Exam 4: Reporting and Analyzing Merchandising Operations

On July 1,Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ferguson uses the perpetual inventory system and the gross method.On July 5,Tracey notifies Ferguson that some of the merchandise is defective.Ferguson agrees to a full refund for the items,and Tracey is allowed to keep the merchandise.The selling price of the merchandise is $500 and the cost of the merchandise is $350.The entry or entries that Ferguson must make on July 5 is:

The net method initially records the invoice at its net amount (net of any cash discount).

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

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 the full amount due.The amount of the cash paid on August 26 equals:

A wholesaler buys products from manufacturers or other wholesalers and sells them to retailers.

A company purchased $10,000 of merchandise on January 5 with terms 2/10,n/30.On January 7,it returned $1,200 worth of merchandise.On January 12,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 payment on January 12 is:

Merchandise inventory is reported in the current assets section of the balance sheet.

A company that uses the net method of recording purchases and a perpetual inventory system 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.The correct journal entry to record the payment on July 28 is:

If a buyer does not take advantage of a supplier's credit terms of 2/10,n/30,and instead pays the invoice in full at the end of 30 days,by not taking the discount the buyer loses the equivalent of 18% annual interest on the amount of the purchase.

Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820,but a physical count reveals that only $90,450 of inventory exists.The adjusting entry to record this $1,370 of inventory shrinkage is:

Cushman Company had $800,000 in net sales,$350,000 in gross profit,and $200,000 in operating expenses.Cost of goods sold equals:

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales.On March 15,Babson returns some of the merchandise,which is not defective.The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350.The entry or entries that Klein must make on March 15 is:

The acid-test ratio differs from the current ratio in that:

From the adjusted trial balance for Brookstone Art Supplies given below,prepare a multiple-step income statement in good form.

Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

Netherland Corporation has the following unadjusted balances: Accounts Receivable,$80,000 (debit),and Allowance for Sales Discounts $300 (credit).Of the receivables,$50,000 of them are within the 2% discount period,and Netherland expects buyers to take $1,000 in future-period discounts ($50,000 × 2%)arising from this period's sales.The adjusting entry to estimate sales discounts is (are):

The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

A trade discount is:

A company's current ratio is 1.2 and its quick ratio is 0.25.This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.

The current period's ending inventory is: