ACG 2021 Paterson Exam 2 And Exam
2 Review Questions and All Actual
Answers.
Conservation Principle - Answer firms should NOT overstate assets and revenues or
understate liabilities and expenses
Lower of Cost or Market Principle - Answer Inventory should be valued at the lower of
replacement cost or market value
Gross Profit/Gross Margin - Answer = Net Sales Rev - Cost of Goods Sold
Contra Revenue - Answer -pulling value away from your revenue
-
Net Income - Answer = GP - operating expenses
Gross Profit Rate - Answer = Gross Profit / Net Sales
Profit Margin Ratio - Answer = Net Income / Net Sales
Perpetual Inventory System (Def.) - Answer COGS expense is recognized and the inventory
account is adjusted whenever a sale occurs
Perpetual Inventory System (Entry for Seller's POV and Buyer's Only POV) - Answer 1.Sales/
Rev
- Cash or A/R
- Revenue
2. Expense
-COGS Exp
- Inventory
, Periodic Inventory System (Def.) - Answer the COGS expense is determined at the end of the
accounting period based on a physical count of ending inventory (rather than each sale).
Periodic Method (Equation) - Answer = Beg. Inventory
+ Net Purchases
------------------------
Goods Avail. For Purchase
- Ending Inventory
----------------------
COGS
Sales Discount Expression - Answer Ex: 25/20 n/30....
-means there is a 25% discount if paid within 10 days.
- The net amount is due within 30 days
How do you record the journal entry for a sales return/allowance? (from the perpetual method
for the Seller's POV) part 2 - Answer 1. Reverse the Rev
-Sales Returns XXX
-Cash/ A/R XXX
2. Reverse the Expense
-Inventory XXX
-COGS Expense XXX
Merchandise Inventory Purchase (Entry) - Answer -Inventory XXX
-Cash/ AP XXX
Purchase Return or Allowance (Entry)
buyers perspective - Answer - Cash/ AP XXX
-Inventory XXX
LIFO Conformity Rule (assuming prices are rising) - Answer - if a company uses LIFO for
income tax purposes, they must use LIFO for making financial statements
Note: there is no FIFO conformity rule - Answer
2 Review Questions and All Actual
Answers.
Conservation Principle - Answer firms should NOT overstate assets and revenues or
understate liabilities and expenses
Lower of Cost or Market Principle - Answer Inventory should be valued at the lower of
replacement cost or market value
Gross Profit/Gross Margin - Answer = Net Sales Rev - Cost of Goods Sold
Contra Revenue - Answer -pulling value away from your revenue
-
Net Income - Answer = GP - operating expenses
Gross Profit Rate - Answer = Gross Profit / Net Sales
Profit Margin Ratio - Answer = Net Income / Net Sales
Perpetual Inventory System (Def.) - Answer COGS expense is recognized and the inventory
account is adjusted whenever a sale occurs
Perpetual Inventory System (Entry for Seller's POV and Buyer's Only POV) - Answer 1.Sales/
Rev
- Cash or A/R
- Revenue
2. Expense
-COGS Exp
- Inventory
, Periodic Inventory System (Def.) - Answer the COGS expense is determined at the end of the
accounting period based on a physical count of ending inventory (rather than each sale).
Periodic Method (Equation) - Answer = Beg. Inventory
+ Net Purchases
------------------------
Goods Avail. For Purchase
- Ending Inventory
----------------------
COGS
Sales Discount Expression - Answer Ex: 25/20 n/30....
-means there is a 25% discount if paid within 10 days.
- The net amount is due within 30 days
How do you record the journal entry for a sales return/allowance? (from the perpetual method
for the Seller's POV) part 2 - Answer 1. Reverse the Rev
-Sales Returns XXX
-Cash/ A/R XXX
2. Reverse the Expense
-Inventory XXX
-COGS Expense XXX
Merchandise Inventory Purchase (Entry) - Answer -Inventory XXX
-Cash/ AP XXX
Purchase Return or Allowance (Entry)
buyers perspective - Answer - Cash/ AP XXX
-Inventory XXX
LIFO Conformity Rule (assuming prices are rising) - Answer - if a company uses LIFO for
income tax purposes, they must use LIFO for making financial statements
Note: there is no FIFO conformity rule - Answer
