ACC - SmartBook CH 4 (Best Set)

Which of the statements below are correct regarding cost of goods sold?

Cost of goods sold is the expense of buying and preparing merchandise.

Which of the following costs are included in merchandise inventory?

Costs necessary to ready the merchandise for sale Purchase costs Shipping fees charged by the vendor Taxes assessed on the merchandise

Determine which statements below are correct regarding merchandise available for sale during a period.

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

Explain how to compute gross profit by completing the following sentence. Gross profit is calculated by taking the net (sales/costs) of a product and (adding/subtracting) the cost of the goods sold.

sales; subtracting

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 purchase return?

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

What is a sales return?

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

Cost of goods sold is characterized by which of the following statements?

Cost of goods sold includes the expenses of buying and preparing an item for sale. Cost of goods sold is also called cost of sales. Cost of goods sold is used to figure gross profit. Cost of goods sold is an expense reported on the income statement. (< not an asset / not on balance sheet)

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

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

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. Demonstrate the required journal entry to record the cost of the sale by selecting all of the correct actions below.

Credit Merchandise Inventory $500. Debit Cost of Goods Sold $500.

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. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below.

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

On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10,n/30. How will Jo's Market record the customer's payment on June 8?

Debit Cash $980; debit Sales Discounts $20; and credit Accounts Receivable $1,000

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 cost of the sale by selecting all of the correct actions below.

Debit Cost of Goods Sold $500. Credit Merchandise Inventory $500.

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash. 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.

Debit Cost of Goods Sold $500. Debit Cash $7,000. Credit Sales $7,000. Credit Merchandise Inventory $500.

Jerry's Flowers sold and shipped merchandise across the country to a buyer. The terms were FOB destination. Assuming it paid the bill immediately, demonstrate the journal entry required by Jerry's Flowers under the perpetual inventory system to record the freight charges.

Debit Delivery Expense; credit Cash. (FOB destination = seller will assume responsibility for the shipping costs)

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

ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. ABC Mart uses a perpetual inventory system. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges.

Debit Merchandise Inventory $20; credit Cash $20.

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.

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 (not shipping point, which is when the buyer/purchaser pays for the shipping charges.)

Which of the statements below summarize why a buyer would desire a purchase allowance?

In order to keep defective, but still marketable merchandise, the buyer would need a reduction in the purchase price. Purchased merchandise was defective or unacceptable.

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.

Merchandise Inventory; Cash

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.

Determine which of the following statements below regarding a merchandiser are correct.

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

How do you compute net income for a merchandiser.

Net sales - cost of goods sold - other expenses.

Identify the statements below which summarize what cash discounts are.

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. (not a purchase discount) Cash discounts are described in credit terms. A reduced payment applies to the discount period.

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

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 avoid future lost sales. 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.

Terms FOB destination means that the seller is responsible for shipping costs. 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.

Explain what the credit terms of 2/10,n/30 mean

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

Explain what the credit terms of 2/10,n/30 mean.

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

Credit terms of 1/10, net 30 means.

The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.

Credit terms of n/15 were printed on an invoice. Explain what this means.

The credit terms stand for net 15 days.

Determine which of the definitions below describes gross profit.

The difference between net sales and the cost of the goods sold

Review the statements below and select the one that explains the purpose of a sales discount.

They decrease the time that the seller has to wait for payment.

A purchase allowance can be described as:

a reduction in the cost of defective or unacceptable merchandise that a buyer acquires

A sales allowance can be described as:

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

Merchandise inventory can be described as:

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

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

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.

buyer; seller

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

buyers; earlier

Show your understanding of a merchandiser by completing the following statement. Merchandisers earn net income by (buying/manufacturing) and (selling/purchasing) merchandise.

buying; selling

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

customers; seller

A ______ discount benefits a seller through earlier cash receipts and reduced collection efforts.

sales

To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract

expenses

An invoice is referred to as a ______ invoice for a buyer and as a ___________ invoice for the seller.

purchase; sales