Chapter 4: Interactive Presentation

Credit terms of "2/10, n/60" means:

the company will receive a 2 percent discount if paid within 10 days.

Which statement is correct regarding the closing process of a merchandiser?

Both the Sales Discounts and the Sales Returns and Allowances accounts are credited during the closing process.

A company has the following selected account balances: Sales $ 250,000 Sales Discounts 1,500 Sales Returns and Allowances 2,300 Sales Salaries Expense 56,000 Store Supplies Expense 15,000 Advertising Expense 8,000 Cost of Goods Sold 125,000 What is the gross profit that would appear on a multiple-step income statement:

$121,200

A company reports the following information: Beginning inventory $ 11,000 Ending inventory 13,000 Expenses 7,000 Net purchases 23,000 Net sales 38,000 The company's cost of goods available for sale equals:

$34,000

A company reports the following information: Invoice cost of merchandise purchases $ 110,000 Purchase discounts 15,000 Purchase returns and allowances 7,000 Transportation costs 3,000 The company's total cost of merchandise purchases equals:

$91,000 invoice cost of merchandise purchases-purchases discounts received-purchases returns and allowances+cost of transportation_in=total cost of merchandise purchases

Place the operating cycle for a merchandiser in the correct order.

(a) cash purchase of merchandise (b) inventory for sale (c) credit sales (d) accounts receivable (e) receipt of cash from credit sales

A seller uses a perpetual inventory system, and on April 4, it sells $5,000 in merchandise (its cost is $2,400) to a customer on credit terms of 3/10, n/30. Complete the two journal entries to record the sales transaction by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns. The first journal entry is to record the revenue part of the transaction and the second journal entry is to record the cost part.

Accounts receivable - $5,000 (debit) Sales - $5,000 (credit) Cost of goods sold - $2,400 (debit) Merchandise inventory - $2,400 (credit)

Which of the following statements is correct regarding the adjusting entries for a merchandiser versus a service company.

All of the statements are correct. - A service company will have an adjusting entry for accrued expenses. - A merchandising company will have an adjusting entry for accrued expenses. - A service company will have an adjusting entry for unearned revenues. - A merchandising company will have an adjusting entry for unearned revenues.

Initially records an invoice at the fill amount less any cash discounts.

Gross method

The company's adjusted trial balance includes the following accounts balances: Cash, $15,000; Equipment, $85,000; Accumulated Depreciation, $25,000; Accounts Payable, $10,000; Retained earnings, $63,500; Dividends, $2,000; Sales, $56,000; Sales Returns and Allowances, $3,000; Sales Discounts, $1,500; Depreciation Expense, $25,000; and Salaries Expense, $23,000. All accounts have normal balances. Prepare the second closing entry by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

Income summary - $52,500 (debit) Sales discounts - $1,500 (credit) Sales returns and allowances - $3,000 (credit) Depreciation expense - $25,000 (credit) Salaries expense - $23,000 (credit)

Peron Company uses a perpetual inventory system and the net method of recording invoices. The company purchased merchandise on November 4 at a $2,000 invoice price with terms of 2/10, n/30. Complete the journal entry by selecting the account names from the drop-down menus and the amounts in the Debit and Credit columns.

Merchandise inventory - $1,960 (debit) Accounts payable - $1,960 (credit)

A buyer uses a perpetual inventory system, and it purchases merchandise on terms of FOB shipping point. On December 20, the shipping company sends an invoice for $125 to the party responsible for the freight charges, and cash payment is made immediately. Complete the buyer's necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit column.

Merchandise inventory - $125 (debit) Cash - $125 (credit)

Roberto Company uses a perpetual inventory system. On December 1, the company purchased $3,300 of merchandise for cash. Complete the following journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Merchandising inventory - $3,300 (debit) Cash - $3,300 (credit)

Each of the following are examples of a merchandising company except:

Michael's Lawn Mowing.

Initially records an invoice at the fill amount.

Net method

A company uses a periodic inventory system and during the December 31, year-end physical inventory count discovered that they have incurred a $300 shrinkage in inventory. Prepare the necessary adjusting entry to record this shrinkage by selecting the account names from the pull-down menus and entering dollar amounts in the debit and credit columns.

No journal entry required

Which of the following accounts would not be used to compute the acid-test ratio?

Plant assets

A buyer uses a periodic inventory system, and on December 5, it purchases $4,000 of merchandise on credit terms of 2/10, n/30. Complete the journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Purchases - $4,000 (credit) Accounts payable - $4,000 (debit)

When a classified balance sheet is prepared, merchandise inventory is:

Reported as a current asset.

A single-step income statement:

Reports the same amount of net income as that reported on a multiple-step income statement.

The company has an unadjusted debit balance in Accounts Receivable of $25,000 and an unadjusted credit balance of $10 in Allowance for Sales Discounts as of December 31. Of the $25,000 of receivables, $10,000 are within a 2% discount period that the company expects the buyers to take. Complete the necessary adjusting entry by selecting the account names from the drop-down menus and the amounts in the Debit and Credit columns.

Sales discounts - $190 (debit) Allowance for sales discounts - $190 (credit)

A seller uses a perpetual inventory system, and on April 17, a customer returns $1,000 of merchandise previously purchased on credit on April 13. The seller's cost of the merchandise returned was $480. The merchandise is not defective and is restored to inventory. The seller has not yet received any cash from the customer. Complete the two journal entries to record the return transaction by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns. The first journal entry is to record the revenue part of the transaction and the second journal entry is to record the cost part.

Sales returns and allowances - $1,000 (debit) Accounts receivable - $1,000 (credit) Merchandise inventory - $480 (debit) Cost of goods sold - $480 (credit)

A seller uses a perpetual inventory system, and on April 18, a customer discovers that merchandise previously purchased is defective. The buyer decides to keep the defective merchandise and the seller allows a $15 price reduction, paid in cash to the buyer. Complete the journal entry to record the allowance granted to the buyer by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Sales returns and allowances - $15 (debit) Cash - $15 (credit)

A seller uses a periodic inventory system, and on April 4, it sells $5,000 in merchandise on credit (when its cost is $2,400) to a customer on credit terms of 3/10, n/30. On April 5, the customer returns merchandise for a cash refund of $500. Complete the seller's necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Sales returns and allowances - $500 (debit) Cash - $500 (credit)

On December 31, the company estimates future sales refunds to be $900. As of that date, the company has an unadjusted debit balance in Accounts Receivable of $25,000 and an unadjusted credit balance of $300 in Sales Refunds Payable. Complete the necessary adjusting entry by selecting the account names from the drop-down menus and the amounts in the Debit and Credit columns.

Sales returns and allowances - $600 (debit) Sales refund payable - $600 (credit)

Which of the following totals and subtotals are not found on a multiple-step income statement?

Total current assets

Which of the following statements is not correct?

When a periodic system is in use, the Purchases Returns and Allowances, the Purchases Discounts, and the Transportation-In accounts must be debited to close their account balances to the Income Summary account.

A periodic inventory system updates the accounting records ______________________________.

at the end of the period

Gross profit is:

equal to net sales less cost of goods sold.

A perpetual inventory system updates the accounting records ______________________________.

for each purchase and each sale

Under a periodic inventory system:

the merchandise inventory balance reflects the beginning inventory.

A company reports net sales of $600,000, cost of goods sold of $200,000, and net income of $100,000. Its gross profit equals:

$400,00 Net Sales- Cost of goods sold= gross profit Gross profit-expenses= net income

Luring Company had net sales of $600,000, cost of goods sold of $200,000, and net income of $100,000. Its gross margin equals:

$400,000

The trial balance of a company included the following account balances: Cash, $25,000; Short-Term Investments, $10,000; Accounts Receivable, $40,000; Inventory, $90,000; and Prepaid Insurance, $12,000. Its quick assets total:

$75,000

Merchandise inventory includes:

- costs to purchase - shipping costs - costs to prepare for sale

Network Systems, Inc., had net sales of $750,000, cost of goods sold of $562,500, and net income of $100,000. Its gross margin ratio is closest to:

0.25

A company reports the following balances: Quick Assets $11,000 Current Liabilities $13,000 The company's acid-test ratio equals:

0.85 Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio = $11,000/$13,000 = 0.85

A company reports the following information: Beginning inventory $ 11,000 Ending inventory 13,000 Expenses 7,000 Net purchases 23,000 Net sales 38,000 The company's cost of goods sold equals:

21,000 beginning inventory+net purchases=merchandise available for sale merchandise available for sale=ending inventory+cost of goods sold

A buyer uses a perpetual inventory system, and it purchased $4,000 of merchandise on credit terms of 2/10, n/30 on December 5. Later, on December 15, the buyer pays the invoice in full. Complete the buyer's journal entry for payment by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Accounts payable - $4,000 (debit) Merchandise inventory - $80 (credit) Cash - $3,920 (credit)

A buyer uses a periodic inventory system, and it purchases $4,000 of merchandise on credit terms of 2/10, n/30 on December 5. On December 15, it pays the invoice in full. Prepare the buyer's necessary journal entry for payment by selecting the account names from the drop-down menus and entering dollar amounts in the Debit and Credit columns.

Accounts payable - $4,000 (debit) Purchases discounts - $80 (credit) Cash - $3,920 (credit)

A buyer uses a perpetual inventory system, and on December 7, it contacts its supplier to report that some of the merchandise purchased on December 5 was defective. The seller offered to reduce the merchandise price by $400. The buyer agreed to keep the defective merchandise under those terms. Complete the buyer's necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Accounts payable - $400 (debit) Merchandise inventory - $400 (credit)

Which of the following statements is correct regarding inventory shrinkage?

All of the statements are correct. - Shrinkage refers to the loss of inventory. - Shrinkage can be caused by theft or deterioration. - Shrinkage is computed by comparing a physical count of inventory with the recorded amount. - Shrinkage is recorded by debiting Cost of Goods Sold.

A company sells merchandise on November 2 at a $4,000 invoice price with terms of 2/10, n/30. The goods cost $2,000. The company uses the net method to record invoices. The customer pays the balance due on November 30. Complete the journal entry to record the receipt of cash from the customer by selecting the account names from the drop-down menus and the amounts in the Debit and Credit columns.

Cash - $4,000 (debit) Interest revenue - $80 (credit) Accounts receivable - $3,920 (credit)

A seller uses a perpetual inventory system, and on April 4, it sells $5,000 in merchandise to a customer on credit terms of 3/10, n/30. On April 13, the seller receives payment from the customer. Complete the seller's April 13 journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Cash - $4,850 (debit) Sales Discount - $150 (debit) Accounts receivable - $5,000 (credit)