Question

1.) Reynolds Company
The following is a single-step income statement for the Reynolds Company:

Reynolds Company Income Statement For the Year Ended December 31, 2014
Revenues
Net Sales	$920,000
Interest Income	125,500
Total Revenues		$1045,500
Expenses
Cost of Goods Sold	$ 700,000
Selling Expenses	80,000
General and Administrative Expenses	97,500
Interest Expense	72,500
Income Tax Expense	29,000
Total Expenses		979,000
Net Income		$ 66,500

Refer to Reynolds Company. If the income statement were prepared in a multiple-step format, Gross Profit would be ____.

	$ 66,500
	$ 345,500
	$ 220,000

2.) Reynolds Company
The following is a single-step income statement for the Reynolds Company:

Reynolds Company Income Statement For the Year Ended December 31, 2014
Revenues
Net Sales	$920,000
Interest Income	125,500
Total Revenues		$1045,500
Expenses
Cost of Goods Sold	$ 700,000
Selling Expenses	80,000
General and Administrative Expenses	97,500
Interest Expense	72,500
Income Tax Expense	29,000
Total Expenses		979,000
Net Income		$ 66,500

Refer to Reynolds Company. If the income statement were prepared in a multiple-step format, Income from Operations would be ____.

	$ 66,500
	$ 42,500
	$345,500

3.) Hig, Inc. had the following merchandise transactions in October 2014:

Purchases	$50,000
Purchase returns	$ 3,000
Purchase discounts	$ 1,000
Transportation	$ 2,000

What is the total cost of merchandise purchased for Hig, Inc. in October 2014?

	$46,000
	$52,000
	$48,00

4.) Under which inventory method do inventory records NOT show an updated record of the inventory on hand during the period?

	Periodic
	External
	Perpetual

5.) Individual accounts receivable accounts for each customer are maintained in a ____.

	Balance sheet
	Vendor ledger
	Subsidiary ledger

Answer 1

Answers

• Answer #1
  Correct Answer = Option #3: Gross Profit = $ 220,000
  Gross Profits = Net Sales – Cost of Goods Sold
  = $ 920000 – 700000 = $ 220,000
• Answer #2
  Correct Answer = Option #2: $ 42,500 = Income from Operations
  Income from Operations = Gross profits – Selling expense – general & administrative expense
  = $ 220000 – 80000 – 97500
  = $ 42,500
• Answer #3
  Correct Answer = Option #3: $ 48,000 = Cost of merchandise purchase.
  Cost of merchandise purchased = $ 50000 purchases - $ 3000 purchase return - $ 1000 purchase discounts + $ 2000 transportation
  = 50000 – 3000 – 1000 + 2000
  = $ 48,000
• Answer #4
  Correct Answer = Option #1: Under “Periodic” inventory method the inventory DO NOT show an updated record of inventory on hand. This is because Cost of Goods Sold is not adjusted after every sale transaction.
• Answer #5
  Correct Answer = Option #3: Subsidiary Ledger contains the individual account receivables account for each customer.
  Vendor ledger contains accounts of supplier.