Chapter 4

Which is not an example of a product cost?

• Cost of goods purchased for resale.

• Commissions paid on goods sold last month.

• Transit insurance on the goods purchased for resale.

• Freight on goods purchased for resale.

On August 1, Argon Company purchased merchandise inventory on account with a list price of $50,000 and credit terms of 2/10, n/30. Which of the following is the correct journal entry to record the August 1 purchase?

On March 1, Monterrey Company purchased merchandise inventory on account with a list price of $20,000 and credit terms of 2/10, n/30. On August 4 (before the invoice was paid), Monterrey Company returned some of the inventory. The list price of the returned merchandise was $2,500. Which of the following is the correct general journal entry to record the payment of the invoice assuming that Monterrey Company pays the amount due within the discount period?

Markham Company incurred $200 of freight costs on inventory sold and shipped to customers FOB destination. Which of the following is an effect on Markham Company’s financial statements?

• Gross margin decreased by $200.

• Sales revenue decreased by $200.

• Net income decreased by $200.

• Both “a” and “c” are correct statements.

Yowell Company had the following transactions during March 2016:

• Purchased merchandise inventory of $12,500 from Rochester Company with freight terms FOB destination.
• Freight costs on the Rochester Company purchase were $400.
• Purchased merchandise inventory of $21,500 from Trenton Company with freight terms FOB shipping point.
• Freight costs on the Trenton Company purchase were $600.

What is the total amount Yowell Company recorded to the Merchandise Inventory account as a result of these transactions?

• $34,000

• $34,400

• $34,600

• $35,000

Eller Company sold inventory that cost $22,500 for $48,000 cash. Which of the following is the correct journal entry to record this sale?

In 2016, Merritt Company purchased land for $60,000 to use as a future site for its new office building. At the end of 2016, the land was worth $67,500. The company decided not to build the new office and sold the land for $66,000 cash in 2017. How does Merritt Company’s sale of the land affect its 2017 income statement?

• Decrease in gross margin of $1,500.

• Increase in gross margin of $6,000.

• Gain on the sale of land $6,000.

• Loss on the sale of land $1,500.

In 2016, Chavez Company purchased land for $120,000 to use as a future site for its new office building. At the end of 2016, the land was worth $135,000. The company decided not to build the new office and sold the land for $132,000 cash in 2017. How does Chavez Company’s sale of land affect its 2017 statement of cash flows?

• $132,000 cash inflow from operating activities.

• $132,000 cash inflow from investing activities.

• $132,000 cash inflow from financing activities.

• $120,000 cash inflow from investing activities and $12,000 cash inflow from operating activities.

Dayton Company maintains perpetual inventory records. Dayton determined through a physical count that it had $20,600 of merchandise inventory on hand at the end of the accounting period. The balance in the Merchandise Inventory account was $21,400. The impact of the adjusting entry on the financial statements is

• Merchandise inventory increased $800.

• Gross margin increased $800.

• Cost of goods sold increased $800.

• No adjusting entry was necessary.

Mitchum Corporation sold merchandise on account with a list price of $36,000 and a cost of $20,000. Payment terms were 1/10, n/30. Mitchum shipped the goods FOB destination and paid $1,200 in freight costs. Prior to payment of the invoice, the customer returned merchandise with a list price of $3,600 and a $2,000 cost. The customer paid the amount due within the discount period. What is Mitchum Corporation’s net sales amount as a result of these transactions?

• $30,876

• $32,076

• $34,440

• $35,640