Acct: chapter 4 (Connect)

Juice Drinks has beginning inventory of $10,000, purchases in the amount of $150,000, and ending inventory of $8,000. Juice Drinks cost of goods sold is $ _____________

152,000

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

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

Ending inventory + Cost of goods sold = Total merchandise available for sale. Beginning inventory + net purchases = 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.

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

FOB destination

Under a periodic inventory system, purchases are

recorded in a separate temporary account which is closed at period end

J-Lo Company purchased $550 of merchandise on account. Demonstrate the journal entry to record this transaction under the periodic inventory system.

Debit Purchases $550 and credit Accounts Payable $550.

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

customers seller

Under the periodic inventory system, a sale on account will result in the following journal entry:

debit to Accounts Receivable and a credit to Sales

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

net sales

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

between reduced

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:

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

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

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

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

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit with terms of 1/10,n/40. Demonstrate the required journal entry to record the receipt of payment on May 25 by selecting all of the correct actions below. (Check all that apply.)

Debit Cash $1,400. Credit Accounts Receivable $1,400.

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.

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.

A sales allowance can be described as:

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

On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10,n/30. The required journal entry to record Jo's Market customer's payment on July 6 would be:

debit Cash $1,000; credit Accounts Receivable $1,000

Sales is a(n) ______ account.

revenue

Why is it important for a business's success to have a high gross margin?

A merchandiser must make a sufficient profit on the sale of its merchandise to cover the other expenses of its business.

What is a purchase return?

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

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

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

On Dec. 20, X-Mart returned $100 of defective merchandise to its supplier. Demonstrate the required journal entry that X-Mart will record for the return, assuming the purchase was made on account and that X-Mart uses the periodic inventory system.

Debit Accounts Payable $100 and credit Purchase Returns $100.

On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming the perpetual inventory method.

Debit Accounts Payable $100; credit Merchandise Inventory $100.

Juice Drinks returned $25 of defective merchandise to its supplier. Demonstrate the required journal entry that Juice Drinks will record for the return, assuming the purchase was made on account and that Juice Store uses the periodic inventory system.

Debit Accounts Payable $25 and credit Purchases Returns and Allowances $25.

Assume that X-Men estimates that future inventory returns to be $500 on the cost side. The beginning unadjusted balance is $400. The adjusting entry for expected returns on the cost side is:

Debit Inventory Returns Estimated and credit Cost of Goods Sold for $100

Identify the financial statements of a merchandiser. (Check all that apply.)

Income statement Statement of owner's equity Balance sheet

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

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

The Inventory Returns Estimated account:

Is a current asset Is reported on the balance sheet

The Sales Refund Payable account:

Is reported on the balance sheet Is a current liability

Which of the following items are included in a merchandising company's income statement but are not included in a service company's income statement? (Check all that apply.)

Loss from defective merchandise Cost of goods sold Gross profit Sales returns Sales discounts

The balance sheet of a merchandiser and a service business have one major difference. Select the item below that would appear only on a merchandiser's balance sheet.

Merchandise inventory

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

Net purchases plus beginning inventory equals merchandise available for sale

The Sales Refund Payable account is updated:

Only during the adjusting process

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, breakage or deterioration.

Define the Discounts lost account by selecting the statements below that correctly describe this account. (Check all that apply).

It is an expense account. It is reported on the income statement. It is debited when a discount is not taken and when using the net method of recording purchases.

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

It shows only one total for all expenses.

Compare the gross method of recording purchases versus the net method by completing the following sentence. The gross method initially records the invoice at its gross amount ______________ (deducting/ignoring) the cash discount, but the net method initially records the invoice at its net amount assuming that the cash discount ________________ (was/wasn't) taken.

ignoring was

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

revenue income statement

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 ($500 x .03 = $15)

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

False

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. Cost of goods sold 3. Gross profit 4. Operating expense 5. Income from operation 6. Other revenues and expense

ABC Co. purchased merchandise on August 5 at a $1,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on August 14. Determine its entry to record this purchase and the subsequent payment under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a perpetual inventory system.)

Cash would be credited for $980 on August 14. -- Both Methods Discounts lost would be debited for $20 on August 14. -- Neither Method Merchandise inventory would be debited for $980 on August 5. -- Net Method Merchandise inventory would be credited for $20 on August 14. -- Gross Method

Sticky Co. purchased merchandise on August 5 at a $1,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on August 14. Determine its entry to record this purchase and the subsequent payment under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a periodic inventory system.)

Cash would be credited for $980 on August 14. -- Both Methods Purchases would be debited for $980 on August 5. -- Net Methods Purchases discounts would be credited for $20 on August 14. -- Gross method

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

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

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

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

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 December 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Cash $1,000. Debit Accounts Payable $1,000.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it purchased $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Merchandise Inventory $7. Debit Accounts Payable $350. Credit Cash $343.

Juice Drinks uses the periodic inventory system to account for its merchandise purchases. On December 1, it purchased $250 of merchandise with terms of 4/10,n/30. If payment is made on December 5, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Payable $250. Credit Purchase Discounts $10. Credit Cash $240.

Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required journal entry to record the return by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Payable $50. Credit Merchandise Inventory $50.

X-Mart uses the periodic inventory system to account for its merchandise. On May 1, it sold $400 of merchandise on account with terms of 2/15, n/40. On May 3, its customer returned $50 of merchandise due to defect. On May 11, its customer paid the remaining balance due. Demonstrate the required journal entry to record the receipt of payment by selecting all of the correct actions below. (Check all that apply.)

Debit Cash $343. Credit Accounts Receivable $350. Debit Sales Discounts $7.

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. (Check all that apply.)

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

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. (Check all that apply.)

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

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

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.

Assume that X-Men estimates that future sales refunds are $1,500 and they have an unadjusted balance in the Sales Refund Payable account of $700. The adjusting entry for Sales Refund Payable is:

Debit Sales Returns and Allowances and credit Sales Refund Payable for $800

Which of the statements below summarizes what the acid-test ratio measures?

The acid-test ratio measures a merchandiser's ability to pay its current liabilities.

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 EOM were printed on an invoice. Explain what this means.

The credit terms stand for net 15 days after end of month.

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

True

True or false: The journal entry required when a customer is given an allowance in cash is the same under both a periodic and perpetual system.

True

Recall that Merchandise Inventory is considered a(n) ___________ (current/plant/intangible) asset on the ___________ (balance/income) ______________ (sheet/statement) of a merchandiser using the periodic inventory system.

current balance sheet

The Merchandise Inventory account on a classified balance sheet is reported in the:

current assets section

Sales Discounts is a contra- _________ (expense/revenue/asset) account and is increased with a ____________ (debit/credit).

revenue debit

Under a periodic inventory system:

the revenue but not the cost of goods sold is recorded

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 ($400 x .02 =$8)

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.

Recall the formula for calculating a company's acid-test ratio.

(Cash plus Short-term investments plus Current receivables) divided by Current liabilities

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

XYZ Co. purchased merchandise on June 10 at a $5,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on June 25. Illustrate the required entries to record and pay for this purchase under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a perpetual inventory system is used.)

Cash would be credited for $5,000 on June 25. -- Both Method Cash would be credited for $4,900 on June 25. -- Neither Methods Discounts lost would be debited for $100 on June 25. -- Net Method Merchandise inventory would be debited for $5,000 for June 10. -- Gross Method

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.)

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

Dogs R US uses the periodic inventory system to account for its merchandise. A customer returned merchandise purchased on credit for $400 with a cost to Dogs R US of $100 and the returned merchandise can be sold to other customers, demonstrate the required journal entry to record the return by selecting all of the correct actions below. (Check all that apply.)

Credit Accounts Receivable $400. Debit Sales Returns and Allowances $400.

Dogs R US uses the perpetual inventory system to account for its merchandise. A customer returned this merchandise due to a defect. Assuming that the purchase was originally bought on credit for $400 with a cost to Dogs R US of $100, and the defective, returned merchandise is only estimated to be worth $30, demonstrate the required journal entry to record the return and to write down the defective merchandise by selecting all of the correct actions below. (Check all that apply.)

Credit Cost of Goods Sold $100. Credit Accounts Receivable $400. Debit Sales Returns and Allowances $400. Debit Merchandise Inventory $30. Debit Loss from Defective Merchandise $70.

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.

X-Mart uses the periodic 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 sale by selecting all of the correct actions below. (Check all that apply.)

Credit Sales $1,400. Debit Accounts Receivable $1,400.

LOL Music Store uses the periodic 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.)

Debit Accounts Payable $1,000. Credit Cash $980. Credit Purchase Discounts $20.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 30, 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 $1,000.

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 on account. Demonstrate the journal entry to record this transaction, under the periodic inventory system.

Debit Purchases $300 and credit Accounts Payable $300.

Assume that X-Men has an unadjusted Accounts Receivable balance of $10,000 and Allowance for Sales Discounts balance of $0. $1,000 of accounts receivable are within the 2% discount period and X-Men expects that buyers will take $20 in future-period discounts arising from this period's sales. The adjusting entry for sales discounts is:

Debit Sales Discounts and credit Allowance for Sales Discounts for $20

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

Debit Transportation-In $20 and credit Cash $20.

Juice Drinks received a $50 freight bill for merchandise it purchased with freight terms of FOB shipping point. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges, assuming the periodic inventory system is used.

Debit Transportation-In $50 and credit Cash $50.

The Allowance for Sales Discounts account:

Is reported on the balance sheet as a reduction to the Accounts Receivable account. Is a contra asset account.

Name the temporary accounts used to record the costs of merchandise purchased in a periodic inventory system. (Check all that apply.)

Purchase discounts Purchase returns and allowances Purchases Transportation-in

Gummy Co. purchased merchandise on June 10 at a $9,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on June 30. Illustrate the required entries to record and pay for this purchase under the gross method and net methods by matching the action on the left with the method on the right. (Assume a periodic inventory system is used.)

Purchases would be debited for $9,000 on June 10. -- Gross method Discounts lost would be debited for $180 on June 30. -- Net method Cash would be credited for $9,000 if paid by June 30. -- Both methods

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.)

Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. 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. Terms FOB destination means that the seller is responsible for shipping costs.

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

Sales

Sticky Co. sold merchandise on August 5 at a $1,000 invoice price, net $980, with terms of 2/10,n/30 and received cash payment on August 14, within the discount period. Determine its entry to record this sale and the subsequent receipt of cash under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a perpetual inventory system.)

Sales Discounts would be debited for $20 on August 14. -- Gross method Accounts Receivable would be debited for $980 on August 5. -- Net method Cash would be debited for $980 on August 14. -- Both methods

Juice Drinks sold merchandise on December 1 at a $500 invoice price, net $495, with terms of 1/10,n/30 and received cash payment on December 4, within the discount period. Determine its entry to record this sale and the subsequent receipt of cash under both the gross method and the net methods by matching the action on the left with the method on the right. (Assume a perpetual inventory system.)

Sales Discounts would be debited for $5 on December 4. -- Gross Method Accounts Receivable would be debited for $495 on December 1. -- Net Method Cash would be debited for $495 on December 4. -- Both Methods

Summarize a periodic inventory system by selecting all of the correct statements below. (Check all that apply.)

The Purchase Returns and Allowances account is used during the period. The balance in the Merchandise Inventory account remains the beginning balance until the end of the period. The Purchases account is used during the period. The Purchase Discounts account is used during the period. Cost of goods sold is computed at the end of the period. The Merchandise Inventory account is updated only at the end of the period.

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

The seller wants to avoid future lost sales. 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. Sold merchandise was defective or unacceptable.

A customer of Juice Store returned merchandise with a cost of $25 and a selling price of $40. Juice Store gave the customer a cash refund because the customer had previously paid their account in full. The journal entry to record the cash refund to the customer includes:

a debit to Sales Returns and Allowances and a credit to Cash for $40

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

Sales Discounts is a ______ account.

contra-revenue

Jello's Market purchased $1,000 of goods on account with terms of 2/10,n/30. They returned $200 of the goods due to defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory system, the required journal entry to record the payment would:

debit Accounts Payable $800; credit Merchandise Inventory $16; and credit Cash $784

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

Returned merchandise costing $50 is defective, but is estimated to be valued at $45. A Loss from Defective Merchandise is:

debited for $5

The Discounts Lost account is used under the ___ method for inventory.

net