Exam 4: Accounting for Merchandising Operations

Frisco Company Inc.'s Merchandise Inventory account at the end of year 2015 has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is:

A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has taken what percentage cash discount for early payment?

Describe the difference between the periodic and perpetual inventory accounting systems.

Describe the difference(s) between the periodic and the perpetual inventory accounting systems.

On March 12, Klein Company, Inc. 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. On March 15, Babson returns some of the merchandise. 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:

On March 12, Klein Company, Inc. 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. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The amount that Klein receives from Babson on March 20 is:

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. The amount of the cash paid on July 28 equals:

Purchase returns refer to merchandise a buyer acquires but then returns to the seller.

Quick assets are defined as:

Under a perpetual inventory system, when a credit customer returns 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.

The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

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. The correct journal entry to record the purchase on July 5 is:

On July 1, Ferguson Company, Inc. 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. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 is:

The gross margin ratio:

The following statements regarding merchandise inventory are true except:

Describe the recording process (including costs) for the types of transactions involved in purchasing merchandise inventory when a perpetual inventory system is used.

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

The following statements regarding gross profit are true except:

Sales less sales discounts less sales returns and allowances equals:

The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.