Purchase Budget

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1.
What effect will the following entry have on Retained Earnings?

A) Retained Earnings will increase by $9,150.
B) Retained Earnings will decrease by $9,150.
C) Retained Earnings will remain unchanged.
D) Retained Earnings will be transferred to the income statement.

A) Retained Earnings will increase by $9,150.

2.
On January 1, 2007, Shaffer Co. purchased inventory for $1,000 cash. These goods were sold on April 30, 2007 for $1,400 cash. The company can currently earn 3% interest on an account at a bank. What was Shaffer's cost of financing this inventory?
A) $10
B) $0
C) $30
D) $400

A) $10
Cost of financing= Principle*rate * time
=1000*3%*4/12
=$10

3.
Sine Company borrowed $20,000 on October 1, 2007 when the company issued a one-year note with a 6% annual interest rate. The adjusting entry necessary to record accrued interest on December 31, 2007 would include a:
A) debit to Interest Expense for $1,200.
B) debit to Interest Payable for $1,200.
C) debit to Notes Payable for $300.
D) debit to Interest Expense for $300.

D) debit to Interest Expense for $300.

Interest for 3 months= Principle*Interest*Time
=20000*6%*3/12
=$300

4.
George Co. had beginning inventory of $400 and ending inventory of $200. The cost of goods sold was $1,600. Based on this information, George Co. must have purchased inventory amounting to:
A) $1,400.
B) $1,600.
C) $1,800.
D) $2,200

Purchase= COGS+Ending-Opening
=1600+ 200-400
=$1400
A) $1400

5.

What effect will the return of merchandise to the supplier have on the accounting equation?

A) Assets and equity are reduced by $600.
B) Assets ...