Question 1

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $500, was added to the invoice amount. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

Accepted Answer

A)  $10,300. 
B)  $9,224. 
C)  $9,424. 
D)  $10,200. 
E)  $10,500.

Question 2

A merchandiser's classified balance sheet reports merchandise inventory as a current asset.

Accepted Answer

A) True 
 B)False

Question 3

Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.

Accepted Answer

A) True 
 B)False

Question 4

Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.

Accepted Answer

A) True 
 B)False

Question 5

If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

Accepted Answer

A) True 
 B)False

Question 6

Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

The answer of Describe why tracking inventory activities are necessary...

Question 8

Merchandise inventory:

Accepted Answer

A)  Is a long-term asset. 
B)  Is classified with investments on the balance sheet. 
C)  Is a current asset. 
D)  Must be sold within one month. 
E)  Includes supplies the company will use in future periods.

Question 9

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

Accepted Answer

A)  $9,700. 
B)  $9,800. 
C)  $10,000. 
D)  $8,724. 
E)  $8,924.

Question 10

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 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 July 12 is:

Accepted Answer

A)  Debit Accounts Payable $1,800; credit Cash $1,800. 
B)  Debit Accounts Payable $1,600; credit Cash $1,600. 
C)  Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. 
D)  Debit Cash $1,600; credit Accounts Payable $1,600. 
E)  Debit Merchandise Inventory $1,600; credit Cash $1,600.

Question 11

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:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases discounts } & 1,370 & \
\hline \text { Cost of goods sold } & & 1,370 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Inventory shrinkage expense } & 1,370 & \
\hline \text { Cost of goods sold } & & 1,370 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite inventory } & 1,370 & \
\hline \text { Inventory shrinkage expense } & & 1,370 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cost of goods sold } & 90,450 & \
\hline \text { Merchandite inventory } & & 90,450 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cost of goods sold } & 1,370 & \
\hline \text { Merchandite inventory } & & 1,370 \
\hline
\end{array}$$

Question 12

The following statements regarding gross profit are true except:

Accepted Answer

A)  Gross profit less other operating expenses equals income from operations. 
B)  Gross profit is not calculated on the multiple-step income statement. 
C)  Gross profit equals net sales less cost of goods sold. 
D)  Gross profit is also called gross margin. 
E)  Gross profit must cover all operating expenses to yield a return for the owner of the business.

Question 13

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

Accepted Answer

A) True 
 B)False

Question 14

Craig's Snowboards uses the perpetual inventory system and the gross method of accounting for sales, and had the following sales transactions during June:

$$\begin{array} { | l | l | } 
\hline \text { June } 2 & \begin{array} { l } 
\text { Sold merchandise to General Sports Store on eredit for \$4,800, terms } 1 / 15 , \
\text { n/60. The items sold had a cost of } \$ 2,700 .
\end{array} \
\hline \text { June } 4 & \begin{array} { l } 
\text { General Sports Store returned merchandise that had a selling price of } \$ 200 . \text { Th } \
\text { cost of the merchandise returned was } \$ 110 .
\end{array} \
\hline \text { June 13 } & \begin{array} { l } 
\text { General Sports Store paid for the merchandise sold on June } 2 \text { less the return, } \
\text { taking any appropriate discount earned. }
\end{array} \
\hline
\end{array}$$ Prepare the journal entries that Craig's Snowboards must make to record these transactions.

Accepted Answer

The answer of Craig's Snowboards uses the perpetual inventory system...

Question 15

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

Question 16

In its first month of business, Clausen Corporation reports sales of $1,750,000 and cost of goods sold of $950,000. Clausen estimates that current and future returns and allowances will equal 4% of those sales. Prepare the October 31 adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

Accepted Answer

The answer of In its first month of business, Clausen...

Question 17

A company reported the following information for the month of July:
 $$\begin{array} { | l | l | } 
\hline \text { Sales } & \$ 50,475 \
\hline \text { Sales discounts } & 1,235 \
\hline \text { Sales returns and allowances } & 2,840 \
\hline \text { Cost of goods sold } & 33,975 \
\hline
\end{array}$$ Required: Calculate this company's gross profit.

Accepted Answer

The answer of A company reported the following information for...

Question 18

On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000.
- Vander uses the periodic inventory system and the gross method of accounting for sales. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,800 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Accounts receivable } & & 5,684 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 3,920 & \
\hline \text { Sales discounts } & 80 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,000 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Sales discounts } & 116 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$

Question 19

A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals
$150,000.

Accepted Answer

A) True 
 B)False

Question 20

A period's beginning inventory is equal to the prior period's ________.

Accepted Answer

The answer of A period's beginning inventory is equal to...

Exam 5: Accounting for Merchandising Operations

A merchandiser's classified balance sheet reports merchandise inventory as a current asset.

Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.

Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.

If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.

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

Merchandise inventory:

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

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:

The following statements regarding gross profit are true except:

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals $150,000.

A period's beginning inventory is equal to the prior period's ________.