Which one of the following statements is incorrect (false) with respect to prope

Question

Which one of the following statements is incorrect (false) with respect to proper financial statement presentation for a merchandise firm?

a) On the balance sheet, inventory is shown in the "current asset" section.
b) That a company uses a perpetual inventory systems, uses the LIFO cost flow method, and values inventory at month-end at lower-of-cost-or-market (i.e., the GAAP the company is following with respect to inventory) would normally be presented in "Note 1" or "Note 2" to the financial statements."
c) On the statement of cash flows, purchases and sales of inventory are included in the "investing activities" section.
d) On a multiple step income statement, the second line is normally "COGS."


2. On January 28 Wild's Flowers purchased from a supplier 30 vases for $10 each ($300) and also paid $30 of freight under terms 2/10, n/30, FOB shipping point. The vases will be sold at its new flower shop. No other vases were in stock. Wild's Flowers uses a perpetual inventory system and prepares month financial statements.

independent to the information given above and your solutions for the previous two questions, assume that Wild's Flowers had purchased a vase for $20 and sold it for $28. Which one of the following statements is incorrect (false)?

a) Operating expenses are not included in the calculation of gross margin or mark-up on cost percentages.
b) The gross margin percentage is 40%.
c) The gross margin (gross profit) on sale is $8.
d) The mark-up on cost percentage is 40%.

Explanation / Answer

(1) c) On the statement of cash flows, purchases and sales of inventory are included in the "investing activities" section. This is an Operating activity. (2) b) The gross margin percentage is 40%. The gross margin is calculated on selling price, which is $28. Hence the gorss margin percentage = ($8/$28) X 100 = 28.57%

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