Ch.5 Wiley Plus MC

A company has the following balances: Sales $312,000; Sales Returns and Allowances $2,000; Sales Discounts $4,000; Cost of Goods Sold $184,000; Operating Expenses $84,000. How much is the profit margin ratio?

12.4% (Net income divided by net sales results in the profit margin ratio. Net sales = $312,000 ‒ $2,000 ‒ $4,000 = $306,000 Net income = $306,000 ‒ $184,000 ‒ $84,000 = $38,000 Profit margin ratio = $38,000/$306,000 or a profit margin ratio of 12.4%.)

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is the gross profit rate?

46.7% (Net income ($15,000) plus operating expenses ($20,000) provides a gross profit of $35,000. The gross profit of $35,000 divided by net sales of $75,000 provides a gross profit ratio of 46.7%.)

Which one of the following statements is correct?

A company which uses a perpetual inventory system needs two journal entries when it sells merchandise.

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer?

Accounts Receivable and Cost of Goods Sold.

Which of the following would affect the gross profit rate if sales remain constant?

An increase in cost of goods sold.

Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record receipt of the payment?

Cash 1,274 Sales Discounts 26 Accounts Receivable 1,300

A retailer makes a $100 sale with terms of 2/10, n/30 on the first of the month. The customer returns $20 of merchandise for credit on account. What journal entry will the retailer record when payment is received within the discount period under a perpetual inventory system?

Cash 78.40 Sales Discounts 1.60 Accounts Receivable 80.00

What type of accounts are Sales Returns and Allowances and Sales Discounts?

Contra revenue accounts.

Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system?

Freight-out account.

On what amount is a sales discount based?

Invoice price less returns and allowances

To what is the gross profit rate equal?

Net sales minus cost of goods sold, divided by net sales.

Which of the following items does not result in an entry to the Inventory account under a perpetual system?

Payment of freight costs for goods shipped to a customer.

Under what system is cost of goods sold determined at the end of an accounting period?

Periodic inventory system.

Which statement is true for the seller?

The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.

Which statement is true when recording the sale of goods for cash in a perpetual inventory system?

Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

The operating cycle of a merchandising company is ordinarily ___________________ that of a service firm.

Longer than.

Which inventory system will likely be used by a company with merchandise that has a high unit value?

Perpetual inventory system.

Which of the following is classified in an income statement as a nonoperating activity?

Receiving dividend revenue from an investment.

Which of the following is a merchandiser that sells directly to consumers?

Retailer.

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?

$686

Arbor Corporation had reported the following amounts at December 31, 2011: Sales $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchases discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.

$74,100 (Cost of goods available for sale equal the beginning inventory plus purchases minus purchases discounts and purchases returns and allowances plus freight-in: $17,200 + $60,400 - $3,000 - $1,100 + $600 = $74,100.)

Sales revenues total to $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?

$8,500 (Net sales is sales ($10,000) less both sales returns and allowances ($500) and sales discounts ($1,000), for a net total of $8,500.)

If sales revenues totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit?

$90,000 (Gross profit is equal to sales revenue minus cost of goods sold. $400,000 ‒ $310,000 = $90,000)

When credit terms of 1/15, n/60 are offered, how long is the discount period?

15 days.

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin ratio?

20% (et income ($15,000) divided by net sales ($75,000) results in a profit margin ratio of 20%.)

A company has the following accounts balances: Sales $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; and Cost of Goods Sold $1,275,000. How much is the gross profit rate?

25% (Gross profit divided by net sales results in a gross profit rate of 25%. Gross profit = $1,700,000 ‒ $1,275,000 = $425,000 Net sales = $2,000,000 ‒ $250,000 ‒ $50,000 = $1,700,000 Gross profit rate = $425,000/$1,700,000 = 25%)

During the year ended December 31, 2010, State Street Corporation had the following results: Sales $267,000; cost of goods sold $107,000; net income $92,400; operating expenses $55,400; net cash provided by operating activities $108,950. How much is the company's profit margin ratio?

34.6% (The profit margin ratio is calculated by dividing the net income by sales; $92,400 ÷ $267,000 = 34.6%.)

Which of these accounts normally have a debit balance?

Both A and B -Sales discounts -Sales returns and allowances

Which of the following statements about a periodic inventory system is true?

Companies determine cost of goods sold only at the end of the accounting period.

Which of the following would appear on both a single-step and a multiple-step income statement?

Cost of goods sold.

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21?

Credit to Cash for $1,600.

Assume that sales are $450,000, sales discounts are $10,000, net income is $35,000, and cost of goods sold is $320,000. How much are gross profit and operating expenses, respectively?

$120,000 and $85,000. (Net sales less cost of goods sold equals gross profit. Subtracting operating expenses from gross profit equals net income. Contra revenues are subtracted from revenues to calculate net sales.)

Beginning inventory is $12,000; purchases are $34,000; sales are $60,000; and cost of goods sold is $31,000. How much is ending inventory?

$15,000 (Beginning inventory plus purchases less returns less ending inventory equals cost of goods sold. $12,000 + $34,000 - $31,000 = $15,000)

Ending inventory is $10,000, beginning inventory is $20,000, and the cost of goods purchased is $25,000. How much is cost of goods sold?

$35,000 (Beginning balance ($20,000) plus purchases ($25,000) makes $45,000 in merchandise available, less the ending balance ($10,000) results in a cost of goods sold of $35,000.)

The beginning inventory is $20,000, the cost of goods purchased is $25,000, and the ending inventory is $10,000. The cost of goods sold is:

$35,000 (Beginning balance of $20,000 plus purchases of $25,000 results in $45,000 in goods available for sale. When the ending inventory of $10,000 is deducted from the $45,000 in goods available, the cost of goods sold is calculated as $35,000.)

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?

$390,000 (Cost of goods sold is computed by adding beginning inventory and cost of goods purchased and then subtracting ending inventory, or $60,000 + $380,000 - $50,000 = $390,000)

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?

$4,074

Net income is $15,000, operating expenses are $20,000, and net sales total $75,000. How much is cost of goods sold?

$40,000 (Sales less cost of goods sold equals gross profit. Subtracting operating expenses from gross profit equals net income. Net income ($15,000) plus operating expenses ($20,000) results in a gross profit of $35,000. Subtracting gross profit ($35,000) from net sales ($75,000) results in cost of goods sold of $40,000.)

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?

A debit to Inventory for $200.

Which of the following statements is correct?

A perpetual inventory system provides better control over inventories than does a periodic inventory system.

Which of the folowing will not be shown on the income statement for a merchandising company?

All of these are present -Gross profit -Cost of goods sold -A sales revenue section

Which factor would not affect the gross profit rate?

An increase in the cost of heating the store.

Which of the following is classified in an income statement as a nonoperating activity?

Interest expense.

Which is true about a wholesaler?

It sells to another business, which will sell to a consuming customer.

Which one of the following will result in the amount of gross profit?

Sales revenues less cost of goods sold.