Accounting Practice Questions: Chapters 1-3 with
verified answers
Abbott Company purchased $7,500 of merchandise inventory on account. Advent
uses the perpetual inventory method. How does this transaction affect the
financial statements? Ans✓✓✓ Increase inventory and increase accounts
payable.
When the perpetual system is used, the purchase of inventory on account
increases inventory and increases accounts payable.
Addison Company experienced an accounting event that affected its financial
statements as indicated below:
Assets (+) = Liability (NA) + Equity (+)
Revenue (+) - Expenses (NA) = Net Income (+)
Cash Flow (NA)
Which of the following accounting events could have caused these effects on
Addison's statements? Ans✓✓✓ Earned revenue on account.
Explanation: Earning revenue on account increases assets (accounts receivable)
and increases revenue, which increases net income and equity (retained
earnings). It does not affect cash flows.
,Assume the perpetual inventory method is used.
1) Green Company purchased merchandise inventory that cost $16,600 under
terms of 2/10, n/30 and FOB shipping point.
2) The company paid freight cost of $660 to have the merchandise delivered.
3) Payment was made to the supplier within 10 days.
4) All of the merchandise was sold to customers for $24,700 cash and delivered
under terms FOB shipping point with freight cost amounting to $460.
The gross margin from these transactions of Green Company is Ans✓✓✓ $7,772.
$24,700 Sales - [($16,600 × 0.98) + $660] Cost of goods sold = $7,772 Gross
margin
Assume the perpetual inventory method is used.
1) Green Company purchased merchandise inventory that cost $16,600 under
terms of 2/10, n/30 and FOB shipping point.
2) The company paid freight cost of $660 to have the merchandise delivered.
3) Payment was made to the supplier within 10 days.
4) All of the merchandise was sold to customers for $24,700 cash and delivered
under terms FOB shipping point with freight cost amounting to $460.
The gross margin from these transactions of Green Company is Ans✓✓✓ $7,772.
, Explanation: $24,700 Sales - [($16,600 × 0.98) + $660] Cost of goods sold = $7,772
Gross margin
Assume the perpetual inventory method is used.
1) The company purchased $12,100 of merchandise on account under terms 3/10,
n/30.
2) The company returned $1,600 of merchandise to the supplier before payment
was made.
3) The liability was paid within the discount period.
4) All of the merchandise purchased was sold for $18,200 cash.
The net cash flow from operating activities as a result of the four transactions is:
Ans✓✓✓ $8,015.
Explanation: Cash outflow for inventory purchase: ($12,100 - $1,600) × 0.97 =
$10,185
Cash inflow from inventory sale: $18,200
Net cash flow = $18,200 - $10,185 = $8,015
Assume the perpetual inventory method is used.
1) The company purchased $12,200 of merchandise on account under terms 2/10,
n/30.
verified answers
Abbott Company purchased $7,500 of merchandise inventory on account. Advent
uses the perpetual inventory method. How does this transaction affect the
financial statements? Ans✓✓✓ Increase inventory and increase accounts
payable.
When the perpetual system is used, the purchase of inventory on account
increases inventory and increases accounts payable.
Addison Company experienced an accounting event that affected its financial
statements as indicated below:
Assets (+) = Liability (NA) + Equity (+)
Revenue (+) - Expenses (NA) = Net Income (+)
Cash Flow (NA)
Which of the following accounting events could have caused these effects on
Addison's statements? Ans✓✓✓ Earned revenue on account.
Explanation: Earning revenue on account increases assets (accounts receivable)
and increases revenue, which increases net income and equity (retained
earnings). It does not affect cash flows.
,Assume the perpetual inventory method is used.
1) Green Company purchased merchandise inventory that cost $16,600 under
terms of 2/10, n/30 and FOB shipping point.
2) The company paid freight cost of $660 to have the merchandise delivered.
3) Payment was made to the supplier within 10 days.
4) All of the merchandise was sold to customers for $24,700 cash and delivered
under terms FOB shipping point with freight cost amounting to $460.
The gross margin from these transactions of Green Company is Ans✓✓✓ $7,772.
$24,700 Sales - [($16,600 × 0.98) + $660] Cost of goods sold = $7,772 Gross
margin
Assume the perpetual inventory method is used.
1) Green Company purchased merchandise inventory that cost $16,600 under
terms of 2/10, n/30 and FOB shipping point.
2) The company paid freight cost of $660 to have the merchandise delivered.
3) Payment was made to the supplier within 10 days.
4) All of the merchandise was sold to customers for $24,700 cash and delivered
under terms FOB shipping point with freight cost amounting to $460.
The gross margin from these transactions of Green Company is Ans✓✓✓ $7,772.
, Explanation: $24,700 Sales - [($16,600 × 0.98) + $660] Cost of goods sold = $7,772
Gross margin
Assume the perpetual inventory method is used.
1) The company purchased $12,100 of merchandise on account under terms 3/10,
n/30.
2) The company returned $1,600 of merchandise to the supplier before payment
was made.
3) The liability was paid within the discount period.
4) All of the merchandise purchased was sold for $18,200 cash.
The net cash flow from operating activities as a result of the four transactions is:
Ans✓✓✓ $8,015.
Explanation: Cash outflow for inventory purchase: ($12,100 - $1,600) × 0.97 =
$10,185
Cash inflow from inventory sale: $18,200
Net cash flow = $18,200 - $10,185 = $8,015
Assume the perpetual inventory method is used.
1) The company purchased $12,200 of merchandise on account under terms 2/10,
n/30.
