Chapter 5: Financial Accounting: Connect Assignments
Cost of goods sold is characterized by which of the following statements? (Check all that apply.)
Cost of goods sold includes the expenses of buying and preparing an item for sale. Cost of goods sold is used to figure gross profit. Cost of goods sold is also called cost of sales. Cost of goods sold is an expense reported on the income statement.
True or false: A single-step income statement shows only one subtotal for expenses.
true
Juice Drinks has beginning inventory of $10,000, purchases in the amount of $150,000, and ending inventory of $8,000. Juice Drinks cost of goods sold is $ .
152,000
Under a periodic inventory system:
the revenue but not the cost of goods sold is recorded
Merchandisers earn net income by__________(buying/manufacturing) and ______________ (selling/purchasing) merchandise.
Merchandisers earn net income by *BUYING* and *SELLING merchandise.
The Discounts Lost account is used under the ___ method for inventory.
The Discounts Lost account is used under the *NET method for inventory.
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
Merchandise inventory can be described as: (Check all that apply.)
products that a company owns and intends to sell, an account increased with a debit, an account appearing on a balance sheet of a merchandiser, an asset account.
sales is a _______ account
revenue
Gross profit is computed as net ____________ minus cost of goods sold.
*SALES
Demonstrate how to prepare a multiple-step income statement by ranking the items below in the order they would appear on a multiple-step income statement of a merchandiser.
1 Sales, 2 Cost of goods sold, 3 Gross profit, 4 Operating expenses, 5 Income from operations, 6 Other revenues and expenses
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
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.
A purchase return refers to merchandise a *BUYER purchased, but then returns to the *SELLER for a refund of the purchase price or reduction in the amount owed.
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.
Identify the financial statements of a merchandiser. (Check all that apply.)
Balance sheet, Income statement, Statement of owner's equity
XYZ Co. purchased merchandise on June 10 at a $5,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on June 25. Illustrate the required entries to record and pay for this purchase under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a perpetual inventory system is used.)
Cash would be credited for $5,000 on June 25--Both methods. Cash would be credited for $4,900 on June 25--Neither method. Discounts lost would be debited for $100 on June 25--net method. Merchandise inventory would be debited for $5,000 for June 10--gross method.
ABC Co. purchased merchandise on August 5 at a $1,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on August 14. Determine its entry to record this purchase and the subsequent payment under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a perpetual inventory system.)
Cash would be credited for $980 on August 14----Both methods. Discounts lost would be debited for $20 on August 14---Neither method. Merchandise inventory would be debited for $980 on August 5---Net method. Merchandise inventory would be credited for $20 on August 14---Gross method.
Sticky Co. purchased merchandise on August 5 at a $1,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on August 14. Determine its entry to record this purchase and the subsequent payment under both the gross method and the net method by matching the action on the left with the method on the right. (Assume a periodic inventory system.)
Cash would be credited for $980 on August 14--both methods. Purchases would be debited for $980 on August 5--net method. Purchases discounts would be credited for $20 on August 14--gross method
A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. (Check all that apply.)
Close the income summary account, Close revenue accounts, Close the withdrawals account, Close expense accounts.
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 Discounts is closed with the expense accounts, Sales is closed as a revenue account, Sales Returns and Allowances is closed with the expense accounts, The Withdrawals account is closed to Owner, Capital.
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 periodic inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale by selecting all of the correct actions below. (Check all that apply.)
Debit Accounts Receivable $1,400, Credit Sales $1,400.
X-Mart purchased $300 of merchandise on account. 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.
Assume that X-Men has an unadjusted Accounts Receivable balance of $10,000 and Allowance for Sales Discounts balance of $0. $1,000 of accounts receivable are within the 2% discount period and X-Men expects that buyers will take $20 in future-period discounts arising from this period's sales. The adjusting entry for sales discounts is:
Debit Sales Discounts and credit Allowance for Sales Discounts for $20
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:
Debit to Cost of Goods Sold for $50, Credit to Merchandise Inventory for $50
Determine which statements below are correct regarding merchandise available for sale during a period.(Check all that apply.)
Ending inventory + Cost of goods sold = Merchandise available for sale, Beginning inventory + Net purchases = Merchandise available for sale
Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all that apply.)
Ending inventory + Cost of goods sold = Total merchandise available for sale, Beginning inventory + net purchases = Merchandise available for sale, Merchandise that is sold becomes an expense reported on the income statement, Merchandise that is purchased becomes an asset reported on the balance sheet.
If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:
FOB destination
Gross profit is computed as _______ _________ minus cost of goods sold
Gross profit is computed as *NET SALES minus cost of goods sold
The Allowance for Sales Discounts account:
Is a contra asset account, Is reported on the balance sheet as a reduction to the Accounts Receivable account.
Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of __________ that a company acquires to resell to ____________.
Merchandise consists of *GOODS that a company acquires to resell to *CUSTOMERS.
Merchandise inventory can be described as: (Check all that apply.)
Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.
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).
Merchandise inventory that is still available for sale is considered a *ASSET and is reported on the *BALANCE SHEET and merchandise that is sold during the period is considered *EXPENSE and reported on the *INCOME STATEMENT
Determine which of the following statements about merchandise is correct.
Merchandise is acquired for resale to customers.
Name the temporary accounts used to record the costs of merchandise purchased in a periodic inventory system. (Check all that apply.)
Purchases, Purchase discounts,
Recall that Merchandise Inventory is considered _____ (current/plant/intangible) asset on the _________ (balance/income) (sheet/statement) ______________of a merchandiser using the periodic inventory system
Recall that Merchandise Inventory is considered a *CURRENT asset on the *BALANCE *SHEET of a merchandiser using the periodic inventory system
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 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, When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.
Which of the following items are included in a merchandising company's income statement but are not included in a service company's income statement? (Check all that apply.)
Sales discounts, Sales returns, Loss from defective merchandise, Gross profit, Cost of goods sold
Sales is a(n) __________ (expense/revenue/asset) account and is reported on the ____________(income/balance) _____________(statement/sheet).
Sales is a *REVENUE account and is reported on the *INCOME *STATEMENT.
Identify the statement below that is the correct definition of "shrinkage".
Shrinkage is the term used to refer to the loss of inventory due to theft, breakage or deterioration.
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.
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.
a sales return refers to merchandise that *CUSTOMERS return to the *SELLER after a sale for a refund of the purchase price or reduction in the amount owed.
The Merchandise Inventory account on a classified balance sheet is reported in the:
current assets section
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
Under the periodic inventory system, a sale on account will result in the following journal entry:
debit to Accounts Receivable and a credit to Sales
True or false: Merchandise inventory is generally converted to cash more quickly than accounts receivable.
false
A single-step income statement can be identified by which of the following formats?
it shows only one total for all expenses
Under a periodic inventory system, purchases are
recorded in a separate temporary account which is closed at period end
Define the Discounts lost account by selecting the statements below that correctly describe this account. (Check all that apply).
It is debited when a discount is not taken and when using the net method of recording purchases.It is an expense account.It is reported on the income 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
Gummy Co. purchased merchandise on June 10 at a $9,000 invoice price with terms of 2/10,n/30 and paid for the merchandise on June 30. Illustrate the required entries to record and pay for this purchase under the gross method and net methods by matching the action on the left with the method on the right. (Assume a periodic inventory system is used.)
Purchases would be debited for $9,000 on June 10--gross method. Discounts lost would be debited for $180 on June 30--net method. Cash would be credited for $9,000 if paid by June 30--both methods.
Which of the statements below summarizes what the acid-test ratio measures?
The acid-test ratio measures a merchandiser's ability to pay its current liabilities.
A multiple-step income statement will have all of the following main parts except: net income, net sales, gross profit, and income from operations.
net sales
Summarize a periodic inventory system by selecting all of the correct statements below. (Check all that apply.)
The Purchase Returns and Allowances account is used during the period, The Purchases account is used during the period, The Merchandise Inventory account is updated only at the end of the period, The Purchase Discounts account is used during the period, The balance in the Merchandise Inventory account remains the beginning balance until the end of the period, Cost of goods sold is computed at the end of the period.
The balance sheet of a merchandiser and a service business have one major difference. Select the item below that would appear only on a merchandiser's balance sheet.
merchandise inventory
