Ch 4

The components of a merchandiser's multi-step 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

Demonstrate how to prepare a multiple-step income statement by ranking the items below in the order they would appear on a multiple-step income statement of a merchandiser.

1. sales 2. cost of goods sold 3. gross profit 4. operating expenses 5. income from operations 6. other revenues and expenses

A merchandiser has four closing journal entries at the end of an accounting cycle.

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

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system.

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

Identify the statements below which are correct regarding a merchandiser's multi-step income statement.

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

cost of goods sold

Cost of inventory sold to customers during a period; also called cost of sales. Cost of goods sold is also called cost of sales. Cost of goods sold is an expense reported on the income statement. 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.

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.

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

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. 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.

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

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.

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

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.

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

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.

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

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.

merchandiser

Entity that earns income by buying and selling merchandise

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

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

inventory

Goods a company owns and expects to produce and/or sell in its normal operations.

Merchandise

Goods that a company owns and expects to sell to customers; also called merchandise inventory or inventory.

merchandise inventory

Goods that a company owns and expects to sell to customers; also called merchandise or inventory.

Which of the statements below summarize why a seller would give a sales allowance?

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. The seller wants to avoid future lost sales. The seller wants to keep a customer happy.

wholesaler

Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.

retailer

Intermediary that buys products from manufacturers or wholesalers and sells them to consumers.

describe merchandise inventory

Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale. merchandise that is sold during the period is considered an expense and reported on the income statement an asset account. products that a company owns and intends to sell. an account increased with a debit. an account appearing on a balance sheet of a merchandiser.

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. Multiple select question.

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

perpetual inventory system

Method that maintains continuous records of the cost of inventory available and the cost of goods sold.

periodic inventory system

Method that records the cost of inventory purchased but does not continuously track the quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and costs of goods available.

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.

gross profit

Net sales minus cost of goods sold; also called gross margin.

gross margin

Net sales minus cost of goods sold; also called gross profit.

A sales allowance can be described as:

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

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