than 3 months. (Note: 3 months is interpreted to mean 90 days or less.)
Postdated checks are reported as receivables.
,A company issues a $7,000, noninterest-bearing note for the sale of inventory.
The market rate at the time of the sale is of 8%. The note is due in full at the end
of three years. Assuming an annual interest rate of 8% for three years is
appropriate, the present value of the principal is $7,000 × 0.79383 = $5,557.
Assuming an annual interest rate of 8% for eight years is appropriate, the present
value of the principal is $7,000 × 0.78941 = $5,527.
What is the journal entry to record this sale?
Debit notes receivable for $7,000; credit revenue for $5,557; credit discount on notes
receivable for $1,443.
Accounting Rule: A noninterest-bearing note is a note with no stated interest rate on its
face. The interest is implied in the face value of the note. The note is issued for a lessor
amount than its face value, and cash or sales revenue is credited for this amount. The
face value of the note at maturity includes both principal and interest. Hence, the note
receivable is always debited for is face value. Account for problems like this as the
present value of a single sum.
A company issues a $4,000, four-year, zero-interest-bearing note for the sale of
inventory. Assuming an annual interest rate of 4% for four years is appropriate,
the present value of the principal is $4,000 × 0.85480 = $3,419.
What is the journal entry to record this sale?
Debit notes receivable for $4,000; credit revenue for $3,419; credit discount on notes
receivable for $581.
Accounting Rule: A noninterest-bearing note is a note with no stated interest rate on its
face. The interest is implied in the face value of the note. The note is issued for a lessor
amount than its face value, and cash or sales revenue is credited for this amount. The
face value of the note at maturity includes both principal and interest. Hence, the note
receivable is always debited for is face value. Account for problems like this as the
present value of a single sum.
A company sold goods in exchange for a $5,000, two-year, zero-interest-bearing
note. The note is issued to a high-risk customer and the market rate for a note of
similar risk is 7%. Assuming an annual interest rate of 7% for two years is
appropriate, the present value of the principal is $5,000 × 0.87344 = $4,367.
What is the journal entry to record this sale?
,How many days does it take the company to collect its accounts receivable,
rounded to the nearest one decimal place?
156.6 days = (365 / ($1,340,000 / (($500,000 + $650,000) / 2)))
Accounting Rule: The days to collect accounts receivable is also known as the average
collection period and measures the number of days on average it takes to collect
accounts receivable during the period. Companies frequently use the average collection
period, also known as days’ outstanding, to assess the effectiveness of a company’s
credit and collection policies.
A company wants to assess the effectiveness of a company's credit and
collection policies.
What ratio should it use?
Days to collect accounts receivable.
Accounting Rule: The days to collect accounts receivable is also known as the average
collection period and measures the number of days on average it takes to collect
accounts receivable during the period. Companies frequently use the average collection
period, also known as days’ outstanding, to assess the effectiveness of a company’s
credit and collection policies.
A company has current year sales of $500,000, net accounts receivable of
$35,000, and prior year net accounts receivable of $43,000.
What is the average number of days to collect receivables, rounded to the nearest
one decimal place?
28.5 = 365 / ($500,000 / (($35,000 + $43,000) / 2))
Accounting Rule: The days to collect accounts receivable is also known as the average
collection period and measures the number of days on average it takes to collect
accounts receivable during the period. Companies frequently use the average collection
period, also known as days’ outstanding, to assess the effectiveness of a company’s
credit and collection policies.
A company has current year sales of $200,000, net accounts receivable of
$30,000, and prior year net accounts receivable of $50,000.
,Accounting Rule: Accounting Rule: The journal entry to record uncollectible accounts
receivable using the allowance method is debit bad debt expense and credit allowance
for doubtful accounts.
What is the journal entry when writing-off an account as uncollectible under the
allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
Accounting Rule: The journal entry to record the write-off of an uncollectible account
using the allowance method is debit allowance for doubtful accounts and credit
accounts receivable. The allowance for doubtful accounts is a contra asset account to
the accounts receivable account with a credit balance.
Which of the following is included in the journal entry to record the collection of
accounts receivable previously written off when using the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
Accounting Rule: Two entries are needed. First, an entry is needed to reverse the write-
off of the account receivable and restore it, debit accounts receivable, credit allowance
for doubtful accounts. Second, an entry is needed to record collection of the account,
debit cash, credit accounts receivable.
As of December 31, a company has an uncollectible account of $10,000. The
accountant uses the direct write-off method to account for bad debts.
What is the journal entry for the write off of the account?
Debit bad debt expense; credit accounts receivable.
Accounting Rule: The direct write-off method is simple and convenient to apply, debit
bad debt expense and credit accounts receivable. However, this method does not
provide for the matching of expenses with current revenues and does not report
,What is the cost of goods sold (COGS) and the value of ending inventory for
October?
$4,975 = COGS: (350 x $8.50) + (250 x $8.00). Ending Inventory: $8,225 = (200 x $7) +
((500 -250) x 8) + ((600 - 350) x $8.5) + (300 x $9)
Accounting Rule: The specific identification inventory valuation method tracks every
single item in an inventory individually from the time it enters the inventory until the time
it leaves it. This inventory method is suitable for companies with expensive, easily
distinguishable low-volume merchandise such as jewelry, fur coats, automobiles, unique
furniture, special manufactured made products.
A company that used the periodic inventory system overstated its beginning
inventory but correctly stated its ending inventory.
What will be the effect of this error on the financial statements at the end of the
period?
The cost of goods sold will be overstated and gross profit/net income will be
understated. The ending inventory on the balance sheet is correct according to the
facts.
Accounting Rule: Inventory errors come in two forms: understatements or
overstatements.
Beginning inventory errors affect only the income statement because cost of goods sold
is calculated using beginning inventory + purchases – ending inventory.
Ending inventory errors affect both the income statement and the balance sheet and will
affect two periods because 1) the ending inventory of one period will become the
beginning inventory for the following period, and 2) the calculation of the cost of goods
sold is beginning inventory + purchases – ending inventory.
As shown in the table below, errors in calculating beginning inventory have
a direct effect on cost of goods sold and inverse effect on gross profit and net income.
On the other hand, errors in calculating ending inventory have an inverse effect on
cost of goods sold and a direct effect on gross profit and net income. Errors in
purchases have the same effect as errors in beginning inventory, that is a direct effect
on cost of goods sold and inverse effect on gross profit and net income
company did not record the credit purchases of inventory and did not include this
item in the ending inventory balance.
,c. cost of goods available for sale of $70,000.
Accounting Rule: Beginning inventory plus purchases equals goods available for sale.
Cost of sales and cost of goods sold mean the same thing and are used
interchangeably.
Make sure you know the following formula
Beginning Inventory
(+) Net Purchases1
(=) Goods Available for Sale
(-) Ending Inventory
(=) Cost of Goods Sold
1 Net Purchases = Purchases + Freight In- Purchase Discounts – Purchase Returns
and Allowances
The ending inventory of a merchandiser is $50,000. The beginning inventory was
$200,000.
If the income statement for the year reported cost of goods sold of $350,000, how
much were purchases during the year?
200,000+P=350,000+50,000, and thus P=$200,000
Accounting Rule: Purchases is calculated as beginning inventory minus ending
inventory plus cost of goods sold.
Make sure you know the following formula
Beginning Inventory
(+) Net Purchases1
(=) Goods Available for Sale
(-) Ending Inventory
(=) Cost of Goods Sold
, What are the journal entries to record the purchase and the payment using the
net method?
Jan 10 debit purchases for $4,950; credit accounts payable for $4,950
Jan 18 debit accounts payable for $4,950; credit cash for $4,950
Accounting Rule: The net method records the purchase net of the cash discount. In
other words, the net method assumes that the customer will take advantage of the cash
or early payment discount.
A company purchased dresses on July 17th and received an invoice with a list
price amount of $6,000 and payment terms of 2/10, n/30. The company uses the
net method to record purchases. The company should record the purchase at
a. $5,940.
b. $5,880.
c. $6,000.
d. $6,120.
b. $5,880.
$5,880 = $6,000 - ($6,000 x 2%)
The following information is available for a company that uses a perpetual
inventory system:
October 1: Beginning inventory consisted of 300 units at a cost of $5 each.
October 5: 200 units were sold for $12 each.
October 15: 250 units were purchased at a cost of $6 each.
October 21: 75 units were purchased at a cost of $7 each.
October 25: 150 units were sold for $15 each.
What is the cost of goods sold and ending inventory using the last-in, first-out
(LIFO) method?
$1,975 = COGS: (75 x $7) + (75 x $6) + (200 x $5).
$1,550 = Ending Inventory: (175 x $6) + (100 x $5)
Accounting Rule: LIFO is the acronym for last-in, first-out, which is a cost flow
assumption. Under LIFO, the most recent costs of products purchased (or
manufactured) are the first costs to be removed from inventory and matched with the
