Chapter 4 Accounting for Merchandising Operations

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.

Complete the following statement.

Merchandise inventory that is still available for sale is considered an asset and is reported on the balance sheet and merchandise that is sold during the period is considered a expense and reported on the income statement.

cost of goods sold

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

Sales is a(n) revene account. Sales without Cash Discount P.160

revenue liability expense asset

The formula for the acid-test ratio is computed as ( + cash equivalents + short-term investments + current receivables)/current liabilities.

cash

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. Gross Method P.156

400*2%=8

Select all that apply Identify the statements below which summarize what cash discounts are. (Check all that apply.) Purchases with Cash Discounts P.155

Cash discounts are described in the credit terms. A buyer views a cash discount as a purchase discount. Sellers can grant a cash discount to encourage buyers to pay earlier. A reduced payment applies to the discount period. 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. 164

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

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

Cost of goods sold is the expense of buying and preparing merchandise. Cost of goods sold can be determined by subtracting the cost of a merchandise sold from its sales price. Cost of goods sold is an asset account reported on the balance sheet. Cost of goods sold is the price received from selling a product.

Select all that apply 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.) Payment within Discount Period P. 157

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

Review the following statements and select the one that best describes a discount period. Discount Period P. 156

Discount Period: Time period in which a cash discount is available and the buyer can make a reduced payment. (156) The discount period is the time period in which a discount may be taken by the buyer.

Identify the statements below which are correct regarding a merchandiser's multi-step income statement. 164-165

Expenses are subtracted from gross profit in order to calculate net income. Cost of goods sold is subtracted from net sales in order to determine gross profit. Accounts receivable is included on the statement. Total assets is the last line on the statement. Merchandise inventory is reported on the statement.

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as: Purchases and Transportation Costs P.158

FOB destination FOB factory FOB shipping point FOB start

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. Purchases and Transportation Costs P. 158

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. 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.

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.

Which of the statements below summarizes what the acid-test ratio measures? Multiple choice question.

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

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

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.

True or false: A single-step income statement shows only one subtotal for expenses. 167

True

A sales allowance can be described as:

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

A sales allowance can be described as: Sales with Returns and Allowances P.161

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

Merchandise inventory can be described as:

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

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). Multiple choice question. Inventory Systems P.154

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

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

Sales Discounts is a ______ account. Sales Discounts P.161

contra-revenue

The Merchandise Inventory account on a classified balance sheet is reported in the:168

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: Sales on Credit P.160

debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400

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. Gross Method P.156

$15

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

1. products that a company owns and intends to sell. 2. an account increased with a debit. 3. an asset account. 4. an account appearing on a balance sheet of a merchandiser.

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. Credit Terms P.155

3/15,n/45

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle.

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

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. 162

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. Merchandise that is sold becomes an asset reported on the balance sheet. Merchandise purchased is an expense and is reported on the income statement.

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? Buyer Pays within Discount Period P.161

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

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all that apply.) 162

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

Determine which of the definitions on the right go with the entity on the left. Merchandising Activities P.153

Retailer(零售商): An intermediary that buys products from manufacturers or wholesalers and sells them to consumers Wholesaler(批发商): An intermediary that buys products from manufacturers and sells them to retailers Merchandiser(制造商): Earns net income by buying and selling products

Identify the statement below that is the correct definition of "shrinkage". Multiple choice question. 163

Shrinkage is the term used to refer to the loss of inventory due to theft, breakage or deterioration.

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

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

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 account and credit the Cash account

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

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

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

1. Cost of goods sold is used to figure(计算) gross profit. (Net Sales-Cost of goods sold=Gross profit） （净销售-销售商品的成本=毛利润) 2. Cost of goods sold includes the expenses of buying and preparing an item for sale. 3. Cost of goods sold is an expense reported on the income statement. 4. Cost of goods sold is also called cost of sales.

What is a purchase return? Purchases with Returns and Allowances P.157

A purchase return refers to merchandise a buyer acquires, but then returns to the seller. A purchase return is designed to shorten the payment period between the buyer and the seller. A purchase return is the cash discount given for early payment of an invoice. A purchase return refers to merchandise a seller acquires, but then returns to the buyer.

What is a sales return? Sales with Returns and Allowances P.161

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

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system.

Cost of goods sold is closed with the expense accounts. Sales Returns and Allowances is closed with the expense accounts. The Dividends account is closed to Retained Earnings Sales is closed as a revenue account. Sales Discounts is closed with the expense accounts. The Dividends account is closed to Income Summary. Sales Discounts is closed with the revenue accounts. Merchandise Inventory is closed with the expense accounts. Cost of goods sold is closed with the revenue accounts.

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. 164

Cost of goods sold is closed with the expense accounts. The Dividends account is closed to Retained Earnings Sales is closed as a revenue account. Sales Discounts is closed with the expense accounts. Sales Returns and Allowances is closed with the expense accounts.

Explain how to determine gross profit on an income statement by selecting the correct statement below. Gross profit, or gross margin P.154

Cost of goods sold is subtracted from net sales.

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

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: Cost Side: Outflow of Assets P.160

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

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:

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

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. Payment within Discount Period P.157

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

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. Purchases Allowances P.157

Debit Accounts Payable $100; credit Merchandise Inventory $100. Debit Accounts Payable $100; credit Cash $100. Debit Accounts Payable $100; credit Purchase Returns $100. Debit Merchandise Inventory $100; credit Accounts Payable $100.

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. Purchases with Returns and Allowances P.157

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

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. Buyers Pays within Discount Period P.161

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

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? Buyers pays within discount period P.161

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

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 cost of the sale by selecting all of the correct actions below. Cost Side: Outflow of Assets P.160

Debit Cost of Goods Sold $500. Credit Merchandise Inventory $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 cost of the sale by selecting all of the correct actions below. Cost Side: Outflow of Assets P.160

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

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. Cost Side: Outflow of Assets P.160

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

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. 161

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

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. 161

Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150.

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. Sales with Returns and Allowances P.161

Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150. Debit Accounts Receivable $500; credit Sales Returns and Allowances $500; credit Merchandise inventory $150; and credit Cost of Goods Sold $150. Debit Accounts Receivable $500 and credit Cash $500. Debit Sales Returns and Allowances $150; credit Accounts Receivable $150.

True or false: Merchandise inventory is generally converted to cash more quickly than accounts receivable.商品库存一般比应收账款更快地转化为现金

False

Describe good cash management practices involving inventory purchases. Payment within Discount Period P.159

Invoices should be paid on the last day of the discount period. Buyers should take advantage of early payment discounts. Invoices should be paid on the first day of the discount period. Inventory should be purchased with cash whenever possible.

A single-step income statement can be identified by which of the following formats? 167

It shows only one total for all expenses. It lists a figure for gross profit. It shows cost of goods sold as a subtraction from net sales to determine the subtotal cost of goods sold. It shows subheadings for operating and non-operating items.

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

Net purchases plus beginning inventory equals merchandise available for sale

Which of the following equations correctly identify the cost flow of a merchandising company? 166

Net purchases plus beginning inventory equals merchandise available for sale

Which of the following equations correctly identify the cost flow of a merchandising company? Adjusting and closing for merchandisers P.162

Net purchases plus beginning inventory equals merchandise available for sale

Identify the statements below which summarize what cash discounts are. (Check all that apply.) Purchases with Cash Discounts-Credit Terms P.155

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

Which of the statements below summarize why a seller would give a sales allowance? Sales with Returns and Allowances P.161

The seller wants to keep a customer happy. 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. Sold merchandise was defective or unacceptable.

Given the following information, analyze XYZ Company's liquidity. (Check all that apply.) Year 2013 Total quick assets $30,000 Total current assets $40,000 Total current liabilities $22,000 Acid-test ratio 1.36 Current ratio 1.82 Industry acid-test ratio .70 Industry current ratio 1.65

They are more liquid than others in their industry. They have sufficient quick assets to pay off short-term debt if needed.

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: Sales on Credit P160

debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200