SB5

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.

Which of the statements below summarize why a seller would give a sales allowance? (Check all that apply.)

The seller wants to keep a customer happy. In order to entice a customer to keep damaged or defective merchandise, the seller is willing to decrease the selling price. Sold merchandise was defective or unacceptable.

Explain what the credit terms of 2/10, n/30 mean. (Check all that apply.)

The full payment is due within a 30-day credit period. The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

Sales Discounts is a ______ account.

contra revenue

The Merchandise Inventory account on a classified balance sheet is reported in the:

current assets section

On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10, n/30. The required journal entry to record Jo's Market customer's payment on July 6 would be:

debit Cash $1,000; credit Accounts Receivable $1,000

A multiple-step income statement will have all of the following main parts except:

net sales

Merchandise inventory can be described as: (Check all that apply.)

products that a company owns and intends to sell. an account appearing on a balance sheet of a merchandiser. an account increased with a debit. an asset account.

Sales is a(n) ______ account.

revenue

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 Reason: $500x.03=$15

Calculate the total cost of merchandise purchased using the information in the following table: Invoice cost of merchandise purchases $40,000 Purchase discounts received $ 3,000 Cost of transportation-in (shipping) $ 500 Costs of purchase returns and allowances $ 100

$37,400 Reason: $40,000 - $3,000 - $100 + $500 = $37,400.

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 Reason: $400 x .02 =$8. Terms are 2/10 which means that they have 10 days in order to take the discount.

Jerry's Flowers had the following cost information related to its purchases of merchandise. Calculate the total cost of merchandise purchased using the information below: Invoice cost of merchandise purchases $100,000 Purchase discounts received $ 9,000 Cost of transportation-in (shipping) $ 500 Costs of purchase returns and allowances $ 400

$90,100 Reason: $100,000 - $9,000 - $400 + $500 = $91,100.

The components of a merchandiser's income statement are shown below. In which order would they appear on the statement?

1. Net Sales 2. Cost of goods sold 3. Gross profit 4. Expenses 5. Net income

Which of the following equations correctly identify the cost flow of a merchandising company?

1. Sales 2. Cost of goods sold 3. Gross profit 4. Operating expenses 5. Income from operations 6. Other revenues and expenses

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

Given the following information for Q-mart, calculate its gross margin ratio. Net sales $10,000 Cost of goods sold $3,200

68% Reason: $10,000 - $3,200= $6,800. $6,800/$10,000= 68%.

Why is it important for a business's success to have a high gross margin?

A merchandiser must make a sufficient profit on the sale of its merchandise to cover the other expenses of its business.

What is a purchase return?

A purchase return refers to merchandise a buyer acquires, but then returns to the seller.

Identify the statements below which summarize what cash discounts are. (Check all that apply.)

A reduced payment applies to the discount period. Sellers can grant a cash discount to encourage buyers to pay earlier. A seller views a cash discount as a sales discount. Cash discounts are described in credit terms. A buyer views a cash discount as a purchase discount.

What is a sales return?

A sales return refers to merchandise that customers return to the seller after a sale.

A sales return refers to merchandise that (Blank 1) return to the (Blank 2) after a sale for a refund of the purchase price or reduction in the amount owed.

Blank 1: customers or customer Blank 2: seller or sellers

Determine which statements below are correct regarding merchandise available for sale during a period. (Check all that apply.)

Beginning inventory + Net purchases = Merchandise available for sale Ending inventory + Cost of goods sold = Merchandise available for sale

Gross profit is computed as net (Blank 1) minus cost of goods sold.

Blank 1: Sale

Merchandise inventory that is available for sale is a(n) (Blank 1) and reported on the (Blank 2) Merchandise that is sold during the period is a(n) (Blank 3) and reported on the (Blank 4).

Blank 1: asset Blank 2: balance sheet Blank 3: expense Blank 4: income statement

A purchase return refers to merchandise a (Blank 1) purchased, but then returns to the (Blank 2) for a refund of the purchase price or reduction in the amount owed.

Blank 1: buyer Blank 2: seller

A cash discount can be summarized as a discount given to (Blank 1) to encourage them to pay (Blank 2).

Blank 1: buyers Blank 2: earlier

Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of products that a company acquires to resell to (Blank 1).

Blank 1: customers

The discount period is the time between the invoice date and a specified date on which the payment amount owed can be (Blank 1) because of early payment.

Blank 1: reduced

Sales Discounts is a contra (Blank 1) account and is increased with a (Blank 2).

Blank 1: revenue Blank 2: debit

Sales is a(n) (Blank 1) account and is reported on the (Blank 2) (Blank 3).

Blank 1: revenue Blank 2: income Blank 3: statement

When a seller grants an allowance to a customer for defective goods that were purchased on credit and that were not returned, the seller records a debit to the (Blank 1)_ (Blank 2)_ and (Blank 3) _ account.

Blank 1: sales Blank 2: returns Blank 3: allowances

Gross profit is calculated by taking the net (Blank 1) of a product and (Blank 2) the cost of the goods sold.

Blank 1: sales Blank 2: subtracting

Describe good cash management practices involving inventory purchases. (Check all that apply.)

Buyers should take advantage of early payment discounts. Invoices should be paid on the last day of the discount period.

Cost of goods sold is characterized by which of the following statements? (Check all that apply.)

Cost of goods sold is also called cost of sales. Cost of goods sold is used to figure gross profit. Cost of goods sold includes the expenses of buying and preparing an item for sale. Cost of goods sold is an expense reported on the income statement.

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 uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit with terms of 1/10, n/40. Demonstrate the required journal entry to record the receipt of payment on May 25 by selecting all of the correct actions below. (Check all that apply.)

Credit Accounts Receivable $1,400. Debit Cash $1,400.

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on December 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Cash $1,000. Debit Accounts Payable $1,000.

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Cash $980. Credit Merchandise Inventory $20. Debit Accounts Payable $1,000. Reason: Credit Merchandise Inventory for the discount. Debit Accounts Payable. Credit Cash for $1,000-$20 = $980.

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory $500. Debit Cost of Goods Sold $500.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory $500. Debit Cost of Goods Sold $500.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it purchased $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory $7. Debit Accounts Payable $350. Credit Cash $343.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Credit Sales $1,400. Debit Cash $1,400. Debit Cost of Goods Sold $500. Credit Merchandise Inventory $500.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 30, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $1,000.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 16, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20.

On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming the perpetual inventory method.

Debit Accounts Payable $100; credit Merchandise Inventory $100. Reason: Your debits and credits are reversed. Since they received an allowance for damaged merchandise, you will need to debit Accounts Payable and credit Merchandise Inventory to reduce them. Even though the merchandise wasn't actually returned, the journal entry for an allowance is handled the same as a return.

Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required journal entry to record the return by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Payable $50. Credit Merchandise Inventory $50.

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Debit Cash $7,000. Credit Sales $7,000. Debit Cost of Goods Sold $500. Credit Merchandise Inventory $500.

On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10,n/30. How will Jo's Market record the customer's payment on June 8?

Debit Cash $980; debit Sales Discounts $20; and credit Accounts Receivable $1,000 Reason: We are the seller and receiving the cash payment, so Cash should be increased by a debit for $980; Sales Discounts would be debited for $20, and Accounts Receivable should be decreased by crediting it for the $1,000.

X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Accounts Payable $300.

Sally Beauty Warehouse uses the perpetual inventory system to account for its merchandise. On Nov 2, it sold $700 of merchandise on credit with terms of 2/15,n/30. Demonstrate the required journal entry to record the receipt of payment from the customer on Nov 13, by selecting all of the correct actions below. (Check all that apply.)

Debit Sales Discounts $14. Credit Accounts Receivable $700. Debit Cash $686.

Dogs R US uses the perpetual inventory system to account for its merchandise. A customer returned merchandise. Assuming that the purchase was originally bought on credit for $400 with a cost to Dogs R US of $100, demonstrate required journal entry of Dogs R US to record the return by selecting all of the correct actions below. (Check all that apply.)

Debit Sales Returns and Allowances $400. Debit Merchandise Inventory $100. Credit Cost of Goods Sold $100. Credit Accounts Receivable $400.

X-Mart uses the perpetual inventory system to account for its merchandise. A customer who purchased merchandise on account requested an allowance on a merchandise purchase due to its poor quality, but he did not return the goods back to X-Mart. Assuming that X-mart gives an allowance of $50 on the merchandise, demonstrate the required journal entry on X-Mart's books to record the allowance by selecting all of the correct actions below. (Check all that apply.)

Debit Sales Returns and Allowances $50. Credit Accounts Receivable $50.

On Jan 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer.

Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150.

Identify the statements below which are correct regarding a merchandiser's income statement. (Check all that apply).

Expenses are subtracted from gross profit to calculate net income. Cost of goods sold is subtracted from net sales to determine gross profit.

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

FOB destination Reason: FOB shipping point is when the buyer/purchaser pays for the shipping charges.

True or false: Merchandise inventory is generally converted to cash more quickly than accounts receivable.

False Reason: Merchandise inventory is generally converted to cash less quickly than accounts receivable.

Identify the items or sub-headings that would appear on a multiple-step income statement. (Check all that apply.)

Income from operations Net sales Gross profit Cost of goods sold General and administrative expenses Selling expenses

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 explains what merchandise inventory is?

Merchandise inventory is an asset reported on the balance sheet and represents the cost of products purchased 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. (Check all that apply.)

Merchandise that is sold becomes an expense reported on the income statement. Beginning inventory + net purchases = Merchandise available for sale. Ending inventory + Cost of goods sold = Total merchandise available for sale. Merchandise that is purchased becomes an asset reported on the balance sheet.

Which of the following equations correctly identify the cost flow of a merchandising company? (Multiple choice)

Net purchases plus beginning inventory equals merchandise available for sale

Determine which of the definitions below describes gross profit.

Net sales minus cost of the goods sold

Which are the two classifications of operating expenses on a multiple-step income statement?

Selling; general and administrative

Which of the statements below summarizes what the acid-test ratio measures?

The acid-test ratio measures a merchandiser's ability to pay its current liabilities.

Credit terms of 1/10, n/30 means.

The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.

Credit terms of n/60 were printed on an invoice. Explain what this means.

The credit terms stand for net 60 days.

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.

Given the following information, analyze XYZ Company's gross margin ratio. (Check all that apply.) Current Year 1 Year Ago Gross margin $3,200 $3,210 Net sales $10,400 $11,200 Gross margin ratio 30.7% 28.7%

Their gross margin has decreased since last year. Their gross margin ratio has improved since last year. In the current year, they have approximately 30.7 cents of every dollar of sales to help cover the other expenses of running the business.

Given the following information, analyze XYZ Company's liquidity. (Check all that apply.) Current Year Total quick assets $30,000 Total current assets $40,000 Total current liabilities $22,000 Acid-test ratio 1.36 Current ratio 1.82 Industry acid-test ratio .70 Industry current ratio 1.65

They are more liquid than others in their industry. They have sufficient quick assets to pay off short-term debt if needed.

True or false: A single-step income statement shows only one subtotal for expenses.

True Reason: A single-step income statement shows only one subtotal for expenses.

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. (Check all that apply.)

When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges. Terms FOB destination means that the seller is responsible for shipping costs. Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business.

A sales allowance can be described as:

a reduction in the selling price of defective or unacceptable merchandise sold to customers

Merchandise inventory that is available for sale is a(n) ________ and reported on the ____________ and merchandise that is sold during the period is a(n) _______and reported on the ____________.

asset -> balance sheet -> expense -> income statement

Jello's Market purchased $1,000 of goods on account with terms of 2/10,n/30. They returned $200 of the goods due to defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory system, the required journal entry to record the payment would:

debit Accounts Payable $800; credit Merchandise Inventory $16; and credit Cash $784 Reason: Take a discount on only $800 of the balance still owed. Purchase Discounts is not involved. Discount is $800 x 2%= $16. $200 was returned, so the discount is based on $800. $800 - $16 = $784

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 Reason: Debit Accounts Receivable and credit Sales for $1,000; debit Cost of Goods Sold and credit Merchandise Inventory for $400.

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