Chapter 4

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:

$9,000 × 0.02 = $180

KLM Corporation's quick assets are $5,942,000, its current assets are $12,090,000 and its current liabilities are $8,034,000. Its acid-test ratio equals:

Acid-Test Ratio = Quick Assets/Current Liabilities = $5,942,000/$8,034,000 = 0.74

A company's current assets are $24,420, its quick assets are $14,290 and its current liabilities are $12,320. Its acid-test ratio equals:

Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $14,290/$12,320 = 1.16

A company's current assets are $20,920, its quick assets are $11,880 and its current liabilities are $13,200. Its quick ratio equals:

Acid-Test Ratio = Quick Assets/Current LiabilitiesAcid-Test Ratio = $11,880/$13,200 = 0.90

A company purchased $10,700 of merchandise on June 15 with terms of 2/10, n/45, and FOB shipping point. The freight charge, $850, was added to the invoice amount. On June 20, it returned $1,360 of that merchandise. 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:

Cash Paid = $10,700 − $1,360 = $9,340 × 0.98 = $9,153.20 + $850 = $10,003

A company purchased $3,500 of merchandise on July 5 with terms 1/10, n/30. On July 7, it returned $385 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:

Cash Paid = ($3,500 − $385) × 0.99 = $3,084

A company purchased $9,500 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $475 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:

Cash Paid = ($9,500 − $475) × 0.97 = $8,754

A company purchased $4,500 worth of merchandise. Transportation costs were an additional $395. The company returned $310 worth of merchandise and then paid the invoice within the 3% cash discount period. The total cost of this merchandise is:

Cash Paid = [($4,500 − $310) × 0.97] + $395 = $4,459.30

A company has sales of $378,600 and its gross profit is $159,100. Its cost of goods sold equals:

Cost of Goods Sold = $378,600 − $159,100 = $219,500

Cushman Company had $824,000 in net sales, $360,500 in gross profit, and $206,000 in operating expenses. Cost of goods sold equals:

Cost of Goods Sold = Net Sales − Gross Profit; $824,000 − $360,500 = $463,500

A company purchases merchandise with a catalog price of $27,000. The company receives a 40% trade discount from the seller. The seller also offers credit terms of 1/10, n/30. Assuming no returns were made and that payment was made within the discount period, what is the net cost of the merchandise?

Cost of Merchandise = $27,000 × 0.60 = $16,200; $16,200 × 0.99 = $16,038

Using the following year-end information for Calvin's Clothing, calculate the current ratio and acid-test ratio for the business: Cash$59,720 Short-term investments 15,500 Accounts receivable 61,000 Inventory 300,000 Prepaid expenses 10,770 Accounts payable 109,500 Other current payables 32,400

Current Ratio = Current Assets/Current Liabilities Current Ratio = $446,990/$141,900 = 3.15 Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $136,220/$141,900 = 0.96

Using the following year-end information for Bauman, LLC, calculate the current ratio and acid-test ratio: Cash$45,680 Short-term investments10,000 Accounts receivable42,500 Inventory245,000 Prepaid expenses14,320 Accounts payable90,700 Other current payables23,800

Current Ratio = Current Assets/Current Liabilities Current Ratio = $357,500/$114,500 = 3.12 Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $98,180/$114,500 = 0.86

A company purchased $3,000 of merchandise on July 5 with terms 3/10, 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 $2,200; credit Merchandise Inventory $66; credit Cash $2,134.

A company has net sales of $755,700 and cost of goods sold of $545,700. Its net income is $18,410. The company's gross margin and operating expenses, respectively, are:

Gross Margin = Net Sales − Cost of Goods Sold $755,700 − $545,700 = $210,000 Operating Expenses = Gross Margin − Net Income; $210,000 − $18,410 = $191,590

A company has net sales of $829,000 and cost of goods sold of $549,500. Its net income is $99,000. The company's gross margin and operating expenses, respectively, are:

Gross Margin = Net Sales − Cost of Goods Sold $829,000 − $549,500 = $279,500 Operating Expenses = Gross Margin − Net Income; $279,500 − $99,000 = $180,500

A company had net sales of $801,200 and cost of goods sold of $568,910. Its net income was $28,390. The company's gross margin ratio equals:

Gross Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Margin Ratio = ($801,200 − $568,910)/$801,200 = 29.0%

A company's net sales are $837,340, its costs of goods sold are $456,350, and its net income is $116,370. Its gross margin ratio equals:

Gross Margin Ratio = (Net Sales − Cost of Goods Sold)/Net Sales Gross Margin Ratio = ($837,340 − $456,350)/$837,340 = 45.5%

Mega Skateboard Supplier had net sales of $2.8 million, its cost of goods sold was $1.6 million, and its net income was $0.9 million. Its gross margin ratio equals:

Gross Margin Ratio = (Net Sales − Cost of Goods Sold)/Net SalesGross Margin Ratio = ($2.8 − $1.6)/$2.8 = 43%

A company's net sales were $680,400, its cost of goods sold was $237,460 and its net income was $35,400. Its gross margin ratio equals:

Gross Margin Ratio = (Net Sales − Cost of Goods Sold)/Net SalesGross Margin Ratio = ($680,400 − $237,460)/$680,400 = 65.1%

A company's gross profit (or gross margin) was $129,650 and its net sales were $502,900. Its gross margin ratio is:

Gross Margin Ratio = Gross Profit/Net Sales Gross Margin Ratio = $129,650/$502,900 = 25.8%

Cushman Company had $844,000 in sales, sales discounts of $12,660, sales returns and allowances of $18,990, cost of goods sold of $400,900, and $290,335 in operating expenses. Gross profit equals:

Gross Profit (Margin) = $844,000 − $12,660 − $18,990 − $400,900 = $411,450

A company has sales of $705,200 and cost of goods sold of $282,200. Its gross profit equals:

Gross Profit = 705,200 − $282,200 = $423,000

Cushman Company had $838,000 in sales, sales discounts of $12,570, sales returns and allowances of $18,855, cost of goods sold of $398,050, and $288,270 in operating expenses. Net income equals:

Net Income = $838,000 − $12,570 − $18,855 − $398,050 − $288,270 = $120,255

Garza Company had sales of $148,200, sales discounts of $2,225, and sales returns of $3,560. Garza Company's net sales equals:

Net Sales = $148,200 − $2,225 − $3,560 = $142,415

Prentice Company had cash sales of $94,450, credit sales of $83,550, sales returns and allowances of $1,775, and sales discounts of $3,550. Prentice's net sales for this period equal:

Net Sales = $94,450 + $83,550 − $1,775 − $3,550 = $172,675

On February 3, Smart Company sold merchandise in the amount of $1,800 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $1,240. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Sales Discounts = $1,800 × 0.01 = $18Cash = $1,800 − $18 = $1,782 cash 1782 SD 18 AR. 1800