Knowledge Checks

What does credit term 2/10, n/30 mean?

the buyer can deduct 2% of the invoice if payment is made within 10 d of the invoice

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

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

Beginning inventory + net purchases = ?

merchandise available for sale

merchandise avl for sale either goes two ways: Ending inventory + cost of goods sold, what does this mean?

merchandise avl for sale is either sold or kept

Place the operating cycle for a merchandiser in the correct order. 1. "c" credit sales >__________ 2. "e" receipt of cash from credit sales >______________ 3. "a" cash purchase of merchandise>_________________ 4. "d"Accounts receivable>_________ 5. "b" Inventory for sale>__________

#1- 3 "c" #2- 5 "e" #3- 1 "a" #4- 4 "d" #5- 2 "b"

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:

$110k - ($15,000 + $7,000) +$5,000= $91,000

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 This is calculated as follows : Total Sales Revenue = 250,000 - Sales Discount = (1,500) - Salea Returns and Allowances = (2,300) Net Sales Revenue = 246,200 Less : Cost of Goods sold = 125,000 Gross Profit = 121,200

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 Statement showing computations Particulars Amount Cash 25,000.00 Short Term Investments 10,000.00 Accounts Receivable 40,000.00 Quick Assets 75,000.00

Which of the following statements is correct regarding inventory shrinkage?

(all 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.

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.

Department stores often have an operating cycle of _______ Grocery stores________

-2-5 months -2-8 weeks

A single-step income statement: multiple choice -Is not permitted when financial statements are prepared in accordance with generally accepted accounting principles. -Reports the same amount of net income as that reported on a multiple-step income statement. -Reports revenues and expenses, but not gains and losses. -Always includes a gross profit subtotal. -Never includes selling expenses.

-Report the same amount of net income as that reported on a multistep income statement.

Merchandise inventory includes: (select more than one)

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

Gross profit is: -found on the income statements of service companies. -the same as net income. -equal to net sales less cost of goods sold. -another phrase for revenues.

-equal to net sales less cost of goods sold.

Credit terms: -n/30 -n/10,EOM

-net 30 days (required to pay by 30 d) -net 10 days after the end of month (EOM)

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

11,000+23,000-13,000= $21,000

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:

600,000 - 200,000= $400,000 (answer C)

Cost of Goods available for sale=

= Beginning inventory + Purchases

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand. (inventory available for sale and inventory sold)

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 Purchase Discounts$80 Cash [4000 - 80]$3,920

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(credit) $400

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-- (debit) $4,000 Merchandise inventory (credit) $80 Cash (credit) $3920

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.

Accounts receivables $5,000 Sales Revenue$5,000(to record sale) 04-AprCost of Goods Sold$2,400 Merchandise Inventory$2,400(to record cost of goods sold)

periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

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.

April 13- Cash: (deb) $4,850 Sales Discounts: (deb) $150 Accounts receivable: (cred) $5,000

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. -Both the Sales Discounts and the Sales Returns and Allowances accounts are not closed. -Both the Sales Discounts and the Sales Returns and Allowances accounts are closed to net sales during the closing process. -Both the Sales Discounts and the Sales Returns and Allowances accounts are closed to sales during the closing process.

Both the sales discounts and sales returns and allowances are credited during the closing process

Under a periodic inventory system: multiple choice -the current inventory available for sale is always known. -the merchandise inventory balance is updated after each sale and each purchase. -the merchandise inventory balance reflects the ending inventory. -the merchandise inventory balance reflects the beginning inventory.

Correct Answer = Option #4: the merchandise inventory balance reflects the beginning inventory. · Merchandise inventory is adjusted at the end of accounting period to reflect the ending inventory balance. · Up until that point merchandise inventory reflects the balance of beginning inventory.

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.

Date Account title Debit Credit December 1 Merchandise Inventory $ 3300 Cash $ 3300 ( To record purchase of inventory) Since the company maintains perpetual inventory so inventory account has been debited, if the company maintains periodic inventory then purchases account would have been debited.

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.

Income summary $52,500 -Sales Returns and Allowances 3,000 -Sales Discounts 1,500 -Depreciation Expense 25,000 -Salaries Expense 23,000

Total cost of merchandise purchases is equal to

Invoice cost of merchandise purchases (recorded as debits) less: Purchases discounts received + purchases returns/allowances (recorded as credits) add: cost of transportation-in (debits)

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

Merch inv. (debit) $125 Cash (credit) $125

Each of the following are examples of a merchandising company except: -Michael's Lawn Mowing. -Becky's Jewelry. -Sigmund's Hardware. -Manny's Clothing.

Michaels Lawn Mowing (service)

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 (d) accounts payable- $4k (c)

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.

Sales return and allowances a/c1000 (debit) Account receivable a/c1000(credit) pt 2. Merchandise inventory a/c480 (debit) Cost of goods sold a/c480(credit)

what is the difference between single step and multistep final net income?

The final net income in both single step and multistep is same. The only difference between single and multistep income statement is that single step income statement is prepared in a condensed form and multistep is prepared in detailed form.

Which of the following totals and subtotals are not found on a multiple-step income statement? Cost of goods sold Total current assets Net sales Total operating expenses Net income

Total current assets,

the costs of goods sold =

beginning inventory + purchases - ending inventory

The operating cycle of a merchandiser with credit sales moves from

cash purchases of merchandise--> inventory for sale-->credit sales --->Acct receivable---> cash collection

the costs of merchandise inventory (asset) are:

cost to buy, shipping, any other costs to get ready for sale

Gross profit can also be called

gross margin

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:

gross margin= net sales - cost of goods sold answer: $400,000

allowance=

inducement for buyer to keep damaged merchandise

A merchandiser, such as a grocery store, earns _____ by buying and selling merchandise

net income

Net income (merchandise co.)equation

net sales (revenue over a period of time) - cost of goods sold = gross profit - expenses = net income

The amount of time allowed before the credit payment is due is called the

payment period

Merchandise inventory refers to

products that a company owns and intends to sell

Net income (service co.) equation

revenue - expenses = net income

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.

sales returns/ allowances deb: $15 Cash (cred) $15

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/allowances $500 cash $500

When a classified balance sheet is prepared, merchandise inventory is: multiple choice -Not reported as a current asset because it is not sufficiently liquid. -Usually listed after prepaid expenses according to its nearness to liquidity. -Reported as a current asset. -Usually reported before accounts receivable according to its nearness to liquidity. -Reported as a current liability.

should be reported as a current asset because it can be liquidated within one accounting period.