# Ch 4

Each of the following are examples of a merchandising company except:

Michael's Lawn mowing

Gross profit is:

equal to net sales less cost of goods sold.

A company reports net sales of $600,000, cost of goods sold of$200,000, and net income of $100,000. Its gross profit equals:$400,000
Net Sales- Cost of goods sold= gross profit
Gross profit-expenses= net income

Place the operating cycle for a merchandiser in the correct order.

(a) cash purchase of merchandise
(b) inventory for sale
(c) credit sales
(d) accounts receivable
(e) receipt of cash from credit sales

A company reports the following information:
Beginning inventory $11,000 Ending inventory 13,000 Expenses 7,000 Net purchases 23,000 Net sales 38,000 The company's cost of goods sold equals: 21,000 beginning inventory+net purchases=merchandise available for sale merchandise available for sale=ending inventory+cost of goods sold Merchandise inventory includes: costs to purchase shipping costs costs to prepare for sale ---------SIDE NOTE----------- the order it seems to be on: beginning inventory+net purchases=cost of goods available for sale cost of goods available for sale-less ending inventory=cost of goods sold ... A company reports the following information: Beginning inventory$ 11,000
Ending inventory 13,000
Expenses 7,000
Net purchases 23,000
Net sales 38,000
The company's cost of goods available for sale equals:

$34,000 A perpetual inventory system updates the accounting records for each purchase and each sale. A periodic inventory system updates the accounting records at the end of the period. ... Roberto Company uses a perpetual inventory system. On December 1, the company purchased$3,300 of merchandise for cash.
Complete the following journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the deb

Merchandise inventory D.3,300
Cash C.3,300

Credit terms of "2/10, n/60" means:

the company will receive a 2 percent discount if paid within 10 days

December 15, the buyer pays the invoice in full.
Complete the buyer's journal entry for payment by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Accounts payable: D.$4000 Merchandise inventory: C$80
Cash: C$3920 A buyer uses a perpetual inventory system, and on December 7, it contacts its supplier to report that some of the merchandise purchased on December 5 was defective. The seller offered to reduce the merchandise price by$400. The buyer agreed to keep the d

Accounts payable: D $400 Merchandise inventory: C$400

merchandise inventory D
cash C
SELLER:
delivery expense D
cash C

...

A buyer uses a perpetual inventory system, and it purchases merchandise on terms of FOB shipping point. On December 20, the shipping company sends an invoice for $125 to the party responsible for the freight charges, and cash payment is made immediately. Merchandise inventory: D 125 Cash: C 125 A company reports the following information: Invoice cost of merchandise purchases$ 110,000
Purchase discounts 15,000
Purchase returns and allowances 7,000
Transportation costs 3,000
The company's total cost of merchandise purchases equals:

$91,000 invoice cost of merchandise purchases-purchases discounts received-purchases returns and allowances+cost of transportation_in=total cost of merchandise purchases A seller uses a perpetual inventory system, and on April 4, it sells$5,000 in merchandise (its cost is $2,400) to a customer on credit terms of 3/10, n/30. Complete the two journal entries to record the sales transaction by selecting the account names fr Accounts receivable: D 5000 Sales: C 5000 Cost of goods sold: D 2400 Merchandise inventory: C 2400 A seller uses a perpetual inventory system, and on April 4, it sells$5,000 in merchandise to a customer on credit terms of 3/10, n/30. On April 13, the seller receives payment from the customer.
Complete the seller's April 13 journal entry by selecting t

Cash: D 4850
Sales Discount: D 150
Accounts receivable: C 5000

A seller uses a perpetual inventory system, and on April 17, a customer returns $1,000 of merchandise previously purchased on credit on April 13. The seller's cost of the merchandise returned was$480. The merchandise is not defective and is restored to i

Sales returns and allowances: D 1000
accounts receivable: C 1000
merchandise inventory: D 480
cost of goods sold: C 480

A seller uses a perpetual inventory system, and on April 18, a customer discovers that merchandise previously purchased is defective. The buyer decides to keep the defective merchandise and the seller allows a $15 price reduction, paid in cash to the buye Sales returns and allowances: D 15 Cash: C 15 Accounting cycle 1. analyze transactions 2. journalize 3. post 4. prepare unadjusted trial balance 5. adjust 6. prepare adjusted trial balance 7. prepare statements 8. close 9. prepare post-closing trial balance 10.reverse (optional) Which of the following statements is correct regarding the adjusting entries for a merchandiser versus a service company. All of the statements are correct. A service company will have an adjusting entry for accrued expenses. A merchandising company will have an adjusting entry for accrued expenses. A service company will have an adjusting entry for unearned revenues. A merc Which of the following statements is correct regarding inventory shrinkage? All of the statements are correct. Shrinkage refers to the loss of inventory. Shrinkage can be caused by theft or deterioration. Shrinkage is computed by comparing a physical count of inventory with the recorded amount. Shrinkage is recorded by debiting C Which statement is correct regarding the closing process of a merchandiser? Both the Sales Discounts and the Sales Returns and Allowances accounts are credited during the closing process. The company's adjusted trial balance includes the following accounts balances: Cash,$15,000; Equipment, $85,000; Accumulated Depreciation,$25,000; Accounts Payable, $10,000; Retained earnings,$63,500; Dividends, $2,000; Sales,$56,000; Sales Returns an

Income summary: D 52500
Sales discounts: C 1500
Sales returns and allowances: C 3000
Depreciation expense: C 25000
Salaries expense: C 23000

Which of the following totals and subtotals are not found on a multiple-step income statement?

total current assets

A company has the following selected account balances:
Sales $250,000 Sales Discounts 1,500 Sales Returns and Allowances 2,300 Sales Salaries Expense 56,000 Store Supplies Expense 15,000 Advertising Expense 8,000 Cost of Goods Sold 125,000 What is the gr$121,000

A single-step income statement

Reports the same amount of net income as that reported on a multiple-step income statement.

When a classified balance sheet is prepared, merchandise inventory is:

reported as a current asset

Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products.
3 Allied made its first and only purchase of inventory for the period on May 3 for 2,000 units at a price of $9 cash per unit (for a total cost merchandise inventory 18000 cash 18000 accounts receivable 13000 sales 13000 cost of goods sold 9000 merchandise inventory 9000 sales returns and allowances 1300 accounts receivable 1300 merchandise inventory 900 cost of goods sold 900 sales returns and a Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products. 3 Allied made its first and only purchase of inventory for the period on May 3 for 2,000 units at a price of$9 cash per unit (for a total cost

no journal entry
merchandise inventory 13000
accounts payable 13000
accounts payable 1300
merchandise inventory 1300
accounts payable 500
merchandise inventory 500
accounts payable 11200
cash 10976
merchandise inventory 224
Explanation
May 7: Returned unw

Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions.
11 Sydney accepts delivery of $36,500 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cos merchandise inventory 36500 accounts payable 36500 merchandise inventory 500 cash 500 accounts payable 1300 merchandise inventory 1300 accounts payable 35200 merchandise inventory 1056 cash 34144 Explanation May 20: Accounts payable balance =$36,500 ? $1 Sydney Retailing (buyer) and Troy Wholesalers (seller) enter into the following transactions. 11 Sydney accepts delivery of$36,500 of merchandise it purchases for resale from Troy: invoice dated May 11, terms 3/10, n/90, FOB shipping point. The goods cos

accounts receivable 36500
sales 36500
cost of goods sold 24455
merchandise inventory 24455
sales returns and allowances 1300
accounts receivable 1300
merchandise inventory 871
cost of goods sold 871
cash 34144
sales discount 1056
accounts receivable 35200

Prepare journal entries to record the following merchandising transactions of Mannion's, which uses the perpetual inventory system and the gross method. (Hint: It will help to identify each receivable and payable; for example, record the purchase on July

GENERAL JOURNAL
merchandise inventory 8400
accounts payable-lane 8400
accounts receivable-king 2100
sales 2100
cost of goods sold 1260
merchandise inventory 1260
merchandise inventory 605
cash 605
cash 4100
sales 4100
cost of goods sold 2500
merchandise i

BALANCE SHEET
Assets
Current assets
supplies 3000
inventory 5000
cash 2000
accounts receivable 8000
Total current assets 18000
Plant assets
land 12000
buildings, net 24000
Total plant assets 36000
Total assets 54000
Liabilities
Current liabilities
account

Which of following actions would increase the amount of cash available to Telo? (Select all that apply)
Reduce the credit period for its credit sales to customers
Negotiating an increase in the credit period for purchases with suppliers.
Which one of the

Which of the following statements regarding merchandise inventory is not true?

Merchandise inventory appears on the balance sheet of a service company.

Multiple-step income statements

contain more detail than a simple listing of revenues and expenses

The operating cycle for a merchandiser that sells only for cash moves from:

Purchases of merchandise to inventory to cash sales.

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned$1,500 worth of merchandise. On August 16, it paid

Debit Accounts Payable $8,250; credit Merchandise Inventory$82.50; credit Cash $8,167.50. Cash Paid = ($9,750 ? $1,500) � 0.99 =$8,167.50

On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is$4,000. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on Febr

cash 5684
sales discounts 116
accounts receivable 5800
Sales Discounts = $5,800 * 0.02 =$116
Cash = $5,800 -$116 = $5,684 A company purchased$1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the g Debit Accounts Payable$200; credit Merchandise Inventory $200 Cushman Company had$800,000 in sales, sales discounts of $12,000, sales returns and allowances of$18,000, cost of goods sold of $380,000, and$275,000 in operating expenses. Gross profit equals:

$390,000 Gross Profit (Margin) =$800,000 ? $12,000 ?$18,000 ? $380,000 =$390,000

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned$1,500 worth of merchandise. On August 26, it paid

Debit Accounts Payable $1,500; credit Merchandise Inventory$1,500

Mega Skateboard Supplier had net sales of $2.8 million, its cost of goods sold was$1.6 million, and its net income was $0.9 million. Its gross margin ratio equals: 43% Gross Margin Ratio = (Net Sales ? Cost of Goods Sold)/Net Sales Gross Margin Ratio = ($2.8 ? $1.6)/$2.8 = 43%

Which of the following statements regarding inventory shrinkage is not true?

Inventory shrinkage is recognized by debiting an operating expense.

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned$1,500 worth of merchandise. On August 16, it paid

$8167.50 Cash Paid = ($9,750 ? $1,500) � 0.99 =$8,167.50

Which of the following statements related to the multiple-step income statement is not true?

Shows only one total for expenses.

Cushman Company had $800,000 in sales, sales discounts of$12,000, sales returns and allowances of $18,000, cost of goods sold of$380,000, and $275,000 in operating expenses. Net income equals:$115,000
Net Income = $800,000 ?$12,000 ? $18,000 ?$380,000 ? $275,000 =$115,000

Liquidity problems are likely to exist when a company's acid-test ratio:

is substantially lower than 1

Jasper Company is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of s$357
Trade discount = $500 * 30% =$150
Total purchase price per unit = $500 ?$150 + $7 =$357

On May 1, Anders Company purchased merchandise in the amount of $5,800 from Shilling, with credit terms of 2/10, n/30. Anders uses the perpetual inventory system and the gross method. The journal entry that Anders will make on May 1 is: Merchandise Inventory 5800 accounts payable 5800 Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased$9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid Debit Merchandise Inventory$9,750; credit Accounts Payable $9,750. The amount recorded for merchandise inventory includes all of the following except: freight costs paid by the seller A company's current assets are$23,420, its quick assets are $13,890 and its current liabilities are$12,220. Its acid-test ratio equals:

1.14
Acid-Test Ratio = Quick Assets/Current Liabilities
Acid-Test Ratio = $13,890/$12,220 = 1.14

Which of the following statements regarding sales returns and allowances is not true?

Sales returns and allowances do not have an impact on gross profit.