Exam 6: The Operating Cycle and Merchandising Operations

Use this information to answer the following question. The selected accounts and balances for Pawnee Market appear as follows: Advertising Expense 28,000 Common Stock 200,000 Dividends 42,000 Freight-In 14,000 Freight-Out Expense 20,000 Interest Income 48,000 Merchandise Inventory (Jan. 1) 140,000 Merchandise Inventory (Dec. 31) 112,000 Purchases 120,000 Purchases Returns and Allowances 8,000 Rent Expense 18,000 Retained Earnings 80,000 Sales 302,000 Sales Returns and Allowances 38,000 Wages Expense 64,000 Gross margin from sales would be

Under the periodic inventory system,Cost of goods sold must be computed on the income statement because it is not updated for purchases,sales,and other transactions during the accounting period.

Terms of "2/10,n/30" are an example of a trade discount.

A discount that buyers take for early payment of merchandise is called a

Under the perpetual inventory system,

Bonding means insuring a company against employee theft.

When a customer returns goods,the company increases the Sales Returns and Allowances account.

Upon making a credit card sale,a business should record the sale as an accounts receivable until the customer pays his or her credit card bill.

Match each definition with the correct term below. -FOB destination

Compute the dollar amount of each item indicated by a letter in the following table.Treat each horizontal row of numbers as a separate problem.

The separation-of-duties feature of internal control can be negated when the owner of a small company has an active involvement in the company.

Ending merchandise inventory is included in the calculation of goods available for sale.

Each of the following companies is a merchandising business except a

Cost of goods sold is not considered an expense of a merchandising business.

Which of the following sets of documents are in the correct sequence?

When payment is received by mail,a detailed list of such receipts would not be retained by the

Use this information to answer the following question. The total amount of working capital is

Colton,Inc.,a specialty retailer of customized audio systems for automobiles,installed a perpetual inventory system in the second quarter of 2012.The new system allowed the firm to adjust its merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.Although the system led to an improvement in sales and income,the gross margin on the monthly income statements was falling below both management's expectations and the industry average.At the end of 2013,a physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual inventory records indicated.The merchandise inventories of some stores were off more than others,but all had deficiencies.What probably caused these losses and what steps could be taken to prevent them in the future?

Which of the following activities is not a component of the operating cycle?

Use the following information to calculate the ratios listed below. a.Working capital b.Current ratio