ACC Smart Book Chapter 5

A multiple-step income statement will have all of the following main parts except:

net sales

On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payment is made on May 28, calculate the purchase discount that may be taken by X-Mart.

$15 (Reason: $500x.03=$15)

On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchase discount that may be taken by X-Mart.

$8 (Reason: $400 x .02 =$8. Terms are 2/10 which means that they have 10 days in order to take the discount)

Select all that apply Determine which statements below are correct regarding merchandise available for sale during a period. (Check all that apply.)

- Beginning inventory + Net purchases = Merchandise available for sale - Ending inventory + Cost of goods sold = Merchandise available for sale

Describe good cash management practices involving inventory purchases. (Check all that apply.)

- Buyers should take advantage of early payment discounts. - Invoices should be paid on the last day of the discount period.

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

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

What is a purchase return?

A purchase return refers to merchandise a buyer purchases, but then returns to the seller.

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the ____________ (Merchandise Inventory/Accounts Payable/Cash) account and credit the _________ (Cash/Merchandise Inventory/Accounts Payable) account.

Blank 1: Merchandise Inventory Blank 2: Cash

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

It shows only one total for all expenses.

Review the following statements and select the one that best describes a discount period.

The discount period is the time period in which a discount may be taken by the buyer.

True or false: A single-step income statement shows only one subtotal for expenses (select all that apply.)

True

Sales Discounts is a ______ account.

contra revenue

Identify the statements below which summarize what cash discounts are. (Check all that apply.)

- Cash discounts are described in credit terms. - A reduced payment applies to the discount period. - Sellers can grant a cash discount to encourage buyers to pay earlier. - A buyer views a cash discount as a purchase discount. - A seller views a cash discount as a sales discount.

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

- Close revenue accounts. - Close expense accounts. - Close the income summary account. - Close the withdrawals account.

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

- Close revenue accounts. - Close expense accounts. - Close the withdrawals account. - Close the income summary account.

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

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

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

- Credit Merchandise Inventory $20. - Debit Accounts Payable $1,000. - Credit Cash $980.

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. (Check all that apply.)

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

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: (Check all that apply).

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

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

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

Determine which of the following statements below regarding a merchandiser are correct. (Check all that apply.)

- Merchandisers are also identified as wholesalers. - A merchandiser earns net income by buying and selling merchandise. - Merchandisers are often identified as retailers.

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

- Sales Discounts is closed with the expense accounts. - Cost of goods sold is closed with the expense accounts. - Sales is closed as a revenue account. - Sales Returns and Allowances is closed with the expense accounts. - The Withdrawals account is closed to Owner, Capital.

Which of the statements below summarize why a seller would give a sales allowance? (Check all that apply.)

- Sold merchandise was defective or unacceptable. - In order to entice a customer to keep damaged or defective merchandise, the seller is willing to decrease the selling price. - The seller wants to keep a customer happy.

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.)

- Terms FOB destination means that the seller is responsible for shipping costs. - Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business. - When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges. - Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.

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

- The full payment is due within a 30-day credit period. - The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

Click and drag on elements in order 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. Costs of good sold 3. Gross Profit 4. Operating expenses 5. Income from operations 6. Other revenues and expenses

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 sales return?

A sales return refers to merchandise that customers return to the seller after a sale.

Merchandise inventory that is available for sale is a(n) ___________ (asset/expense/revenue) and reported on the balance sheet __________ (balance sheet/income statement). Merchandise that is sold during the period is a(n) expense _________ (asset/expense/liability) and reported on the income statement ________ (balance sheet/income statement).

Blank 1: asset Blank 2: balance sheet Blank 3: expense Blank 4: income statement

A purchase return refers to merchandise a ______ (buyer/seller/creditor) purchased, but then returns to the _______ (buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.

Blank 1: buyer Blank 2: seller

A cash discount can be summarized as a discount given to _________ (buyers/creditors/sellers) to encourage them to pay _________ (earlier/later/less/more).

Blank 1: buyers Blank 2: earlier

A sales return refers to merchandise that ________ (customers/sellers/creditors) return to the _________ (customer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.

Blank 1: customers or customer Blank 2: seller or sellers

Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of _______ that a company acquires to resell to _______ . Use one word for each blank.

Blank 1: products, goods, or inventory Blank 2: customers, consumers, or buyers

The discount period is the time between the invoice date and a specified date on which the payment amount owed can be ________ (increased/reduced) because of early payment.

Blank 1: reduced

Sales Discounts is a contra _______ (expense/revenue/asset) account and is increased with a _____ (debit/credit).

Blank 1: revenue Blank 2: debit

Sales is a(n) ______ (expense/revenue/asset) account and is reported on the _____ (income/balance) ______ (statement/sheet).

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

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

Blank 1: sales

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.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 16, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20.

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.

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.

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

FOB destination

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

False

Which statement below correctly explains what merchandise inventory is?

Merchandise inventory is an asset reported on the balance sheet and represents 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

Determine which of the definitions on the right go with the entity on the left.

Retailer - Buys products from manufacturers or wholesalers and sells them to consumers. Wholesaler - Buys products from manufacturers and sells them to retailers. Merchandiser - Earns net income by buying and selling merchandise.

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 or deterioration.

A sales allowance can be described as:

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

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

Sales is a(n) ______ account.

revenue