Chapter 4: SB

Assume the 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 $1,000. -Debit Sales Discounts and credit Allowance for Sales Discounts for $20. -Debit Allowance for Sales Discounts and credit Sales Discounts for $20. -Debit Sales and credit Sales for $20.

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

Name the temporary accounts used to record the cost of merchandise purchased in a periodic inventory system. (Check all that apply.) -Cost of goods sold -Purchase discounts -Damage purchases -Purchase returns and allowances -Purchases -Merchandise inventory -Transportation-in

-Purchase discounts -Purchase returns and allowances -Purchases -Transportation-in

Determine which of the following statements about merchandise is CORRECT. -Merchandise is acquired for resale to customers. -Merchandise is acquired for use in the company, just like supplies. -Merchandise is considered an expense in the period it is purchased. -Merchandise is sold by customers.

-Merchandise is acquired for resale to customers.

Summarize a periodic inventory system by selecting ALL of the correct statements below. (Check all that apply.) -When a company records a sale, it also records the cost of the goods sold. -The Merchandise Inventory account is updated every time a sale is made. -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 Purchase Returns and Allowance account is used during the period. The Merchandise Inventory account is updated only at the end of the period. -The balance in the Merchandise Inventory account remains the beginning balance until 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 Purchase Returns and Allowance account is used during the period. The Merchandise Inventory account is updated only at the end of the period. -The balance in the Merchandise Inventory account remains the beginning balance until the period.

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

1) buying 2) selling

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. -3/10,n/45 -3/15,n/45 3/45,n/15

3/15,n/45

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

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

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. (Assume a perpetual inventory system.) "Cash would be credited for $980 on August 14." Is it... -Both Methods -Neither Method -Net Methods -Gross Method

Both Methods

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. (Assume a perpetual inventory system is used.) "Cash would be credited for $5,000 on June 25." Is it... -Both Methods -Neither Method -Net Method -Gross Method

Both Methods

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. -Cost of goods sold is added to sales discounts. -Sales is subtracted from cost of goods sold. -Cost of goods sold is added to net sales.

Cost of goods sold is subtracted from net sales.

Which of the statements below are CORRECT regarding the cost of goods sold? -Cost of goods sold can be determined by subtracting the cost of merchandise sold from its sale price. -Cost of goods sold is the expense of buying and preparing merchandise. -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.

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 Purchases $300; credit Accounts Payable $300. -Credit Merchandise Inventory $300; debit Account Payable $300. -Debit Merchandise Inventory $300; credit Accounts Payable $300. -Debit Merchandise Inventory $300; credit Sales $300.

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

X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction, under the periodic inventory system. -Debit Merchandise Inventory $300 and credit Sales $300. -Debit Merchandise Inventory $300 and credit Accounts Payable $300. -Debit Purchases $300 and credit Accounts Payable $300. -Credit Merchandise Inventory $300 and debit Accounts Payable $300.

Debit Purchases $300 and credit Accounts Payable $300.

X-Mart purchases $300 of merchandise on account. Demonstrate the journal entry to record this transaction, under the periodic inventory system. -Debit Merchandise Inventory $300 and credit Sales $300. -Debit Merchandise Inventory $300 and credit Accounts Payable $300. -Debit Purchases $300 and credit Accounts Payable $300. -Credit Merchandise Inventory $300 and dedit Accounts Payable $300.

Debit Purchases $300 and credit Accounts Payable $300.

J-Lo Company purchased $550 of merchandise on account. Demonstrate the journal entry to record this transaction under the periodic inventory system. -Debit Merchandise Inventory $550 and credit Sale $550. -Debit Purchases $550 and credit Accounts Payable $550. -Credit Merchandise Inventory $550 and debit Accounts Payable $550. -Debit Merchandise Inventory $550 and credit Accounts Payable $550.

Debit Purchases $550 and credit Accounts Payable $550.

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as: -FOB shipping point -FOB factory -FOB start -FOB destination

FOB destination

(T/F) Merchandise inventory is generally converted to cash more quickly than accounts receivable.

False

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. (Assume a perpetual inventory system.) "Merchandise inventory would be credited for $20 on August 14." Is it... -Both Methods -Neither Method -Net Methods -Gross Method

Gross Method

A single-step income statement can be identified by which of the following formats? -It shows only one total for all expenses. -It lists a figure for gross profit. -It shows subheadings for operating and non-operating items. -It shows cost of goods sold as a subtraction from net sales to determine the subtotal cost of goods sold.

It shows only one total for all expenses.

Which statement below CORRECTLY explains what merchandise inventory is? -Merchandise inventory is increased when products are sold to customers. -Merchandise inventory is an expense account reported on the income statement and contains the cost of products purchased for sale. -Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale. -Merchandise inventory is subtracted from net sales on the income statement to determine gross profit for the period.

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

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. (Assume a perpetual inventory system.) "Discounts lost would be debited for $20 on August 14." Is it... -Both Methods -Neither Method -Net Methods -Gross Method

Neither Method

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. (Assume a perpetual inventory system is used.) "Discounts lost would be debited for $100 on June 25." Is it... -Both Methods -Neither Method -Net Method -Gross Method

Net Method

Which of the following equations correctly identify the cost flow of a merchandising company? -Net purchases minus beginning inventory equals merchandise available for sale. -Beginning inventory plus cost of goods sold equals merchandise available for sale. -Net purchases plus cost of goods sold equals merchandise available for sale. -Net purchases plus beginning inventory equals merchandise available for sale.

Net purchases plus beginning inventory equals merchandise available for sale.

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

Sales OR Revenue

Identify the statement below that is the CORRECT definition of "shrinkage". -Shrinkage is the term used to describe the diminished floor space that an inventory item has in a store. -Shrinkage is the discount received against the purchase price of merchandise. -Shrinkage is the term used to refer to the loss of inventory due to theft, breakage or deterioration.

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

(T/F) A single-step income statement shows only one subtotal for expenses.

True

Wholesaler is...

an intermediary that buys products from manufacturers and sells them to retailers.

Retailer is...

an intermediary that buys products from manufacturers or wholesalers and sells them to consumers.

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

cash

The Merchandise Inventory account on a classified balance sheet is reported in the: -plant assets section -investment section -intangible assets section -current assets section

current assets section

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

current liabilities

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 Payable $1,000; credit Sales $1,000. -debit Accounts Receivable $1,000; credit Sales $1,000. -debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; credit Merchandise Inventory $400. -debit Accounts Receivable $600; credit Sales $600; debit Cost of Goods Sold $400; credit Merchandise Inventory $400.

debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; 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; credit Merchandise Inventory $200. -debit Sales $300; credit Cost of Goods Sold $300. -debit Accounts Payable $300; credit Sales $300. -debit Accounts Receivable $200; credit Sales $00; debit Cost of Goods Sold $300; credit Merchandise Inventory $300.

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

Merchandiser...

earns net income by buying and selling products.

Under a periodic inventory system, purchases are -recorded in a separate temporary account which is not closed at period end. -recorded in a separate permanent account which is not closed at period end. -recorded in a separate temporary account which is closed at period end. -recorded in a separate permanent account which is closed at period end.

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

Sales is a(n) _______ account. -expense -liability -asset -revenue

revenue

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all the apply.) -Merchandise that is sold becomes an asset reported on the balance sheet. -Merchandise purchased is an expense and is 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 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 that is sold becomes an expense reported on the income statement.

Identify the statements below which are CORRECT regarding a merchandiser's multi-step income statement. (select all that apply.) -Expenses are subtracted from gross profit in order to calculate net income. -Total assets is the last line on the statement. -Merchandise inventory is reported on the statement. -Accounts receivable is included on the statement. -Cost of goods sold is subtracted from net sales in order to determine gross profit.

-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.

The Allowance for Sales Discounts account: (Select all the apply.) -Is a contra asset account. -Is a contra revenue account. -Is reported on the balance sheet as a reduction to the Accounts Receivable account. -Is reported on the income statement as a reduction to the Sales account.

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

Identify the statements below that are CORRECT regarding the closing entries for a merchandiser using the perpetual inventory system. (Check all that apply.) -Sales Discount is closed with the revenue accounts. -The Dividends account is closed to Income Summary. -Sales is closed as a revenue account. -Merchandise Inventory is closed with the expense accounts. -Cost of goods cold is closed with the revenue accounts -Sales Returns and Allowances is closed with the expense accounts. -The Dividends account is closed to Retained Earnings. -Cost of goods sold is closed with the expense accounts. -Sales Discounts is closed with the expense accounts.

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

Sales is a(n) _______ (expense/revenue/asset) account and is reported on the _______ (income/balance________ (statement/sheet).

1) revenue 2) income 3) statement

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. (Assume a perpetual inventory system is used.) "Merchandise inventory would be debited for $5,000 for June 10." Is it... -Both Methods -Neither Method -Net Method -Gross Method

Gross Method

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

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

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

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

Cost of goods sold is characterized by which of the following statements? (Check all that apply.) -Cost of goods sold is the money received from selling merchandise. -Cost of goods sold is an expense reported on the income statement. -Cost of goods sold is also called cost of sales. -Cost of goods sold is an asset reported on the balance sheet. -Cost of goods sold is used to figure gross profit. -Cost of goods sold includes the expenses of buying and preparing an item for sale.

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

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

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

Merchandise inventory can be described as: (check all the apply.) -an asset account -an account appearing on a balance sheet of a merchandiser. -an account appearing on a balance sheet of a service company. -an expense account. -products that a company owns and intends to sell. -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. -an account increased with a debit.

Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.) -The full payment is due within 10 days. -The full payment is due within a 30-day credit period. -The buyer can deduct 2% of the invoice amount if payment is made 10 days of the invoice date. -The buyer can take a discount of 10% if the invoice is paid with 30 days of the invoice date.

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

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. (Assume a perpetual inventory system is used.) "Cash would be credited for $4,900 on June 25." Is it... -Both Methods -Neither Method -Net Method -Gross Method

Neither Method

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. (Assume a perpetual inventory system.) "Merchandise inventory would be debited $980 on August 5." Is it... -Both Methods -Neither Method -Net Methods -Gross Method

Net 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 the dividends account. -Close the merchandise inventory account. -Close the expense accounts. -Close the income summary account. -Close the asset accounts. -Close the revenue accounts.

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

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

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.

1) Merchandise Inventory 2) Cash

The components of a merchandiser's multi-step income statement are shown below. In which order would they appear on the statement? -Cost of goods sold -Expenses -Net income -Net sales -Gross profit

1) Net sales 2) Cost of goods sold 3) Gross profit 4) Expenses 5) Net income

Under a periodic inventory system when a sale is made : -the revenue but not the cost of goods sold is recorded. -the revenue and cost of goods sold are recorded. -the cost of goods sold but not the revenue are recorded. -the cost of goods sold are recorded after each sale.

the revenue but not the cost of goods sold is recorded.