C71 Sales Cost of goods sold
C7
1. Sales - Cost of goods sold = Gross margin
2. Cost of goods sold = Beginning inventory + Purchases – Ending inventory
3. Inventory is reported on the balance sheet at replacement cost when it is less than cost.
4. Inventory turnover (3.79) = Cost of goods sold ($750,000) ÷ Average inventory ($188,000 + $208,000)÷ 2
5. Average days to sell inventory (96.3) = 365 days ÷ Inventory turnover (3.79)
6. Average days to sell inventory (96.3) = 365 days ÷ Inventory turnover (3.79)
7. LIFO cost of goods sold ($22.2 billion) = FIFO cost of goods sold ($22 billion) + the increase in LIFO reserve ($0.2 billion)
8. An overstatement of ending inventory overstates current assets and understates cost of goods sold and therefore overstates net income this year, the understate net income of next year
C8
1. Fixed asset turnover ratio = Net sales /Operating Revenue ÷ Average net fixed assets
2. Year 1 depreciation expense ($64,000) = $800,000 × 2/25
Year 2 depreciation expense ($58,880) = ($800,000 - $64,000) × 2/25
3. The double-declining-balance depreciation method results in more depreciation in the earlier years of an asset's life
4. An impairment loss occurs when the asset's net book value ($4.1 million) exceeds its fair value ($3.1million). When an impairment loss is recorded, a loss account is debited and the asset account is credited.
5. When the building is sold, the building account is credited, cash is debited, accumulated depreciation is debited, and a loss account is debited when the sale results in a loss.
C9
1. The quick ratio is quick assets divided by current liabilities.
2. Interest expense ($2,000) = Amount borrowed ($100,000) × Interest rate (6%) × Number of months borrowed relative to a year (4 ÷ 12)
3. Accounts payable turnover (4.15) = Cost of goods sold ($322 million) ÷ Average accounts payable ($83million + $72 million) ÷ 2
4. A contingent liability that is reasonably possible and can reasonably be estimated is disclosed in the notes to the financial
1. Sales - Cost of goods sold = Gross margin
2. Cost of goods sold = Beginning inventory + Purchases – Ending inventory
3. Inventory is reported on the balance sheet at replacement cost when it is less than cost.
4. Inventory turnover (3.79) = Cost of goods sold ($750,000) ÷ Average inventory ($188,000 + $208,000)÷ 2
5. Average days to sell inventory (96.3) = 365 days ÷ Inventory turnover (3.79)
6. Average days to sell inventory (96.3) = 365 days ÷ Inventory turnover (3.79)
7. LIFO cost of goods sold ($22.2 billion) = FIFO cost of goods sold ($22 billion) + the increase in LIFO reserve ($0.2 billion)
8. An overstatement of ending inventory overstates current assets and understates cost of goods sold and therefore overstates net income this year, the understate net income of next year
C8
1. Fixed asset turnover ratio = Net sales /Operating Revenue ÷ Average net fixed assets
2. Year 1 depreciation expense ($64,000) = $800,000 × 2/25
Year 2 depreciation expense ($58,880) = ($800,000 - $64,000) × 2/25
3. The double-declining-balance depreciation method results in more depreciation in the earlier years of an asset's life
4. An impairment loss occurs when the asset's net book value ($4.1 million) exceeds its fair value ($3.1million). When an impairment loss is recorded, a loss account is debited and the asset account is credited.
5. When the building is sold, the building account is credited, cash is debited, accumulated depreciation is debited, and a loss account is debited when the sale results in a loss.
C9
1. The quick ratio is quick assets divided by current liabilities.
2. Interest expense ($2,000) = Amount borrowed ($100,000) × Interest rate (6%) × Number of months borrowed relative to a year (4 ÷ 12)
3. Accounts payable turnover (4.15) = Cost of goods sold ($322 million) ÷ Average accounts payable ($83million + $72 million) ÷ 2
4. A contingent liability that is reasonably possible and can reasonably be estimated is disclosed in the notes to the financial