Module 2

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

Cash discounts are described in 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 buyer views a cash discount as a purchase discount. A reduced payment applies to the discount period.

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

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

Review the statements below and select the one that accurately describes a perpetual inventory system.

It is an inventory system that updates accounting records after each purchase and each sale of inventory.

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

Cost of goods sold is characterized by which of the following statements? (Check all that apply.)

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 includes the expenses of buying and preparing an item for sale. Cost of goods sold is also called cost of sales.

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. (Check all that apply.)

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

Debit Cost of Goods Sold $500. Credit Merchandise Inventory $500.

Identify the items or sub-headings below that would appear on a multiple-step income statement. (Check all that apply.)

Net sales Cost of goods sold Selling expenses Income from operations General and administrative expenses Gross profit

How do you compute net income for a merchandiser.

Net sales - cost of goods sold - other expenses.

Which of the following costs are included in merchandise inventory? (Check all that apply.)

Shipping fees Costs necessary to ready the merchandise for sale Purchase costs

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.

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.)

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. Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.

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

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

buyers, earlier

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

expenses

Sales is a(n) ______ account.

revenue