Exam 5: Merchandising Operations and the Multiple-Step Income Statement

A company shows the following balances: Sales Revenue \ 1,000,000 Sales Returns and Allowances 175,000 Sales Discounts 25,000 Cost of Goods Sold 560,000 What is the gross profit rate?

When an invoice is paid within the discount period, the amount of the discount decreases Inventory.

A useful measure of profitability is the ratio of net income to _____________.

Petersen Book Store entered into the transactions listed below. In the journal provided, prepare Petersen's necessary entries, assuming use of the perpetual inventory system. July 6 Purchased $1,600 of merchandise on credit, terms n/30. 8 Returned $100 of the items purchased on July 6. 9 Paid freight charges of $90 on the items purchased July 6. 19 Sold merchandise on credit for $4,400, terms 1/10, n/30. The merchandise had an inventory cost of $2,700. 22 Of the merchandise sold on July 19, $300 of it was returned. The items had cost the store $150. 28 Received payment in full from the customer of July 19. 31 Paid for the merchandise purchased on July 6.

As an incentive for customers to pay their accounts promptly, a business may offer its customers

The terms 2/10, n/30 mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.

A merchandiser will earn an operating income of exactly $0 when

Sampson Company's accounting records show the following for the year ending on December 31, 2014. Purchase Discounts \ ,600 Freight-In 7,800 Purchases 350,010 Beginning Inventory 23,500 Ending Inventory 28,800 Purchase Returns and Allowances 6,400 Using the periodic system, the cost of goods purchased is

If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%.

The operating expenses section of an income statement for a merchandising company would not include

Assume that Mitchell Company uses a periodic inventory system and has these account balances: Purchases $570,000; Purchase Returns and Allowances $14,000; Purchases Discounts $9,000; and Freight-In $15,000. Determine net purchases and cost of goods purchased.

Farwell Company purchased merchandise with an invoice price of $2,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

Under GAAP, income statement items are generally described as

Income from operations is gross profit less 1) operating expenses and other expenses and losses. 2) operating expenses plus other revenues and gains. 3) operating expenses.

Prepare the journal entries to record the following transactions on Markowitz Company's books using a perpetual inventory system. On February 6, Markowitz Company sold $105,000 of merchandise to the Lyman Company, terms 2/10, net /30. The cost of the merchandise sold was $70,000. On February 8, the Lyman Company returned $14,000 of the merchandise purchased on February 6. The cost of the merchandise returned was $7,000. On February 16 Markowitz Company received the balance due from the Lyman Company.

Net income will result if gross profit exceeds

The purchase of inventory and its eventual sale lengthen the operating cycle of a merchandising company.

At the beginning of the year, Wildcat Athletic had an inventory of $200,000. During the year, the company purchased goods costing $800,000. If Wildcat Athletic reported ending inventory of $300,000 and sales of $1,000,000, their cost of goods sold and gross profit rate would be

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.

Haverty Industries increased its gross profit rate from 18.4% in 2013 to 23.7% in 2014. Which of the following would be a possible explanation for this change?