accounting - ch 4 accounting for merchandising operations
Cost of goods sold is characterized by which of the following statements?
-Cost of goods sold is used to figure gross profit. -Cost of goods sold is also called cost of sales. -Cost of goods sold is an expense reported on the income statement. -Cost of goods sold includes the expenses of buying and preparing an item for sale.
Determine which of the following statements about merchandise is correct.
Merchandise is acquired for resale to customers.
Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle.
Merchandise that is sold becomes an expense reported on the income statement. Ending inventory + Cost of goods sold = Total merchandise available for sale. Merchandise that is purchased becomes an asset reported on the balance sheet. Beginning inventory + net purchases = Merchandise available for sale.
Which of the following equations correctly identify the cost flow of a merchandising company?
Net purchases plus beginning inventory equals merchandise available for sale
The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below.
Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business. Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. Terms FOB destination means that the seller is responsible for shipping costs. When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.
Jo's Market makes a credit sale for $1,000 with terms of 2/10,n/30. The cost of the merchandise is $400. The required journal entry to record the sale and cost of the sale is:
debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400
Sales is a(n) ______ account.
revenue
Sales is a(n) ______ (expense/revenue/asset) account and is reported on the _______ (income/balance) _______ (statement/sheet).
revenue, income statement
On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payment is made on May 28, calculate the purchase discount that may be taken by X-Mart.
$15
On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchase discount that may be taken by X-Mart.
$8
Merchandise inventory can be described as:
- An account appearing on a balance sheet of a merchandiser. - An asset account. - Products that a company owns and intends to sell. - An account increased with a debit
Identify the statements below which summarize what cash discounts are.
-A buyer views a cash discount as a purchase discount. -Sellers can grant a cash discount to encourage buyers to pay earlier. -A reduced payment applies to the discount period. -Cash discounts are described in the credit terms. -A seller views a cash discount as a sales discount.
Explain what the credit terms of 2/10,n/30 mean.
-The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date. -The full payment is due within a 30-day credit period.
The components of a merchandiser's multi-step income statement are shown below. In which order would they appear on the statement? Instructions
1. net sales 2. cost of goods sold 3. gross profit 4. expenses 5. net income
Review the following credit terms and identify the one that states that the buyer will receive a 3% discount if the payment is made within 15 days. Otherwise, full payment is expected within 45 days of the invoice date.
3/15,n/45
What is a purchase return?
A purchase return refers to merchandise a buyer acquires, but then returns to the seller.
What is a sales return?
A sales return refers to merchandise that customers return to the seller after a sale.
A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below.
Close the dividends account. Close revenue accounts. Close the income summary account. Close expense accounts.
Identify the statements below which are correct regarding a merchandiser's multi-step income statement.
Cost of goods sold is subtracted from net sales in order to determine gross profit. Expenses are subtracted from gross profit in order to calculate net income.
Explain how to determine gross profit on an income statement by selecting the correct statement below.
Cost of goods sold is subtracted from net sales.
Which of the statements below are correct regarding cost of goods sold?
Cost of goods sold is the expense of buying and preparing merchandise.
X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.
Debit Merchandise Inventory $300; credit Cash $300.
Sticky Company's merchandise inventory balance at year end is $15,050, but a physical count reveals that only $15,000 of inventory exists. The adjusting entry to record the shrinkage includes:
Debit to Cost of Goods Sold for $50 Credit to Merchandise Inventory for $50
If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:
FOB destination
A single-step income statement can be identified by which of the following formats?
It shows only one total for all expenses.
Which statement below correctly describes merchandise inventory?
Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.
Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system.
Sales is closed as a revenue account. Sales Returns and Allowances is closed with the expense accounts. The Dividends account is closed to Retained Earnings Sales Discounts is closed with the expense accounts. Cost of goods sold is closed with the expense accounts.
Identify the statement below that is the correct definition of inventory shrinkage.
Shrinkage is the term used to refer to the loss of inventory due to theft, breakage or deterioration.
Review the following statements and select the one that best describes a discount period.
The discount period is the time period in which a discount may be taken by the buyer.
Merchandise inventory that is still available for sale is considered a(n)__________ (asset/expense/revenue) and is reported on the __________(balance sheet/income statement) and merchandise that is sold during the period is considered a(n) ________ (asset/expense/liability) and reported on the ________ (balance sheet/income statement).
asset, balance sheet, expense, income statement
The discount period is the time _______ (before/between) the invoice date and a specified date on which the payment amount owed can be __________ (increased/reduced) because of early payment.
between, reduced
A purchase return refers to merchandise a ________ (buyer/seller/creditor) purchased, but then returns to the _______ (buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.
buyer, seller
A cash discount can be summarized as a discount given to __________ (buyers/creditors/sellers) to encourage them to pay ________ (earlier/later/less/more).
buyers, earlier
Show your understanding of a merchandiser by completing the following statement. Merchandisers earn net income by __________ and ______ merchandise
buying, selling
The formula for the acid-test ratio is computed as ( _______ + cash equivalents + short-term investments + current receivables)/current liabilities.
cash
The Merchandise Inventory account on a classified balance sheet is reported in the:
current assets section
The formula for the acid-test ratio is computed as (cash + short-term investments + current receivables)/______
current liabilities
A sales return refers to merchandise that ______ (customers/sellers/creditors) return to the _______ (customer/seller/creditor) after a sale for a refund of the purchase price or reduction in the amount owed
customer, seller
Jan's Jams makes a credit sale for $300 with terms of 2/10,n/30. The cost of the merchandise is $200. The required journal entry to record the sale and the cost of the sale is:
debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200
Merchandise inventory is generally converted to cash more quickly than accounts receivable.
false
Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun would debit the Merchandise ____________ (Inventory/Payable/Cash) account and credit the __________ (Cash/Inventory/Accounts Payable) account.
inventory, cash
Gross profit is computed as net _____ minus cost of goods sold.
sales
A single-step income statement shows only one subtotal for expenses.
true
