ACG STUDY GUIDE 2025/2026 QUESTIONS AND
SOLUTION RATED A+
✔✔Marsh Company uses the perpetual inventory system. Which of the following
transactions neither increases nor decreases its inventory account?
Marsh paid freight costs to ship goods from its supplier to Marsh.
Marsh purchased of merchandise on account
All of these transactions either increase or decrease Marsh's inventory account.
Marsh paid freight costs to ship goods from Marsh to a customer.
Marsh returned inventory to the supplier that Marsh has purchased for cash. -
✔✔Marsh paid freight costs to ship goods from Marsh to a customer.
In a perpetual inventory system, companies record increases to inventory when they
buy it and when customers return it, and they record decreases to inventory when they
sell it. Paying freight charges to acquire inventory is part of the cost of buying inventory.
However, the entry to record the payment of freight costs to ship goods to a customer
decrease cash and increase freight out (i.e., delivery expense); it does not affect the
inventory account. Similarly, when a grants a customer an allowance by reducing the
purchasing price it does not affect the inventory account because sales allowances
increase the Sales Returns and Allowances account (debit it) and decreases accounts
receivable (credit it).
✔✔Helix Company purchased merchandise with an invoice price of $2,000 and credit
terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate
inherent in the credit terms?
18%
54%
36%
3%
6% - ✔✔54%
The company buying merchandise can wait 10 days and still receive a 3% discount.
Otherwise, it can wait an additional 20 days and pay the full invoice amount without
being overdue. In other words, a 20-day difference produces 3% interest. An interest
rate of 3% in 20 days is equivalent to an interest rate of 54% in 360 days (i.e., 3% x
360/20).
Alternatively:
The company must pay the invoice no later than 30 days after the sale. If it pays no
later than 10 days after the invoice date, the company gets a 3% discount (i.e., 3% x
$2,000 = $60). So, the company can save $60 if it pays 20 days before the due date.
Interest = Principal x Interest rate x Time
$60 = $2,000 x Interest rate x (30-10)/360
Solving for the interest rate:
Interest rate = [360/(30-10)] x $60/$2,000 = 0.54 (i.e., 54%)
✔✔Financial information for Edwards Incorporated is presented below:
,Operating expenses $ 35,000
Sales returns and allowances 12,000
Sales discounts 3,000
Sales revenue 140,000
Cost of goods sold 85,000
What is the company's net sales?
$128,000
$40,000
$125,000
$137,000
$140,000 - ✔✔125
Net sales = Sales - Sales returns & allowances - Sales discounts
Net sales = $140,000 - 12,000 - 3,000 = $125,000
✔✔Manning Corporation uses the perpetual inventory system. Manning Corporation
purchased merchandise on account for $15,000 with terms 1/15, n/30. Manning
Corporation pays a shipping company $250 to transport the merchandise from the seller
to Manning Corporation. How would Manning Corporation record its payment of the
transportation charges?
Debit freight-out for $250; credit cash for $250.
Debit inventory for $250; credit purchases for $250.
Debit freight-in for $250; credit cash for $250.
Debit purchases for $250; credit cash for $250.
Debit inventory for $250; credit cash for $250. - ✔✔Debit inventory for $250; credit
cash for $250.
The company purchasing merchandise uses the perpetual inventory system. When it
purchases inventory and must pay shipping charges (i.e., FOB shipping point), it should
debit the inventory account for the transportation charges. Since shipping is paid, cash
must be credited.
✔✔Gross profit appears
on a multiple-step income statement but not on a single-step income statement.
on a single-step income statement but not on a multi-step income statement.
none of these are true.
on neither single-step income statements nor multi-step income statements.
, on both single-step income statements and multi-step income statements. - ✔✔on a
multiple-step income statement but not on a single-step income statement.
Solution:
Multi-step income statements report the following: Revenues minus cost of goods sold
equals gross profit, and gross profit minus operating expenses (e.g., salaries & wages,
advertising, utilities, depreciation, freight-out, insurance) equals income from operations,
and income from operations. This is followed by other revenues and expenses (e.g.,
interest revenue, interest expense, gain from sales of plant assets, losses from sales of
plant assets) which equals income before income taxes, and income before income
taxes minus income taxes equals net income.
✔✔Sampson Company's accounting records show the following account balances:
Sales $ 600,000
Purchases 355,000
Beginning Inventory 23,000
Ending Inventory 28,000
Purchase Returns and Allowances 3,000
Using the periodic system, the cost of goods sold is
$357,000.
$253,000.
$375,000.
$347,000.
$352,000. - ✔✔347
Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances
- purchase discounts - ending inventory
Cost of goods sold = 23,000 + 355,000 - 3,000 - 0 - 28,000 = 347,000
Chapter 5, Learning objective 5, Pool 1
✔✔Indicate which one of the following would not likely appear on both a multi-step
income statement and a single-step income statement.
Net income
Cost of goods sold
All of these would appear on both types of income statement
Gross profit
None of these would appear on both types of income statement - ✔✔Gross profit
SOLUTION RATED A+
✔✔Marsh Company uses the perpetual inventory system. Which of the following
transactions neither increases nor decreases its inventory account?
Marsh paid freight costs to ship goods from its supplier to Marsh.
Marsh purchased of merchandise on account
All of these transactions either increase or decrease Marsh's inventory account.
Marsh paid freight costs to ship goods from Marsh to a customer.
Marsh returned inventory to the supplier that Marsh has purchased for cash. -
✔✔Marsh paid freight costs to ship goods from Marsh to a customer.
In a perpetual inventory system, companies record increases to inventory when they
buy it and when customers return it, and they record decreases to inventory when they
sell it. Paying freight charges to acquire inventory is part of the cost of buying inventory.
However, the entry to record the payment of freight costs to ship goods to a customer
decrease cash and increase freight out (i.e., delivery expense); it does not affect the
inventory account. Similarly, when a grants a customer an allowance by reducing the
purchasing price it does not affect the inventory account because sales allowances
increase the Sales Returns and Allowances account (debit it) and decreases accounts
receivable (credit it).
✔✔Helix Company purchased merchandise with an invoice price of $2,000 and credit
terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate
inherent in the credit terms?
18%
54%
36%
3%
6% - ✔✔54%
The company buying merchandise can wait 10 days and still receive a 3% discount.
Otherwise, it can wait an additional 20 days and pay the full invoice amount without
being overdue. In other words, a 20-day difference produces 3% interest. An interest
rate of 3% in 20 days is equivalent to an interest rate of 54% in 360 days (i.e., 3% x
360/20).
Alternatively:
The company must pay the invoice no later than 30 days after the sale. If it pays no
later than 10 days after the invoice date, the company gets a 3% discount (i.e., 3% x
$2,000 = $60). So, the company can save $60 if it pays 20 days before the due date.
Interest = Principal x Interest rate x Time
$60 = $2,000 x Interest rate x (30-10)/360
Solving for the interest rate:
Interest rate = [360/(30-10)] x $60/$2,000 = 0.54 (i.e., 54%)
✔✔Financial information for Edwards Incorporated is presented below:
,Operating expenses $ 35,000
Sales returns and allowances 12,000
Sales discounts 3,000
Sales revenue 140,000
Cost of goods sold 85,000
What is the company's net sales?
$128,000
$40,000
$125,000
$137,000
$140,000 - ✔✔125
Net sales = Sales - Sales returns & allowances - Sales discounts
Net sales = $140,000 - 12,000 - 3,000 = $125,000
✔✔Manning Corporation uses the perpetual inventory system. Manning Corporation
purchased merchandise on account for $15,000 with terms 1/15, n/30. Manning
Corporation pays a shipping company $250 to transport the merchandise from the seller
to Manning Corporation. How would Manning Corporation record its payment of the
transportation charges?
Debit freight-out for $250; credit cash for $250.
Debit inventory for $250; credit purchases for $250.
Debit freight-in for $250; credit cash for $250.
Debit purchases for $250; credit cash for $250.
Debit inventory for $250; credit cash for $250. - ✔✔Debit inventory for $250; credit
cash for $250.
The company purchasing merchandise uses the perpetual inventory system. When it
purchases inventory and must pay shipping charges (i.e., FOB shipping point), it should
debit the inventory account for the transportation charges. Since shipping is paid, cash
must be credited.
✔✔Gross profit appears
on a multiple-step income statement but not on a single-step income statement.
on a single-step income statement but not on a multi-step income statement.
none of these are true.
on neither single-step income statements nor multi-step income statements.
, on both single-step income statements and multi-step income statements. - ✔✔on a
multiple-step income statement but not on a single-step income statement.
Solution:
Multi-step income statements report the following: Revenues minus cost of goods sold
equals gross profit, and gross profit minus operating expenses (e.g., salaries & wages,
advertising, utilities, depreciation, freight-out, insurance) equals income from operations,
and income from operations. This is followed by other revenues and expenses (e.g.,
interest revenue, interest expense, gain from sales of plant assets, losses from sales of
plant assets) which equals income before income taxes, and income before income
taxes minus income taxes equals net income.
✔✔Sampson Company's accounting records show the following account balances:
Sales $ 600,000
Purchases 355,000
Beginning Inventory 23,000
Ending Inventory 28,000
Purchase Returns and Allowances 3,000
Using the periodic system, the cost of goods sold is
$357,000.
$253,000.
$375,000.
$347,000.
$352,000. - ✔✔347
Cost of goods sold = Beginning inventory + purchases - purchase returns & allowances
- purchase discounts - ending inventory
Cost of goods sold = 23,000 + 355,000 - 3,000 - 0 - 28,000 = 347,000
Chapter 5, Learning objective 5, Pool 1
✔✔Indicate which one of the following would not likely appear on both a multi-step
income statement and a single-step income statement.
Net income
Cost of goods sold
All of these would appear on both types of income statement
Gross profit
None of these would appear on both types of income statement - ✔✔Gross profit
