Read and Interact CH 4

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; and credit merchandise inventory $200

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

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

Sales is closed as a revenue account Cost of goods sold is closed with the expense accounts The dividends account is closed to retained earnings Sales returns and allowances is closed with the expense accounts Sales discounts is closed with the expense accounts

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

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

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

cash

The merchandise inventory account on a classified balance sheet is reported to the:

current assets section

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

current liabilities

Sales is a(n) ______ account

revenue

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

revenue income statement

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

sales

Determine which of the definitions on the right go with the entity on the left 1. Retailer 2. Wholesaler 3. Merchandiser

1. An intermediary that buys products from manufacturers or wholesalers and sells them to consumers 2. An intermediary that buys products from manufacturers and sells them to retailers 3. Earns net income by buying and selling products

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.) 1. Cash would be credited for $5,000 on June 25 2. Cash would be credited for $4,900 on June 25 3. Discounts lost would be debited for $100 on June 25 4. Merchandise inventory would be debited for $5,000 for June 10

1. both methods 2. Neither method 3. Net method 4. Gross method

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

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 make 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

What is a sales return?

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

Merchandise inventory can be described as:

An asset account Products that a company owns

A merchandiser has four closing journal entries at the end of an accounting cycle.

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

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

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

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

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

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

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

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.) Sales Returns and allowances D: $1000 Sales Discounts D: $500 Wages expense D: $300 Purchases $36,000 Merchandise inventory $5,000

Credit purchases $36,000 Credit merchandise inventory for the beginning balance $5,000 Credit sales discounts $500

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

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

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

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

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 Beginning inventory + net purchases =. merchandise available for sale

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

FOB destination

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

False

Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of ________ that a company acquires to resell to ______. Use on word for each blank.

Goods Consumers

The allowance for sales discounts account

Is a contra asset account is reported on the balance sheet as a reduction to the accounts receivable account

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

It shows only one total for all expenses

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.

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 below regarding merchandiser are correct.

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

The components of a merchandiser's Muti-step income statement are shown below. In which order would they appear on the statement?

Net Sales Cost of goods sold Gross profit Expenses Net income

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

T/F A single step income statement shows only one subtotal for expenses

True

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.

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

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 called a(n) ________ (asset/expense/liability) and reported on the _____ (balance sheet/income statement)

asset balance sheet expense income statement

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.

buyer 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.

customers seller

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 $1000 credit sales $1000 debit cost of goods sold $400 and credit merchandise inventory $400

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.) 1. Cash would be credited for $980 on August 14 2. Discounts lost would be debited for $20 on August 14 3. Merchandise inventory would be debited for $980 on August 5 4. merchandise inventory would be credited for 20 on August 14

1. Both methods 2. neither method 3. Net method 4. Gross method

Q-mart uses the periodic inventory system. A physical count of inventory revealed it has $6000 of inventory remaining at year end. Given that 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. Sales C: $20000 Purchase Discounts C: $1000 Merchandise Inventory (Beg. Balance) D: $5000 Owner, Capital C: $10,000

Debit merchandise inventory (ending balance) $6000 Debit sales $20,000 Debit purchase discounts $1000

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

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:

Debit to Cost of Good Sold for $50 Credit to merchandise inventory for $50