Introduction to Inventories Practice Problems

Complete the practice problems. Check your answers after you finish.

Self-test

Self-test - Answers

True-false

1. False. Sales discounts, as well as sales returns and allowances, are deducted from gross sales.

2. True. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each purchase and credited for each sale.

3. True. Purchase Discounts and Purchase Returns and Allowances are contra accounts to the Purchases account. The balances of those accounts are deducted from purchases to arrive at net purchases.

4. False. Consigned goods delivered to another party for attempted sale are included in the ending inventory of the company that sent the goods.

5. False. An unclassified income statement, not a classified income statement, has only two categories of items.


Multiple-choice

1. d. Trade discounts are not recorded on the books of either a buyer or a seller. In other words, the

invoice price of sales (purchases) is recorded: USD4,000X0.8=USD3,200

2. b. The cost of goods sold is computed as follows:

Beginning inventory

$60,000

Net cost of purchases

240,000

Cost of goods available for sale

$300,000

Ending inventory

72,000

Cost of goods sold

$228,000

 

3. b. Purchase discounts are based on invoice prices less purchase returns and allowances, if any.

4. e. All of the sections mentioned in (a-d) appear in a classified income statement. Current assets appear on a classified balance sheet.

5. b. Merchandise Inventory is debited for the cost of ending inventory.

You may close debit balanced accounts (in the income statement) before credit balanced accounts. This practice does not affect the balance of the Income Summary account or the amount of net income.