2.06 CH 4 connect smart book

Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.)

-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.

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

Blank 1: sales or revenue

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

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

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

sales

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 includes the expenses of buying and preparing an item for sale.-Cost of goods sold is also called cost of sales.-Cost of goods sold is used to figure gross profit.

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

-Merchandise that is purchased becomes an asset reported on the balance sheet.-Ending inventory + Cost of goods sold = Total merchandise available for sale.-Merchandise that is sold becomes an expense reported on the income statement.-Beginning inventory + net purchases = Merchandise available for sale.

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.

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

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) Blank______ (asset/expense/revenue) and is reported on the Blank______ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) Blank______(asset/expense/liability) and reported on the Blank______ (balance sheet/income statement).

asset -> balance sheet -> expense -> income statement

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 $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400

Sales is a(n) Blank______ account.

revenue

A single-step income statement shows only one subtotal for expenses.

true

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

1. Cash discounts are described in credit terms 2. A seller views a cash discount as a sales discount 3. A buyer views a cash discount as a purchase discount 4. Sellers can grant a cash discount to encourage buyers to pay earlier 5. A reduced payment applies to the discount period

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. (Check all that apply.)

1. Close the dividends account2. Close revenue accounts3. Close the income summary account4. Close expense accounts

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

1. Net sales 2. cost of goods sold 3. gross profit 4. expenses 5. net income

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

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. (Check all that apply.)

Cost of goods sold is closed with the expense accounts. Sales is closed as a revenue account. Sales Discounts is closed with the expense accounts. The Dividends account is closed to Retained Earnings Sales Returns and Allowances is closed with the expense accounts

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.

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

FOB destination

Merchandise inventory is generally converted to cash more quickly than accounts receivable.

False

Which statement below correctly describes merchandise inventory?

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

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 in the:

current assets section

Merchandise inventory can be described as: (Check all that apply.)

-an account appearing on a balance sheet of a merchandiser. -an asset account. -An account increased with a debit. -Products that a company owns and intends to sell.

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 or assets Blank 2: balance sheet Blank 3: expense or expenses Blank 4: income statement

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.

Blank 1: customers Blank 2: seller

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.

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

current liabilities

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

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

It shows only one total for all expenses.

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

Blank 1: revenue Blank 2: income Blank 3: statement

Which of the following equations correctly identify the cost flow of a merchandising company?

Net purchases plus beginning inventory equals merchandise available for sale

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.)

Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business. 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.

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.

Identify the statement below that is the correct definition of inventory shrinkage.

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

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

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

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: (Check all that apply.)

Credit to Merchandise Inventory for $50 Debit to Cost of Goods Sold for $50

X-Mart purchased $300 of merchandise on credit. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used. Multiple choice question.

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.