Finance Questions
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Gross profit rate is computed by dividing the cost of goods sold by net sales.
As soon as a corporation is authorized to sell stock, an accounting journal entry should be made recording the total value of the shares authorized.
Preferred stock has contractual preference over common stock in certain areas.
An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.
When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock become legal capital.
When preferred stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears.
The journal entry to record the purchase of treasury stock will cause total stockholders' equity to decrease by the amount of the cost of the treasury stock.
Operating expenses include interest expense and income tax expense.
The par value of common stock must always be equal to its market value on the date the stock is issued.
Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.
The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.
Net sales minus cost of goods sold is called gross profit
The liability of a stockholder is usually limited to the stockholder's investment in the corporation.
The multiple-step income statement is considered by some to be more useful than the single-step income statement because it highlights the components of net income.
If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%.
Sales revenue is only earned during the period in which the cash is collected from the buyer
The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.
If merchandise costing $5,000, with terms 2/10, n/30, is paid within 10 days, the amount of the purchase discount is $100
The terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period.
The revenue recognition principle is applied to merchandising companies by recognizing sales revenues when the performance obligation is satisfied.