Chapter 4 Smart Book

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

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

-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 components of a merchandisers multi-step income statement as shown below. In which order would they appear on the statement?

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

What is a purchase return?

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

Merchandiser

Earns net income by buying and selling products.

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

FOB destination

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the (blank) account and credit the (blank) account.

Merchandise Inventory, Cash

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

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

Net purchases plus beginning inventory equals merchandise available for sale

Explain what the credit terms of 2/10, n/30 mean.

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.

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

True

Complete the following statement. Merchandise inventory that is still available for sale is considered an (blank) and is reported on the (blank) and merchandise that is sold during the period is considered an (blank) and reported on the (blank)

asset, balance sheet, expense, income statement

A purchase return refers to merchandise a (blank) purchased, but then returns to the (blank) for a refund of the purchase price or reducing in the amount owed.

buyer, seller

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

current assets section

Merchandise consists of (blank) that a company acquired to resell to (blank).

products, buyers

Sales is an (blank) account and is reported on the (blank)

revenue, income statement

Gross profit is computed as net (blank) minus cost of goods sold.

sales

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

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

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

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 too record the shrinkage includes.

-Debit to costs of goods sold for $50 -Credit to merchandise inventory for $50

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. -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.

Determine which of the following statements below regarding a merchandiser are correct.

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

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.

-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 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.

Merchandise inventory can be described as:

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

What is sales return?

A sales return refers to merchandise a seller acquired, but then returns to the buyer.

Wholesaler

An intermediary that buys products from manufactures and sells them to retailers.

Retailer

An intermediary that buys products from manufactures or wholesalers and sells them to consumers.

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.

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

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

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

It shows only one total for all expenses.

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

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. Sales Discounts is closed with the expense accounts. The Dividends account is closed to Retained Earnings

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.

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

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 costs of goods sold $200; and credit merchandise inventory $200.

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

false