Chapter 4 Connect

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.)

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

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.

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.

Blank 1: Merchandise Inventory Blank 2: Cash

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.

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

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

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

Blank 1: sales

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

CASH

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

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

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.) Instructions Cash would be credited for $5,000 on June 25. Cash would be credited for $4,900 on June 25. Discounts lost would be debited for $100 on June 25. Merchandise inventory would be debited for $5,000 for June 10.

Cash would be credited for $5,000 on June 25. = Both methods Cash would be credited for $4,900 on June 25. matches=Neither method 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

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.) Instructions Cash would be credited for $980 on August 14. Discounts lost would be debited for $20 on August 14. Merchandise inventory would be debited for $980 on August 5. Merchandise inventory would be credited for $20 on August 14.

Cash would be credited for $980 on August 14.= BOTH Discounts lost would be debited for $20 on August 14.= NEITHER Merchandise inventory would be debited for $980 on August 5.= NET Merchandise inventory would be credited for $20 on August 14.=GROSS

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

Close revenue accounts. Close the dividends account. Close expense accounts. 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 is characterized by which of the following statements? (Check all that apply.)

Cost of goods sold is used to figure gross profit. 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 also called cost of sales.

XYZ Company uses the periodic inventory system to account for its merchandise purchases. A physical count of inventory at year end revealed that $6,000 of inventory was on hand. Given the partial list of accounts below, show your understanding of the entry to close the temporary debit balance accounts and update the Merchandise Inventory account by selecting all of the correct answers below. (Check all that apply.) Account Debit Credit Sales Returns and Allowances $ 1,000 Sales Discounts $ 500 Wages Expense $ 300 Purchases $36,000 Merchandise Inventory (Beg. Balance) $5,000

Credit Purchases $36,000. Credit Merchandise Inventory for the beginning balance $5,000. Credit Sales Discounts $500.

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.

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.

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.

Q-mart uses the periodic inventory system. A physical count of inventory revealed it had $6,000 of inventory remaining at year end. Given the partial list of accounts below, the entry to close the temporary credit balance accounts and update the Merchandise Inventory account would include all of the following. (Check all that apply.) Account Debit Credit Sales $20,000 Purchase Discounts $ 1,000 Merchandise Inventory (Beg. Balance) $5,000 Owner, Capital $10,000

Debit Purchase Discounts $1,000. Debit Merchandise Inventory (ending balance) $6,000. Debit Sales $20,000.

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.

Multiple Choice Question J-Lo Company purchased $550 of merchandise on account. Demonstrate the journal entry to record this transaction under the periodic inventory system. Multiple choice question. Debit Purchases $550 and credit Accounts Payable $550. Debit Merchandise Inventory $550 and credit Sales $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.

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.

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

FOB destination

The Allowance for Sales Discounts account: (Select all that apply).

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

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 about merchandise is correct.

Merchandise is acquired for resale to customers.

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

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

Name the temporary accounts used to record the costs of merchandise purchased in a periodic inventory system.

Purchases Transportation-in Purchase returns and allowances Purchase discounts

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. (Check all that apply.) Multiple select question. Sales Returns and Allowances is closed with the expense ac

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

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

The Purchase Discounts 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 end of the period. Cost of goods sold is computed at the end of the period. The Purchase Returns and Allowances account is used during the period. The Purchases account is used during the period.

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.

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

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.

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

buyers / earlier

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

current assets section

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

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

Under a periodic inventory system, purchases are Multiple choice question. recorded in a separate permanent account which is no

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

Under a periodic inventory system when a sale is made:

the revenue but not the cost of goods sold is recorded