MBA 510 MIDTERM EXAMS ANSWERS AND
QUESTIONS SET A+
✔✔This is the time span from when cash is used to perform goods and services to
when cash is received from the goods and services - ✔✔Operating cycle
✔✔This type of item is due collected or owed within 1 year or the companies operating
cycle, whichever is longer - ✔✔Current items
✔✔This type of item is due collected or owed after 1 year or the companies operating
cycle, whichever is longer - ✔✔Non-current items
✔✔What are long term investments? - ✔✔Notes receivable, investments in stocks or
bonds, land held for expansion
✔✔What are long term liabilities? - ✔✔Mortgage, bond, notes, and leases payable
✔✔This consists of products (goods) that a company buys to resell to customers -
✔✔Merchandise
✔✔What is the equation of net income for a service company? - ✔✔Revenues -
Expenses
✔✔What is the equation of net income for a merchandiser? - ✔✔Net sales - cost of
merchandise sold = Gross profit - expenses
✔✔These are costs of assets that include cost of goods, shipping costs, and costs to
prepare for sale - ✔✔Inventory
✔✔This is reported on the B/S under current assets and once it is sold, the costs are
removed from the B/S and reported as COGS in the I/S - ✔✔Inventory
, ✔✔This shortens the operating cycles of merchandisers with credit sales and this is the
goal - ✔✔Cash sales
✔✔This is the largest single expense on the merchandiser I/S - ✔✔COGS
✔✔Merchandise available for sale equation is? - ✔✔Beginning inventory + Net
purchases
✔✔These are used to collect info on COGS and cost of inventory - ✔✔Inventory
systems
✔✔This type of inventory system updates accounting records for each purchase and
sale of inventory (specifically for inventory available for sale and inventory sold) -
✔✔Perpetual inventory system
✔✔This type of inventory system updates accounting records for purchases and sales
of inventory ONLY at the end of the period - ✔✔Periodic inventory system
✔✔Cost of good available for sale equation is? - ✔✔COGAS = Beginning inventory -
Net Purchases
✔✔COGS equation is? - ✔✔COGS = COGAS - Ending inventory
✔✔Gross profit equation is? - ✔✔GP = Net sales - COGS
✔✔Invoice sales support the journal entry of what? - ✔✔Merchandise
✔✔This includes amounts of timing of payments and is divided in credit periods -
✔✔Credit terms
✔✔This credit period requires payment within 30 days after invoice date - ✔✔n/30
✔✔This credit period requires payment within 10 days after end of the month and the
invoice is dated - ✔✔n/10, EOM
✔✔This credit period is when a buyer can deduct 2% of invoice if payment is made
within 10 days, but must be done within the invoice period or the payment is due within
30 days - ✔✔2/10, n/30
✔✔What is the equation of the amount of cash the buyer must pay? - ✔✔Invoice
amount
LESS: Returns and allowances (if any)
= Amount due (if discount not taken)
QUESTIONS SET A+
✔✔This is the time span from when cash is used to perform goods and services to
when cash is received from the goods and services - ✔✔Operating cycle
✔✔This type of item is due collected or owed within 1 year or the companies operating
cycle, whichever is longer - ✔✔Current items
✔✔This type of item is due collected or owed after 1 year or the companies operating
cycle, whichever is longer - ✔✔Non-current items
✔✔What are long term investments? - ✔✔Notes receivable, investments in stocks or
bonds, land held for expansion
✔✔What are long term liabilities? - ✔✔Mortgage, bond, notes, and leases payable
✔✔This consists of products (goods) that a company buys to resell to customers -
✔✔Merchandise
✔✔What is the equation of net income for a service company? - ✔✔Revenues -
Expenses
✔✔What is the equation of net income for a merchandiser? - ✔✔Net sales - cost of
merchandise sold = Gross profit - expenses
✔✔These are costs of assets that include cost of goods, shipping costs, and costs to
prepare for sale - ✔✔Inventory
✔✔This is reported on the B/S under current assets and once it is sold, the costs are
removed from the B/S and reported as COGS in the I/S - ✔✔Inventory
, ✔✔This shortens the operating cycles of merchandisers with credit sales and this is the
goal - ✔✔Cash sales
✔✔This is the largest single expense on the merchandiser I/S - ✔✔COGS
✔✔Merchandise available for sale equation is? - ✔✔Beginning inventory + Net
purchases
✔✔These are used to collect info on COGS and cost of inventory - ✔✔Inventory
systems
✔✔This type of inventory system updates accounting records for each purchase and
sale of inventory (specifically for inventory available for sale and inventory sold) -
✔✔Perpetual inventory system
✔✔This type of inventory system updates accounting records for purchases and sales
of inventory ONLY at the end of the period - ✔✔Periodic inventory system
✔✔Cost of good available for sale equation is? - ✔✔COGAS = Beginning inventory -
Net Purchases
✔✔COGS equation is? - ✔✔COGS = COGAS - Ending inventory
✔✔Gross profit equation is? - ✔✔GP = Net sales - COGS
✔✔Invoice sales support the journal entry of what? - ✔✔Merchandise
✔✔This includes amounts of timing of payments and is divided in credit periods -
✔✔Credit terms
✔✔This credit period requires payment within 30 days after invoice date - ✔✔n/30
✔✔This credit period requires payment within 10 days after end of the month and the
invoice is dated - ✔✔n/10, EOM
✔✔This credit period is when a buyer can deduct 2% of invoice if payment is made
within 10 days, but must be done within the invoice period or the payment is due within
30 days - ✔✔2/10, n/30
✔✔What is the equation of the amount of cash the buyer must pay? - ✔✔Invoice
amount
LESS: Returns and allowances (if any)
= Amount due (if discount not taken)
