Smartbook Learnsmart Chapter hmw

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

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

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).

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

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.

Blank 1: between Blank 2: reduced

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: buyer Blank 2: seller

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

Blank 1: buyers Blank 2: earlier

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

Blank 1: buying Blank 2: selling

Review and complete the following statement regarding the Income Summary account. The Income Summary account is (debited/credited) for the sum of all revenue accounts and is (debited/credited) for the sum of all expense accounts and its balance will be transferred to the (Retained Earnings/Cash) account.

Blank 1: credited Blank 2: debited Blank 3: retained earnings

The formula to compute the profit margin of a company is (Net income/Accounts receivable/Net sales) divided by (Net income/Cash/Net sales).

Blank 1: net income Blank 2: net sales

The formula to figure out the profit margin of a company is (Net income/Accounts receivable/Net sales) divided by (Net income/Cash/Net sales).

Blank 1: net income Blank 2: net sales

Define equity by completing the following statement. Equity is the (creditor's/litigator's/owner's) claim on the assets of a business. In a proprietorship, this claim is reported in the (asset/equity/liability) section of a balance sheet in the (Retained earnings/Revenue/Cash) account.

Blank 1: owner's Blank 2: equity Blank 3: Retained earnings

Define equity by completing the following statement. Equity is the (creditor's/litigator's/owner's) claim on the assets of a business and is reported in the (asset/equity/liability) section of a balance sheet.

Blank 1: owner's or owners Blank 2: equity

A (periodic/perpetual) inventory system can be described as an inventory system that updates the inventory account only at the end of the (purchase/period).

Blank 1: periodic Blank 2: period

An invoice is referred to as a invoice for a buyer and as a invoice for the seller.

Blank 1: purchase Blank 2: sales

Explain how to compute gross profit by completing the following sentence. Gross profit is calculated by taking the net (sales/costs) of a product and (adding/subtracting) the cost of the goods sold.

Blank 1: sales Blank 2: subtracting

Current items can be described as those expected to come due within one (month/year) and are listed in the order of how (quickly/slowly) they could be converted to or paid in cash.

Blank 1: year Blank 2: quickly

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Cash Office supplies Accounts receivable Prepaid rent

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

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. Cost of goods sold is also called cost of sales.

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 cost of goods sold?

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 purchased $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment by selecting all of the correct actions below. (Check all that apply.)

Credit Cash $343. Credit Merchandise Inventory $7. Debit Accounts Payable $350.

LOL Music Store uses the perpetual 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 Merchandise Inventory $20. Debit Accounts Payable $1,000. Credit Cash $980.

The following categories are on a classified balance sheet. List them in the order that they would appear.

Current assets Long-term investments Plant assets Intangible assets Current liabilities Long-term liabilities

The following categories are on a classified balance sheet. List them in the order that they would appear.

Current assets Long-term investments Plant assets Intangible assets Current liabilities noncurrent liabilities

Regarding the order of assets and liabilities on a classified balance sheet, select the statements which are correct. (Check all that apply.)

Current assets are listed, followed by current liabilities. All noncurrent assets and liabilities are listed next. Current assets are listed before noncurrent assets. Current liabilities are listed before noncurrent liabilities.

Choose the formula below that is used to calculate the current ratio of a business

Current assets divided by current liabilities

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

What are current liabilities?

Current liabilities are reported in the order of those to be settled first. Current liabilities are obligations due to be paid within one year.

LOL Music Store uses the perpetual 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 December 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Payable $1,000. Credit Cash $1,000.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 30, 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 $1,000.

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 Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming the perpetual inventory method.

Debit Accounts Payable $100; credit Merchandise Inventory $100.

Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required journal entry to record the return by selecting all of the correct actions below.

Debit Accounts Payable $50. Credit Merchandise Inventory $50.

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

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

The third closing journal entry, after closing revenues and expenses, would include which of the following?

Debit Income Summary $9,400; and credit Retained Earnings $9,400.

ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. ABC Mart uses a perpetual inventory system. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges.

Debit Merchandise Inventory $20; credit Cash $20.

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.

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.

At year-end, ABC Company is completing its closing process. Use the following account balances to demonstrate the closing of the Dividends account. (Check all that apply.)

Debit Retained Earnings $500. Credit Dividends for $500.

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

FOB destination

Internal control policies and procedures have limitations that arise from many elements. Match the limitation on the left with its definition on the right.

Human error > can occur from negligence, fatigue, misjudgment or confusion Human fraud > i Involves Intent by people to defeat Internal controls for personal gain Cost-benefit principle > Dictates that the costs of internal controls must not exceed their benefits Internal control environment> Management must convey commitment to Internal control policies and procedures

What is an intangible asset? (Check all that apply.)

Intangible assets are long-term resources that benefit business operations, but lack physical form. The value of intangible assets comes from the privileges or rights granted to or held by the owner.

Describe good cash management practices involving inventory purchases.

Invoices should be paid on the last day of the discount period. Buyers should take advantage of early payment discounts.

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

Identify which of the accounts below would be classified as a plant asset account. (Check all that apply.)

Land currently being used Equipment Building Machinery

Which of the following defines long-term liabilities?

Long-term liabilities are debts of a business that are not due to be settled within one year.

Which of the statements below explain why perpetual inventory systems are becoming more popular? (Check all that apply.)

Managers have immediate access to detailed information on sales and inventory levels. Technological advances have made it easier to use.

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

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet. (Check all that apply.)

Mortgage payable Bonds payable (due in five years)

How do you compute net income for a merchandiser

Net sales - cost of goods sold - other expenses

What defines a long-term investment? (Check all that apply.)

Notes receivable and stock and bond investments are assets that are expected to be held for more than one year. Long-term investments are sometimes referred to as noncurrent investments.

Identify the accounts below that would be classified as a long-term investment. (Check all that apply.)

Notes receivable due in 2 years Investments in bonds

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.)

One purpose is to verify that all temporary accounts have zero balances. One purpose is to verify that total debits equal total credit for permanent accounts.

Which of the lists below contains only permanent accounts?

Owner, Capital, Accounts Payable, Accumulated Depreciation.

Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it. (Check all that apply.)

Permanent accounts Asset accounts Liability accounts

Define plant assets by selecting the correct statements below. (Check all that apply.)

Plant assets are property, plant and equipment that are tangible. Plant assets are equipment and other assets that have a life greater than one year.

Which of the following statements correctly define(s) a profit margin?

Profit margin is the ratio of a business's net income to its net sales. Profit margin is also called return on sales.

Which of the statements below summarize why a buyer would desire a purchase allowance? (Check all that apply.)

Purchased merchandise was defective or unacceptable. In order to keep defective, but still marketable merchandise, the buyer would need a reduction in the purchase price.

Which of the accounts below would appear in the equity section of a classified balance sheet?

Retained Earnings

Identify which of the following steps in the accounting cycle is optional.

Reversing journal entries.

Which of the following costs are included in merchandise inventory?

Taxes assessed on the merchandise Costs necessary to ready the merchandise for sale Purchase costs Shipping fees charged by the vendor

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

Describe the general ledger after adjusting and closing entries have been posted. (Check all that apply.)

The Income Summary account will show three closing entries. The Dividends account will have a $0 balance after closing. All expense accounts will show a $0 balance after closing. The abbreviations "adj." and "clos." have been entered in the explanation columns of the ledger.

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

The accounting cycle contains 10 steps. The cycle contains steps for adjusting and closing accounts. The accounting cycle is a series of steps repeated each reporting period. The accounting cycle refers to steps followed by a company to prepare its financial statements.

Credit terms of 1/10, net 30 means.

The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.

Credit terms of n/15 were printed on an invoice. Explain what this means.

The credit terms stand for net 15 days.

Determine which of the definitions below describes gross profit.

The difference between net sales and the cost of the goods sold

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

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

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.

Review the statements below and select the items that are correct regarding the operating cycle for a business. (Check all that apply.)

The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services. Most companies use a one-year period or operating cycle, in deciding which assets and liabilities are current the length of the company.... Most operating cycles are less than one year.

In preparing a post-closing trial balance, which of the following statements are correct?

The retained earnings account on the post-closing trial balance will include the net income or net loss for the period. The total of all debit balances will equal the total of all credit balances. All permanent accounts with a balance in the general ledger will be included.

All of the following are on an unclassified balance sheet: (Check all that apply).

Total assets Total liabilities

Identify the accounts below that would be classified as intangible assets on a classified balance sheet. (Check all that apply.)

Trademark Franchise Patent Goodwill Copyrights

Which of the following lists steps of the accounting cycle in the correct order (note that not all steps are listed)?

Trial balance, Adjusting journal entries, Post-closing trial balance.

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (Check all that apply.)

Unearned rent Notes payable (due in three months) Accounts payable Taxes payable

A purchase allowance can be described as:

a reduction in the cost of defective or unacceptable merchandise that a buyer acquires

Merchandise inventory can be described as:

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.

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

Current assets are:

cash and other resources that are expected to be sold, collected or used Within one year

The journal entry to close all of a company's expense accounts would include a (debit/credit) to each of the expense accounts and a corresponding ( debit/credit) to the Income (statement;summary) account.

credit debit summary

Jello's Market purchased $1,000 of goods on account with terms of 2/10,n/30. They returned $200 of the goods due to defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory system, the required journal entry to record the payment would:

debit Accounts Payable $800; credit Merchandise Inventory $16; and credit Cash $784

On May 14, X-Mart purchased $500 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.

15

What is a purchase return?

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

The time span from when cash is used to purchase goods until cash is received from the sale of goods is called the [blank] cycle.

operating

Sales is a(n) ______ account.

revenue

Calculate the total cost of merchandise purchased using the information in the following table:

$37,400

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is:

1.67

Given the following information for Mouse Inc., calculate its profit margin for the year.

14.29%

The entries to close the revenue and expense accounts for Jefferson Company are shown below. The next closing entry in the closing process would include: (Check all that apply.)

- A credit to the Retained Earnings account for $7,100. - A debit to Income Summary for $7,100.

Vito Co. had current assets of $9,000 and current liabilities of $6,000 at the end of the year. Net income during the year was $21,000. The current ratio for the period is:

1.5

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

Using the financial information of ABC Co. below, compute its current ratio for the period.

4.06

On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchase discount that may be taken by X-Mart.

8

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

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

The first closing journal entry would include which of the following?

A credit to Income Summary for $6,000.

To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract .

expenses