RETL 261 1st EditionExam # 2 Study Guide Chapters: 4-6Chapter 4: Completing the Accounting CycleTrue or FalseIncome Summary is a temporary account only used for the closing processTrueRevenue accounts should begin each accounting period with zero balancesTrueA classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makersTrueA work sheet is a tool to help organize information needed in adjusting accounts and preparing financial statementsTrueA work sheet is a required reportFalseWhen closing entries are made are temporary accounts are closes but not permanent accountsTrueAssets, liabilities, and equity accounts are not closes; these accounts are called temporary accountsFalse. (Permanent accounts)Chapter 5: Accounting for Merchandising OperationsMerchandise inventory consists of products that a company acquires to resell to customersTrueA wholesalers is an intermediary that buys products from manufacturers or other wholesalers, and sells them to consumersFalseA company had sales and cost of goods sold of $350,000 and $200,000, respectively. Its gross profit equals $150,000.True (Gross profit= net sales – costs of goods sold)Gross profit is gross marginTrueCredit terms for a purchase include the amounts and timing of payments from a buyer to a seller.TruePurchase allowances refer to merchandise a buyer acquires but then returns to the sellerFalseCredit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.TrueThe seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.TrueWhat are the two types of inventory systems?Perpetual systems and Periodic systemsWhat is FOB Shipping Point and FOB Destination Point?FOB Shipping Point buyer is responsible for shipping costs and insuring freight as it movesFOB Destination Point Seller’s have to arrange transportation and insure they arrive safely at the customer’s doorChapter 6: Inventories and Cost of SalesTrue or FalseThe cost of an inventory item includes its inventory cost minus any discount, and plus any addedor incidental costs necessary to put it in place and in condition to saleTrueGoods on consignment are goods shipped by their owner, called the consignee, to another partycalled the consignor.FalseIncidental costs often added to the costs of inventory include import duties, freight, storage, and insurance.TrueThe consistency concept prescribes that a company use the same accounting methods period after period, so that financial statements are comparable across periods.TrueA company has inventory with a market value of $217,000 and a cost of $241,000. According to the lower of cost or market, the inventory should be written down to $217,000.TrueThe days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.TrueDamaged and obsolete goods that can be sold are included in inventory at their net realizable valueTrueAn advantage of LIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.TrueMerchandise inventory includes all goods owned by a company and held for