Question 1

Describe why tracking inventory activities are necessary for a merchandising company.

Accepted Answer

Tracking merchandise activities are nece

Question 2

The gross method requires a period-end adjusting entry to estimate future sales discounts.

Accepted Answer

A) True 
 B)False

Question 3

On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ryan uses the periodic inventory system and the net method of accounting for sales.On September 14,Johnson returns some of the non-defective merchandise,which is restored to inventory.The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350.The entry or entries that Ryan must make on September 14 is (are):

Accepted Answer

A)  $\begin{array}{|l|r|r|}
\hline \text { Sales returns and allowances } & 490 & \
\hline \text { Accounts receivable } & & 490 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|r|r|}
\hline \text { Sales retums and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|r|r|}
\hline \text { Sales retums and allowances } & 490 & \
\hline \text { Accounts receivable } & & 490 \
\hline
\end{array}$ 
D)  $\begin{array}{|l|r|r|}
\hline \text { Sales returns and allowances } & 490 & \
\hline \text { Accounts receivable } & & 490 \
\hline \text { Merchandise inventory } & 343 & \
\hline \text { Cost of goods sold } & & 343 \
\hline
\end{array}$ 
E)  $\begin{array}{|l|r|r|}
\hline \text { Sales retums and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$ 
A)  $\begin{array}{|l|r|r|}
\hline \text { Sales returns and allowances } & 490 & \
\hline \text { Accounts receivable } & & 490 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|r|r|}
\hline \text { Sales retums and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|r|r|}
\hline \text { Sales retums and allowances } & 490 & \
\hline \text { Accounts receivable } & & 490 \
\hline
\end{array}$ 
D)  $\begin{array}{|l|r|r|}
\hline \text { Sales returns and allowances } & 490 & \
\hline \text { Accounts receivable } & & 490 \
\hline \text { Merchandise inventory } & 343 & \
\hline \text { Cost of goods sold } & & 343 \
\hline
\end{array}$ 
E)  $\begin{array}{|l|r|r|}
\hline \text { Sales retums and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$

Question 4

What is gross margin ratio? How is it used as an indicator of profitability?

Accepted Answer

The gross margin ratio computes the rela

Question 5

Under a perpetual inventory system,when a credit customer returns non-defective merchandise to the seller,the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

Accepted Answer

A) True 
 B)False

Question 6

Merchandise inventory refers to products that a company owns and intends to sell to customers.

Accepted Answer

A) True 
 B)False

Question 7

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 gross method,The correct journal entry to record the purchase on July 5 is:

Accepted Answer

A) Debit Merchandise Inventory $1,600; credit Cash $1,600. 
B) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800. 
C) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600. 
D) Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800. 
E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600. 
A) Debit Merchandise Inventory $1,600; credit Cash $1,600. 
B) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800. 
C) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600. 
D) Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800. 
E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

Question 8

Sales Discounts and Sales Returns and Allowances are subtracted in the calculation of net sales.

Accepted Answer

A) True 
 B)False

Question 9

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Accepted Answer

A) Balanced income statement. 
B) Single-step income statement. 
C) Multiple-step income statement. 
D) Combined income statement. 
E) Simplified income statement. 
A) Balanced income statement. 
B) Single-step income statement. 
C) Multiple-step income statement. 
D) Combined income statement. 
E) Simplified income statement.

Question 10

In the current year,Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000.Borden expects returns in the following year to equal 8% of sales.The unadjusted balance in Inventory Returns Estimated is a debit of $6,000,and the unadjusted balance in Sales Refund Payable is a credit of $10,000.The adjusting entry or entries to record the expected sales returns is (are):

Accepted Answer

A)  $\begin{array}{|l|l|l|}
\hline \text { Accounts Receivable } & 2,000,000 & \
\hline \text { Sales } & & 2,000,000 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|r|r|}
\hline \text { Sales returns and allowances } & 150,000 & \
\hline \text { Sales } & & 150,000 \
\hline \text { Cost of Goods Sold } & 90,000 & \
\hline \text { Inventory Returns Estimated } & & 90,000 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|r|r|}
\hline \text { Sales } & 2,000,000 & \
\hline \text { Sales Refund Payable } & & 160,000 \
\hline \text { Accounts receivable } & & 1,840,000 \
\hline
\end{array}$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Sales Refurd Payable } & 150,0000 & \
\hline \text { Accourits receivable } & & 150,000 \
\hline
\end{array}$$ 
E)  $\begin{array}{|l|r|r|}
\hline \text { Sales Returns and Allowances } & 150,000 & \
\hline \text { Sales Refund Payable } & & 150,000 \
\hline \text { Inventory Returns Estimated } & 90,000 & \
\hline \text { Cost of goods sold } & & 90,000 \
\hline
\end{array}$ 
A)  $\begin{array}{|l|l|l|}
\hline \text { Accounts Receivable } & 2,000,000 & \
\hline \text { Sales } & & 2,000,000 \
\hline
\end{array}$ 
B)  $\begin{array}{|l|r|r|}
\hline \text { Sales returns and allowances } & 150,000 & \
\hline \text { Sales } & & 150,000 \
\hline \text { Cost of Goods Sold } & 90,000 & \
\hline \text { Inventory Returns Estimated } & & 90,000 \
\hline
\end{array}$ 
C)  $\begin{array}{|l|r|r|}
\hline \text { Sales } & 2,000,000 & \
\hline \text { Sales Refund Payable } & & 160,000 \
\hline \text { Accounts receivable } & & 1,840,000 \
\hline
\end{array}$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Sales Refurd Payable } & 150,0000 & \
\hline \text { Accourits receivable } & & 150,000 \
\hline
\end{array}$$ 
E)  $\begin{array}{|l|r|r|}
\hline \text { Sales Returns and Allowances } & 150,000 & \
\hline \text { Sales Refund Payable } & & 150,000 \
\hline \text { Inventory Returns Estimated } & 90,000 & \
\hline \text { Cost of goods sold } & & 90,000 \
\hline
\end{array}$

Question 11

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 shipping for the merchandise is $7 per unit.Jasper's total purchase price per unit will be:

Accepted Answer

A) $507 
B) $350 
C) $357 
D) $343 
E) $157 
A) $507 
B) $350 
C) $357 
D) $343 
E) $157

Question 12

All of the following statements regarding inventory shrinkage are true except:

Accepted Answer

A) Inventory shrinkage refers to the loss of inventory. 
B) Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts. 
C) Inventory shrinkage is recognized by debiting an operating expense. 
D) Inventory shrinkage is recognized by debiting Cost of Goods Sold. 
E) Inventory shrinkage can be caused by theft or deterioration. 
A) Inventory shrinkage refers to the loss of inventory. 
B) Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts. 
C) Inventory shrinkage is recognized by debiting an operating expense. 
D) Inventory shrinkage is recognized by debiting Cost of Goods Sold. 
E) Inventory shrinkage can be caused by theft or deterioration.

Question 13

New revenue recognition rules require that sellers report sales at the amount expected to be received.

Accepted Answer

A) True 
 B)False

Question 14

Fragment Company is a wholesaler that sells merchandise in large quantities.Its catalog indicates a list price of $300 per unit on a particular product and a 40% trade discount is offered for quantity purchases of 50 units or more.The cost of shipping the merchandise is $7 per unit under terms FOB shipping point.If a customer purchases 100 units of this product,what is the amount of sales revenue that Fragment will record from this sale?

Accepted Answer

A) $18,000 
B) $30,000 
C) $18,700 
D) $29,300 
E) $30,700 
A) $18,000 
B) $30,000 
C) $18,700 
D) $29,300 
E) $30,700

Question 15

Cost of goods sold is an expense,and is reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 16

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory)and FOB destination.

Accepted Answer

FOB stands for free on board,and it dete

Question 17

What is the acid-test ratio? How does it measure a company's liquidity?

Accepted Answer

The acid-test ratio is a measure of a me

Question 18

The gross margin ratio:

Accepted Answer

A) Is also called the net profit ratio. 
B) Indicates the percent of sales revenue remaining after covering the cost of the goods sold. 
C) Is also called the profit margin. 
D) Is a measure of liquidity and should exceed 2.0 to be acceptable. 
E) Should be greater than 1 for merchandising companies. 
A) Is also called the net profit ratio. 
B) Indicates the percent of sales revenue remaining after covering the cost of the goods sold. 
C) Is also called the profit margin. 
D) Is a measure of liquidity and should exceed 2.0 to be acceptable. 
E) Should be greater than 1 for merchandising companies.

Question 19

Sales Discounts is added to the Sales account when computing a company's net sales.

Accepted Answer

A) True 
 B)False

Question 20

A company had a gross profit of $200,000 based on sales of $450,000.Its cost of goods sold equals $250,000.

Accepted Answer

A) True 
 B)False

Describe why tracking inventory activities are necessary for a merchandising company.

The gross method requires a period-end adjusting entry to estimate future sales discounts.

What is gross margin ratio? How is it used as an indicator of profitability?

Under a perpetual inventory system,when a credit customer returns non-defective merchandise to the seller,the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

Merchandise inventory refers to products that a company owns and intends to sell to customers.

Sales Discounts and Sales Returns and Allowances are subtracted in the calculation of net sales.

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

All of the following statements regarding inventory shrinkage are true except:

New revenue recognition rules require that sellers report sales at the amount expected to be received.

Cost of goods sold is an expense,and is reported on the income statement.

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory)and FOB destination.

What is the acid-test ratio? How does it measure a company's liquidity?

The gross margin ratio:

Sales Discounts is added to the Sales account when computing a company's net sales.

A company had a gross profit of $200,000 based on sales of $450,000.Its cost of goods sold equals $250,000.

Introducing Financial Statements

Financial Statements and the Accounting System

Adjusting Accounts for Financial Statements

Reporting and Analyzing Inventories

Reporting and Analyzing Cash,fraud,and Internal Control

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Long-Term Liabilities

Reporting and Analyzing Equity

Reporting and Analyzing Cash Flows

Analyzing and Interpreting Financial Statements

Applying Present and Future Values

Investments

International Operations

Filters

Exam 4: Reporting and Analyzing Merchandising Operations

Describe why tracking inventory activities are necessary for a merchandising company.

The gross method requires a period-end adjusting entry to estimate future sales discounts.

What is gross margin ratio? How is it used as an indicator of profitability?

Under a perpetual inventory system,when a credit customer returns non-defective merchandise to the seller,the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

Merchandise inventory refers to products that a company owns and intends to sell to customers.

Sales Discounts and Sales Returns and Allowances are subtracted in the calculation of net sales.

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

All of the following statements regarding inventory shrinkage are true except:

New revenue recognition rules require that sellers report sales at the amount expected to be received.

Cost of goods sold is an expense,and is reported on the income statement.

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory)and FOB destination.

What is the acid-test ratio? How does it measure a company's liquidity?

The gross margin ratio:

Sales Discounts is added to the Sales account when computing a company's net sales.

A company had a gross profit of $200,000 based on sales of $450,000.Its cost of goods sold equals $250,000.

Introducing Financial Statements

Financial Statements and the Accounting System

Adjusting Accounts for Financial Statements

Reporting and Analyzing Inventories

Reporting and Analyzing Cash,fraud,and Internal Control

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Long-Term Liabilities

Reporting and Analyzing Equity

Reporting and Analyzing Cash Flows

Analyzing and Interpreting Financial Statements

Applying Present and Future Values

Investments

International Operations

Filters