Traditional format income statements are prepared primarily for external reporting purposes.
Review Questions T/F
True
Review Questions T/F
57. In a contribution format income statement, sales minus cost of goods sold equals the gross margin.
Review Questions T/F
False
Review Questions T/F
58. In a traditional format income statement for a merchandising company, the cost of goods sold reports the product costs attached to the merchandise sold during the period.
Review Questions T/F
True
Review Questions T/F
59.Contribution format income statement is useful for external reporting purposes, it has serious limitations when used for internal purposes because it does not distinguish between fixed and variable costs.
Review Questions T/F
False
Review Questions T/F
60. In a contribution format income statement for a merchandising company, cost of goods sold is a variable cost that gets included in the “Variable expenses” portion of the income statement.
Review Questions T/F
True
Review Questions T/F
61. The traditional format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting.
Review Questions T/F
False
Review Questions M/C
62. Haar Inc. is a merchandising company. Last month the company’s cost of goods sold was $61,000. The company’s beginning merchandise inventory was $11,000 and its ending merchandise inventory was $21,000. What was the total amount of the company’s merchandise purchases for the month? A. $61,000 B. $51,000 C. $71,000 D. $93,000
Review Questions M/C
C. $71,000
Review Questions M/C
Purchases = Cost of goods sold + Ending merchandise inventory – Beginning merchandise inventory = $61,000 + $21,000 – $11,000 = $71,000