CH 4 Acct 2001

Gross profit is computed as net _________, minus cost of goods sold.

sales

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

False

Which of the following are the three main parts of a multiple-step income statement?

Net income Income from operations Gross profit

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

Net purchases plus beginning inventory equals merchandise available for sale

How do you compute net income for a merchandiser.

Net sales - cost of goods sold - other expenses.

Sales is a(n) ______ account.

revenue

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.

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all that apply.)

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

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the ________account and credit the _______account.

Blank 1: Merchandise Inventory Blank 2: Cash

A purchase return refers to merchandise a __________ purchased, but then returns to the ____________ for a refund of the purchase price or reduction in the amount owed.

Blank 1: buyer Blank 2: seller

A sales return refers to merchandise that ___________ return to the _____________) after a sale for a refund of the purchase price or reduction in the amount owed.

Blank 1: customers Blank 2: seller

Sales is a(n) _________ account and is reported on the ___________ ______

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

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. (Check all that apply.)

Close the dividends account. Close expense accounts. Close the income summary account. Close revenue accounts.

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

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

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. (Check all that apply.)

Cost of goods sold is closed with the expense accounts. Sales Returns and Allowances is closed with the expense accounts. Sales is closed as a revenue account. Sales Discounts is closed with the expense accounts. The Dividends account is closed to Retained Earnings

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.

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: (Select all that apply).

Credit to Merchandise Inventory for $50 Debit to Cost of Goods Sold for $50

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.

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.

Assume that X-Men has an unadjusted Accounts Receivable balance of $10,000 and Allowance for Sales Discounts balance of $0. $1,000 of accounts receivable are within the 2% discount period and X-Men expects that buyers will take $20 in future-period discounts arising from this period's sales. The adjusting entry for sales discounts is:

Debit Sales Discounts and credit Allowance for Sales Discounts for $20

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

FOB destination

Identify the financial statements of a merchandiser. (Check all that apply.)

Income statement Balance sheet Statement of retained earnings

The Allowance for Sales Discounts account:

Is reported on the balance sheet as a reduction to the Accounts Receivable account. Is a contra asset account.

The balance sheet of a merchandiser and a service business have one major difference. Select the item below that would appear only on a merchandiser's balance sheet.

Merchandise inventory

Identify the items or sub-headings below that would appear on a multiple-step income statement.

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

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

Selling; general and administrative

Identify the statement below that is the correct definition of "shrinkage".

Shrinkage is the term used to refer to the loss of inventory due to theft, breakage or deterioration.

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

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 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 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.

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

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

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n)___________ and is reported on the____________ and merchandise that is sold during the period is considered a(n)_______________ and reported on the ____________

asset balance sheet expense income statement

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

current assets section

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

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

To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract other

expenses

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

true

A single-step income statement can be identified by which of the following formats?

It shows only one total for all expenses.