Consignment and installment -Multiple choice Customer Question

Consignment and installment -Multiple choice
Customer Question
The Christopher Corporation received 15 stereos on consignment from the Rock Corporation. The steroes cost $500 each to manufacture and $100 each to ship to Christopher. Christopher paid the freight, although the contract called for Rick to do so. Christopher sold 5 steroes at $1,600 each and recieved a 25% commission. Payment in full is made to the Rock Corporation.

1. Christopher pays Rock:
A. $4,500 C. $6,000
B. $5,500 D. $8,000

2. Christopher’s profit is:
A. $500 C. $6,500
B. $2,500 D. $8,000

3. Rock’s profit is:
A. $2,000 C. $6,000
B. $3,000 D. $8,000

4. After the transactions in questions 1-3, the balance of the Consignment In account is:
A. $0 C. $5,000
B. $2,500 D. $7,500

5. Rock records increments in inventroiable costs by charging the Consignment Out account.
After these transactions are recorded, and after adjusments are made foor profit, the inventory
on consignment is valued at:
A. $1.500 C. 4,500
B. $3,000 D. 6,000

6. Generally accepted accounting principles normally require the recognition of the profit on
the sale of a product when the:
A. goods are delivered C. title changes hands
B. cash is received by the seller D. goods cost is recovered

7. The installment method of handling the gross profit on sales of merchandise is acceptable if:

A. all payments on account will be made during the current accounting period.
B. there is a considerable doubt as to the eventual collectibillity.
C. the degree of uncollectibility is easily determinable.
D. the bookkeeping will be made easier.

8. The Consignment In account after any year-end adjusments is usually:
A. an inventory account on the books of the consignor.
B. an inventory account on the books of the consignee.
C. a recievable or payable account on the books of the consignor.
D. a recievable or payable account on the books of the consignee.

9. If the installment method of handling deferred profit on accounts receivable is used, gross profit rates should be:
A. calculated seperately for each quarter
B. calculated seperately for a year
C. averaged according to the net income for the past five years.
D. averaged according to the gross profit for the past five years.

10. The installment receivable method of recording gross profit has become increasely popular because it is:
A. acceptable according to standard accounting principles.
B. acceptable for use in the calculation of federal taxable income.
C. theoretically more acceptable under the accounting concept of conservatism.
D. theoretically more acceptable under the accoutning concept of matching,

The Petunia Corporation grows and consigns flowering plants to retailers.
The consignee receives a sales commision of 20%.
Also, he is paid to water and care for the plants in his possession.
Dead plants are discarded but cannot exceed 15% of the plants shipped or the consignee must pay the cost price for them.
Freight charges are to be borne by the consignor.
Each plant costs $0.25 to grow and prepare for the shipment and is to be sold for $1.
The consignee must bear sales costs such as clerks’ salary, light, rent, and depreciation of display counters.
The consignee is a del credere agent.

Throughout 19×6, Petunia Corporation shipped a total of 2,000 plants to Gigantic Department store.
Of these, 1,500 were sold and 60 were discarded.
Freight cost $200 and was paid by Gigantic.
Clerks’ salaries, rent, light,a nd depreciation was $125.
Watering cost $110.
One-third of the sales were on credit, of which $200 is still outstanding and $10 had been written off as uncollectable.
Both companies record consignments separately from other transactions.

11. The profit on consignments for the consignee is:
A. $155 C. $290
B. $165 D. $300

12. The profit on the consignment sales for the consignor is:
A. $544 C. $692
B. $565 D. $923

13. The installment recievable method oof handling gross profit when used for federal income tax
purposes defers in recognition of taxable income until the:
A. year in which the final payment is received.
B. title changes hands between the buyer and the seller.
C. time when the goods are delivered.
D. year in which acutal payments on account are received.