What’s the correct answer and why? 11. On May 1, Fusilli Pasta Corp. purchased i
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Question
What’s the correct answer and why?
11. On May 1, Fusilli Pasta Corp. purchased inventory costing $2.000 on account with terms 2/10, n/30. On May 8, Fusili Pasta pays for this inventory and records which of the following using a perpetual inventory system? Debit Czedit 2,000 Accounts Payable Cash 2,000 b. Accounts Payable 1,960 Inventory 40 Cash 2,000 Accounts Payable 2.000 Inventory 40 Cash 1,960 d. Cash 2,000 Accounts Payable 2,000 12. Coradoba, Inc. reported the following amounts in its income statement Advertising Expense Interest Expense Salaries Expense Utilities Expense Income Tax Expense Cost of Goods Sold Sales Revenue $780,000 80,000 40,000 65,000 25,000 45,000 350,000 What was Corodoba's gross profit? $430,000 b. $175,000 c. $350,000 d. $215,000
Explanation / Answer
11C Accounts Payable 2000 Inventory 40 Cash 1960 Explanation: at the time of purchase following entry was passed Inventory 2000 Accounts Payable 2000 So at the time of payment accounts payable id debited by 2000 and cash is credited net of discount and Inventory value is reduced by discount amount. 12A $430,000 Sales 780000 Less: COGS -350000 430000 13D Costs for items 1 & 2 would be debited to inventory Explanation: Since cost of purchase and cost of delivery is only part of inventory Cost in 3 and 4 is cost incurred for sales not for inventory. 14A In a period of increasing costs, LIFO results in lower net income than FIFO. Explanation: Since under LIFO latest inventory having higher cost becomes Cost of goods sold and higher COGS results in lower net income. 15D Outstanding Deposits Explanation: Since outstanding deposits is first generated in company records subsequntly get recorded in bank while first three items are first reorded and generated by bank itself. 16B A company must use the same method for all of its inventories. Explanation: As per US GAAP Company must use the consistent method of valuation not only for current year but also over the periods. 17D Debit cost of goods sold $1,700 , Credit inventory $1,700 Explanation: Cost of goods sold is an expense account so debited by $1700 and inventory is reduced by $1700 so credited 18B $16,713 Explantion: Total cost 21800 (7200+4350+5840+4410) ÷ NO of units 3000 Per unit cost 7.266666667 multiplied by sales units x 2300 Weighted COGS $ 16,713 19C $ 280,000 Sales revenue 350000 Less: sales return -50000 Sales discount -20000 $ 280,000 20B A contra assets account Associated with Accounts receivable
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