Book 2 - Chapter 21

Multiple Choice
1.	a
2.	b
3.	a
4.	a Debit Income Summary and credit Inventory for the beginning inventory balance and credit Income Summary and debit inventory for the ending inventory balance.
5.	b Ending inventory is an inter-column entry between the income statement and balance sheet columns.
6.	d On a single-step income statement both cost of goods sold and interest expense are single- line items as part of total expenses—there is only one expense section for all expenses.
7.	a This account has a debit balance, so it is credited and increases the total debit to Income Summary.
8.	c
9.	d See the example in the income statement column of the worksheet in this learning goal.
10.	a This kind of question is a good situation to apply the formula BI + net P – EI = C of GS. Simply put some numbers into the formula so that beginning inventory is $3,000 less than ending inventory. You can also understand this intuitively without numbers by observing that cost of goods sold is equivalent to current purchases less the amount of purchases that were added to inventory. If ending inventory is greater than beginning inventory, then not all the current purchases were sold.
11.	d This kind of question is a good situation to apply the formula BI + net P – EI = C of GS. Simply put some numbers into the formula so that ending inventory is $5,000 less than beginning inventory. You can also understand this intuitively without numbers by observing that cost of goods sold is equal to current purchases plus the amount of goods that had to be taken out of inventory to sell. If ending inventory is less than beginning inventory, then the current purchases were not sufficient and must have been less than cost of goods sold by the amount that had to be taken out of inventory.
12.	d
13.	a ($539,600 – $297,475)/$539,600 = .4487
14.	$51,000. Net sales of $305,000 minus cost of goods sold of $200,000 = $105,000 gross profit. $105,000 – ($24,000 + $30,000) operating expenses = $51,000 operating income. Interest expense is not part of operating income.

Learning Goal 21

SOLUTIONS

Learning Goal 21: Complete the Period-End Procedures—Periodic Method

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