ACG Ch.5
The following information relates to Fantastic Clothing, Inc. Net Sales Revenue $510,000 Cost of Goods Sold 260,000 Interest Expense 4,900 Operating Expenses 57,000 Calculate the net income.
$188,100
On November 1, 2025, Alpha Omega, Inc. sold merchandise for $17,000, FOB destination, with payment terms, n/30. The cost of goods sold was $5,100. On November 3, the customer returns on this sale amounted $6,800 of goods purchased. The company received the balance on November 9, 2025. Calculate the cost of goods sold from these transactions.
$3,060
A company using the perpetual inventory system purchased inventory worth $520,000 on account with credit terms of 2/15, n/45. Defective inventory of $70,000 was returned 2 days later, and the accounts were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the payment would be ________.
$450,000 debit to Accounts Payable and $450,000 credit to Cash
A company using the perpetual inventory system purchased inventory worth $520,000 on account with credit terms of 3/15, n/45. Defective inventory of $50,000 was returned 3 days later, and the accounts were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the payment would be ________.
$470,000 debit to Accounts Payable and $470,000 credit to Cash
A company using the perpetual inventory system purchased inventory worth $20,000 on account with terms of 3/10, n/30. Defective inventory of $2,000 was returned two days later, and the accounts were appropriately adjusted. If the invoice is paid 10 days after the invoice date, the amount of the purchase discount that would be available to the company is ________.
$540
The following details are provided by Western Wear Merchandisers. The company uses the periodic inventory system. Net Sales Revenue $199,000 Purchases 92,000 Purchase Returns and Allowances 1,500 Purchase Discounts 1,600 Freight In 1,700 Beginning Merchandise Inventory 63,000 Ending Merchandise Inventory 37,000 Calculate the amount of net cost of purchases.
$88,900
An invoice of $1,000 for merchandise purchased is showing 3/15, n/30 as terms of credit. If the invoice is paid on or before the fifteenth day after the invoice date, the amount to be paid is ________.
$970
The following information relates to Sports Bikes, Inc. Net Sales Revenue $195,000 Cost of Goods Sold 150,000 Interest Revenue 10,000 Operating Expenses 42,500 Calculate the operating income.
2,500
What does "2/10" mean, with respect to "credit terms of 2/10, n/30"?
A discount of 2 percent will be allowed if the invoice is paid within 10 days of the invoice date.
A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $ 100 to the vendor. Which of the following would be the correct journal entry to record these returns?
Accounts Payable 100 Merchandise Inventory 100
A company that uses the perpetual inventory system purchased inventory for $950,000 on account with terms of 3/7, n/20. Which of the following correctly records the payment made 15 days after the date of invoice?
Accounts Payable 950,000 Cash 950,000
A company sold merchandise with a cost of $500 for $3,000 on account. The seller uses the perpetual inventory system. The entry to record the sale would be:
Accounts Receivable 3,000 Sales Revenue 3,000 Cost of Goods Sold 500 Merchandise Inventory 500
Advanced Computer Parts uses the perpetual inventory system. On May 5, Advanced sold merchandise with a cost of $2500 for $4500 to a customer on account with terms of 3/10, n/30. Which of the following journal entries correctly records the payment received from the customer on May 11?
Cash 4365 Accounts Receivable 4365
Complete Electronics Inc. sells a point−of−sale computer with a two−year service contract. Complete collects $1,000 cash for the selling price of the computer and $552 for the two−year service contract. How is revenue recognized?
Complete will record Sales Revenue of $1,000 when the computer is delivered and Service Revenue of $23 per month for 24 months.
Which of the following line items will appear on the income statement of a merchandiser but not of a service company?
Cost of Goods Sold
The Merchandise Inventory account of a company shows a balance of $30,000 but a physical count of inventory shows $25,000. Which of the following entries is required to record the shrinkage? (Assume a perpetual inventory system.)
Cost of Goods Sold 5,000 Merchandise Inventory 5,000
When a company that uses the perpetual inventory system sells goods for cash, the journal entry to record cost of goods sold is:
Cost of Goods Sold XX Merchandise Inventory XX
Which of the following statements is NOT correct?
In a periodic inventory system, merchandise inventory and purchasing systems are integrated with the records for Accounts Receivable and Sales Revenue.
Which of the following is true of freight in?
It is the transportation cost on purchases.
Under the perpetual inventory system, when a wholesaler returns goods purchased on account, the ________ account is credited.
Merchandise Inventory
Which of the following entries would be made to record the purchase of inventory on account for $1,000, if a company uses the perpetual inventory system?
Merchandise Inventory 1,000 Accounts Payable 1,000
Regarding a periodic inventory system, which of the following statements is incorrect?
The periodic inventory system is normally used for relatively expensive goods.
A retailer can buy merchandise either from a manufacturer or a wholesaler.
True
A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to retailers.
True
A company purchased inventory for $4,000 from a vendor on account, FOB shipping point, with terms of 2/15, n/30. The company paid $200 cash for freight in. The entry to record the payment of the invoice within 15 days of the invoice date by the purchaser would include ________. (Assume a perpetual inventory system.)
a debit to Accounts Payable for $4,000, a credit to Merchandise Inventory for $80, and a credit to Cash for $3,920
Which of the following entries would be made to record the purchase of inventory on account, if a company uses the perpetual inventory system?
a debit to Merchandise Inventory and a credit to Accounts Payable
A modern perpetual inventory system ________.
achieves better control over inventory
In a periodic inventory system, ________.
businesses must obtain a physical count of inventory to determine quantities on hand
Gross profit is calculated as the difference between net sales revenue and ________.
cost of goods sold
The main expense of a merchandiser is usually ________.
cost of goods sold
Under the perpetual inventory system, discounts taken on an invoice by the buyer would be ________.
credited to Merchandise Inventory
A company using the perpetual inventory system purchased inventory worth $113,000 on account with credit terms of 4/15, n/30. Defective inventory was received, but instead of a return, an allowance of $1,100 is given. The allowance is before the invoice is paid. The journal entry to record the payment after the allowance and within the discount period would be ________.
debit to Accounts Payable; $107,424 credit to Cash and $4,476 credit to Merchandise Inventory
Operating expenses include _______
expenses that occur in an entity's major line of business
For a merchandiser, the term "inventory" refers to ________.
goods held for sale to customers
On the balance sheet of a retailer, the Merchandise Inventory account ________.
is included in the current assets section
The merchandise that is currently being held by a business to sell to customers is referred to as:
merchandise inventory
Merchandise inventory accounting systems can be broadly categorized into two types. They are ________.
perpetual and periodic
The gross profit percentage is one of the most carefully watched measures of ________.
profitability
Value Electronics, Inc. started its operations on January 1 of the current year. Value engages in buying and selling different types of electronic gadgets. The first step in its operating cycle would be to ________.
purchase inventory from vendors
On January 21, Cressent, Inc. received merchandise from Neptune, Inc. On that date, Cressent found a few of these goods to be damaged. On January 22, Cressent returned the damaged goods to the seller. Such returns will be treated as ________ by Cressent.
purchase returns
An entity that buys goods and sells them to consumers at a markup is a ________.
retailer
Net sales revenue is calculated by ________.
subtracting sales discounts and estimated sales returns and allowances from sales revenue
When a company uses the perpetual inventory system, ________.
the Merchandise Inventory account is debited for purchases of goods that the company intends to resell to customers.
Which of the following is NOT recorded in a modern perpetual inventory system?
timeliness of vendor deliveries
Given the following information for Franklin Jewelers, by how much did the gross profit percentage go up or down from 2024 to 2025? 2024 Net Sales $36,000 Cost of Goods Sold $27,000 2025 Net Sales $21,000 Cost of Goods Sold $7,350
up by 65%