Chapter 04 Multiple Choice Questions #2 (Algorithmic)
Cushman Company had $820,000 in sales, sales discounts of $12,300, sales returns and allowances of $18,450, cost of goods sold of $389,500, and $282,080 in operating expenses. Net income equals:
$117,670 Explanation Net Income = $820,000 − $12,300 − $18,450 − $389,500 − $282,080 = $117,670
Cushman Company had $830,000 in net sales, $363,125 in gross profit, and $207,500 in operating expenses. Cost of goods sold equals:
466,875 Explanation Cost of Goods Sold = Net Sales − Gross Profit; $830,000 − $363,125 = $466,875
A company's net sales were $716,900, its cost of goods sold was $243,030 and its net income was $55,900. Its gross margin ratio equals:
66.1% Explanation Gross Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Margin Ratio = ($716,900 − $243,030)/$716,900 = 66.1%
On February 3, Smart Company sold merchandise in the amount of $1,900 to Kennedy Company, with credit terms of 3/10, n/30. The cost of the items sold is $1,310. Smart uses the perpetual inventory system and the gross method. Kennedy pays the invoice on February 8 and takes the appropriate discount. The journal entry that Smart makes on February 8 is:
Cash 1,843 (Debit) Sales discounts 57 (Debit) Accounts Receivable 1,900 (Credit)
Cushman Company had $818,000 in sales, sales discounts of $12,270, sales returns and allowances of $18,405, cost of goods sold of $388,550, and $281,395 in operating expenses. Gross profit equals:
$398,775 Explanation Gross Profit (Margin) = $818,000 − $12,270 − $18,405 − $388,550 = $398,775
A company has net sales of $732,400 and cost of goods sold of $293,400. Its gross profit equals:
$439,000 Explanation Gross Profit = Net Sales − Cost of Goods Sold Gross Profit = $732,400 − $293,400 = $439,000
A company purchased $8,500 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $425 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:
$7,833 Explanation Cash Paid = ($8,500 − $425) × 0.97 = $7,833
A company purchased $10,400 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. On June 20, it returned $1,120 of that merchandise. The shipping charges for the purchase totaled $700. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:
$9,702 Explanation Cash Paid = $10,400 − $1,120 = $9,280 × 0.97 = $9,001.60 + $700 = $9,702
Blue Wing Corporation's quick assets are $2,970,000, its current assets are $12,285,000 and its current liabilities are $8,051,000. Its acid-test ratio equals:
0.37 Explanation Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $2,970,000/$8,051,000 = 0.37
Using the following year-end information for Work-Fit calculate the acid-test ratio: Cash $52,390 Short-term investments $9,000 Accounts receivable (all current) $48,000 Inventory $170,000 Supplies $7,420 Accounts payable $103,000 Wages payable $30,400
0.82 Explanation Quick Assets = $109,390 = $52,390 + 9,000 + 48,000Acid-Test Ratio = Quick Assets/Current LiabilitiesAcid-Test Ratio = $109,390/$133,400 = 0.82
Garza Company had sales of $153,000, sales discounts of $2,300, and sales returns of $3,670. Garza Company's net sales equals:
$147,030 Explanation Net Sales = $153,000 − $2,300 − $3,670 = $147,030
Prince Company had cash sales of $94,700, credit sales of $83,700, sales returns and allowances of $1,875, and sales discounts of $3,650. Prince's net sales for this period equal:
$172,875 Explanation Net Sales = $94,700 + $83,700 − $1,875 − $3,650 = $172,875
A buyer of $9,000 in merchandise inventory failed to take advantage of the vendor's credit terms of 2/15, n/45, and instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the discount of:
$180 Explanation $9,000 × 0.02 = $180
A company purchased $2,300 of merchandise on July 5 with terms 1/10, n/30. On July 7, it returned $250 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:
$2,030 Explanation Cash Paid = ($2,300 − $250) × 0.99 = $2,030
A company has net sales of $393,000 and its gross profit is $165,500. Its cost of goods sold is:
$227,500 Explanation Gross Profit = Net Sales − Cost of Goods Sold Cost of Goods Sold = $393,000 − $165,500 = $227,500
A company has net sales of $773,900 and cost of goods sold of $558,900. Its net income is $22,780. The company's gross margin and operating expenses, respectively, are:
$215,000 and $192,220 Explanation Gross Margin = Net Sales − Cost of Goods Sold; $773,900 − $558,900 = $215,000 Operating Expenses = Gross Margin − Net Income; $215,000 − $22,780 = $192,220
A company purchased $3,400 worth of merchandise. Transportation costs for the buyer were an additional $300. The company returned $235 worth of merchandise and then paid the invoice within the 1% cash discount period. The total cost of this merchandise is:
$3,433.35 Explanation Cash Paid = [($3,400 − $235) × 0.99] + $300 = $3,433.35 No discount may be taken on the transportation costs.
A company's current assets are $22,700, its quick assets are $13,390 and its current liabilities are $13,800. Its quick ratio is closest to:
0.97 Explanation Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $13,390/$13,800 = 0.97
A company's gross profit (or gross margin) was $112,520 and its net sales were $388,000. Its gross margin ratio is:
29% Explanation Gross Margin Ratio = Gross Profit/Net Sales Gross Margin Ratio = $112,520/$388,000 = 29.0%
A company purchased $3,600 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $800 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:
Debit Accounts Payable $2,800; credit Merchandise Inventory $56; credit Cash $2,744.
