Chapter 4 Smartbook

Merchandisers earn net income by ______ and _____ merchandise

buying, selling

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. -Ending inventory + Cost of goods sold = Total 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.

Explain how to determine gross profit on an income statement by selecting the correctstatement 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 purchased $300 of merchandise on credit. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

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

Which statement below correctly explains what merchandise inventory is?

Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.

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

Net purchases plus beginning inventory equals merchandise available for sale

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

True

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) ________ (asset/expense/revenue) and is reported on the ____________ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) _______ (asset/expense/liability) and reported on the ____________ (balance sheet/income statement).

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

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

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.

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

Merchandise inventory can be described as:

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