Finacial Accounting Chapter 5 Review

List the three steps, in order of occurrence, of the operating cycle of a merchandising business.

1) Purchase inventory 2) Sell inventory 3) Collect cash from customers

A company made net sales revenue of 530,000 and cost of goods sold totaled 238,000. Calculate its profit percentage.

530,000 Net sales revenue -238,500 COSGS =291,500 Gross profit 291,500 Gross profit /530,000 Net sales revenue =55%

Oscar Packers received an allowance from the vendor for an amount of $400. Give the journal entry for this transaction. The company uses a perpetual inventory system.

Accounts Payable 400 Merchandise Inventory 400

A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $500 to the vendor. Which of the following would be the correct journal entry to record these returns? A) Purchase Returns 500 Accounts Payable 500 B) Accounts Payable 500 Purchase Returns 500 C) Merchandise Inventory 500 Accounts Payable 500 D) Accounts Payable 500 Merchandise Inventory 500

Accounts Payable 500 Merchandise Inventory 500

FOB Destination when does the title of the good belong to the buyer?

At delivery destination

FOB Shipping Point who pays for the freight

Buyer

If goods are sold on terms FOB shipping point, the _________.

Buyer normally pays the transportation costs

The Merchandise Inventory account of a company shows a balance of $70,000 but a physical count of inventory shows $67,000 Which of the following entries is required to record the shrinkage? (Assume a perpetual inventory system.) A) Cost of Goods Sold 3,000 Shrinkage Expense 3,000 B) Merchandise Inventory 3,000 Cost of Goods Sold 3,000 C) Cost of Goods Sold 3,000 Merchandise Inventory 3,000 D) Cash 3,000 Merchandise Inventory 3,000

Cost of Goods Sold 3,000 Merchandise Inventory 3,000

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, the journal entry to record the freight paid by the seller on goods sold is: A) Cash XX Sales Discount XX Accounts Receivable XX B) Delivery Expenses XX Cash XX C) Cash XX Accounts Receivable XX D) Merchandise Inventory XX Cash XX

Delivery Expenses XX Cash XX

VB specialty foods, a grocery merchandiser, purchased goods and paid transportation to bring them to the company warehouse. The transportation cost is known as ______________.

Freight in

A company ships goods to a customer and pays transportation cost. To the seller, the transportation costs are ________________.

Freight out

The term "inventory", for a merchandiser refers to _____________.

Goods held for sale to customers

Which of the following is the correct formula for calculating gross profit percentage?

Gross profit/ Net sale revenue

Which of the following is added to operating income to arrive at net income? A) sales revenue B) cost of goods sold C) interest revenue D) operating expenses

Interest revenue

Which of the following is true of net sales revenue? A) It is calculated by subtracting cost of goods sold from sales. B) It is calculated by adding sales discounts to sales. C) It is calculated by adding sales discounts and sales returns and allowances to sales. D) It is calculated by deducting sales discounts and sales returns and allowances from sales.

It is calculated by deducting sales discounts and sales returns and allowances from sales

Gross profit represents the mark-up on ____________.

Merchandise inventory

Under perpetual inventory system, when a wholesaler returns the goods purchased on account, the ___________ account is credited.

Merchandise inventory

An entity that buys goods and sells them to a customer at a markup is a _________________.

Merchandiser

How do you calculate Gross Profit?

Net sales -COGS =GROSS PROFIT

Delivery expense is a(n) _______________.

Operating expense

Merchandise inventory accounting systems can be broadly categorized into two types. They are _________________.

Perpetual and periodic

How do you calculate "Net cost of inventory purchased?"

Purchases -purchases returns & allowances -purchase discounts +freight in

The Income Summary account has a credit balance of $20,000 after the revenue and expense accounts have been closed. Which of the following is to be credited to close the Income Summary account?

Retained earnings

Calculate operating income

Sales rev -Sales return & allowances -Sales discount =Net Sales Net sales -COGS =Gross profit Gross profit -Operating expense =Opertating income

The Sales Discount account is a contra account to the ___________ account

Sales revenue

How do you calculate Net Sales?

Sales revenue -sales return & allowances -sales discount = NET SALES

FOB Destination who pays for the freight

Seller

FOB destination refers to a situation where title to goods while in transit belong to the ____________.

Seller

The term "freight out" refers to ________. A) transportation costs on purchases B) cost of inventory purchased C) costs that are not actually paid in cash D) transportation costs on sales

Transportation costs on sales

A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer. (True or false)

True

The entry to close Cost of Goods Sold includes a debit to Income Summary (True or false)

True Income Summary $ COGS $

When a merchandiser records sales returns, Accounts Receivable is credited. (Assume the seller uses perpetual inventory system.) (True or false)

True Sales Return & Allowance $ Accounts receivable $

FOB Shipping Point when does the title of the good belong to the buyer?

While goods are in transit

A company that uses the perpetual inventory system purchases inventory for $63,000 on account, with terms of 2/10, n/30. Which of the following is the journal entry to record the payment made within 10 days? A) a debit to Accounts Payable for $63,000, a credit to Cash for $61,740, and a debit to Merchandise Inventory for $1,260 B) a debit to Accounts Payable for $63,000, a credit to Merchandise Inventory for $1,260, and a credit to Cash for $61,740 C) a debit to Merchandise Inventory for $1,260, a debit to Accounts Payable for $63,000, and a credit to Cash for $64,260 D) a debit to Accounts Payable for $61,740, a debit to Merchandise Inventory for $1,260, and a credit to Cash for $63,000

a debit to Accounts Payable for $63,000, a credit to Merchandise Inventory for $1,260, and a credit to Cash for $61,740

A company sold merchandise with a cost of $231 for $480 on account. The seller uses the perpetual inventory system. The entry to record the cost of merchandise sold would include ________. A) a debit to Sales Revenue and a credit to Cash for $480 B) a debit to Cash and a credit to Sales Revenue for $480 C) a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $231 D) a debit to Merchandise Inventory for $231 and a credit to Cost of Goods Sold for $231

a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $231

Gross profit is the extra amount the company receives from the customer for merchandise sold over what the company paid to the vendor. (True or false)

true

On a multi-step income statement, the operating expenses are subtracted from _________ to arrive at operating income

gross profit

The gross profit percentage measures the profitability of each sales dollar above the cost of goods sold (True or false)

true

On January 21, 2016, Bessant, Inc. received merchandise from Mullies, Inc. On that date, it found a few of these goods to be damaged. On January 22, it returned the damaged goods to the seller. Such returns will be treated as ________ by Bessant. A) purchase returns B) sales returns C) purchase allowances D) sales allowances

purchase returns

Credit terms of 2/10, n/30 indicate that a discount of 2% will be given if payment is made within 10 days of the invoice. Otherwise, the total amount is due within 30 days of the invoice. (True or false)

true

Even in perpetual inventory system that updates the inventory account and when transactions occur, the business must count its inventory at least once a year. (True or false)

true

Freight in is recorded in Merchandising Inventory account if the purchaser uses the perpetual inventory system. (True or false)

true

Under the perpetual inventory system, two journal entries are used to record the sales of merchandise. One entry records the Sales Revenue and another entry records the Cost of Goods Sold. (True or false)

true

Under the perpetual inventory system, when a purchaser makes a payment within the discount period, the amount of discount will be credited to the Merchandise Inventory account. (True or false)

true

Under the terms FOB destination, title to the merchandise will pass to the purchaser when the goods are received by the purchaser. (True or false)

true