Fundamental Accounting Principles, 24e Study

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

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).

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

Blank 1: buyers Blank 2: earlier

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

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

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

net sales

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

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.

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

sales cost of goods sold gross profit operating expense income from operations other revenues and expenses

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.

Cost of goods sold is subtracted from net sales.

Explain how to determine gross profit on an income statement by selecting the correct statement below.

Blank 1: sales

Gross profit is computed as net _________________minus cost of goods sold.

FOB destination

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

current assets section

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

True

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

false

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

Sales Discounts is a ______ account.

contra revenue

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

revenue debit

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

revenue / income / statement

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

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

Merchandise inventory

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.

A sales allowance can be described as:

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

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

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

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

Balance sheet Income statement Statement of owner's equity

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

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

Identify the statement below that is the correct definition of "shrinkage".

Sales Returns and Allowances is closed with the expense accounts. Sales is closed as a revenue account. 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.

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

Cash discounts are described in credit terms. 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 buyer views a cash discount as a purchase discount.

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

On May 14, X-mart purchased $500 worth 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.

$500 x 0.3= 15$

Blank 1: buyer Blank 2: seller

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: customers Blank 2: seller

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.

It shows only one total for all expenses.

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

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

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).

Cost of goods sold is also called cost of sales. Cost of goods sold is an expense reported on the income statement. 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 characterized by which of the following statements? (Check all that apply.)

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

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

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. (Check all that apply.)

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

Merchandise is acquired for resale to customers.

Determine which of the following statements about merchandise is correct.

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 cost of the sale by selecting all of the correct actions below. (Check all that apply.)

Debit Cost of Goods Sold $500. Credit Merchandise Inventory $500. 1. Credit Sales $7,000. 2. Debit Cost of Goods Sold $500. 3. Credit Merchandise Inventory $500. 4. Debit Cash $7,000.

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

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

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

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.

Retailer: An intermediary that buys products from manufacturers or wholesalers and sells them to consumers An intermediary that buys products from manufacturers or wholesalers and sells them to consumers Wholesaler: An intermediary that buys products from manufacturers and sells them to retailers An intermediary that buys products from manufacturers and sells them to retailers Merchandiser: Earns net income by buying and selling products Earns net income by buying and selling products

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

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.

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

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

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:

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

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

revenue

Sales is a(n) ___________ account

3/15,n/45

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.

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

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

Ending inventory + Cost of goods sold = Total merchandise available for sale. Beginning inventory + net purchases = 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. (Check all that apply.)

Goods Customers

Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of _____________________that a company acquires to resell to ___________________.

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

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:

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

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.)

Blank 1: between Blank 2: reduced

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.

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. The seller wants to keep a customer happy. 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.

Blank 1: merchandise inventory Blank 2: cash

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.

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

What is a purchase return?

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

What is a sales return?

Net purchases plus beginning inventory equals merchandise available for sale

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

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

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

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

Which statement below correctly explains what merchandise inventory is?

Debit Merchandise Inventory $300; credit Cash $300.

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 Accounts Payable $300.

X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.