quiz chapter 4 ACC
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.)
Credit Merchandise Inventory $50. Debit Accounts Payable $50.
-Retailer -Wholesaler -Merchandiser
-An intermediary that buys products from manufacturers or wholesalers and sells them to consumers -An intermediary that buys products from manufacturers and sells them to retailers -Earns net income by buying and selling products
Identify the financial statements of a merchandiser.
-Balance sheet -Statement of retained earnings -Income statement
Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all that apply.)
-Beginning inventory + net purchases = Merchandise available for sale. -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.
Show your understanding of a merchandiser by completing the following statement. Merchandisers earn net income by (buying/manufacturing) ______ and (selling/purchasing)______ Merchandise
Buying, Selling
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.
Which of the following equations correctly identify the cost flow of a merchandising company?
Net purchases plus beginning inventory equals merchandise available for sale
Determine which of the definitions below describes gross profit.
The difference between net sales and the cost of the goods sold
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
Cost of goods sold is characterized by which of the following statements?
-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.
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:
-Credit to Merchandise Inventory for $50 -Debit to Cost of Goods Sold for $50
Which of the statements below are correct regarding cost of goods sold?
Cost of goods sold is the expense of buying and preparing merchandise.
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
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.
Describe good cash management practices involving inventory purchases. (Check all that apply.)
-Invoices should be paid on the last day of the discount period. -Buyers should take advantage of early payment discounts.
Which of the statements below explain why perpetual inventory systems are becoming more popular? (Check all that apply.)
-Managers have immediate access to detailed information on sales and inventory levels. -Technological advances have made it easier to use.
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.
On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 16, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.
Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20.
Which statement below correctly explains what merchandise inventory is?
Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.
How do you compute net income for a merchandiser.
Net sales - cost of goods sold - other expenses.
Identify the two types of inventory systems from the choices below. Multiple choice question.
Perpetual inventory system and periodic inventory system
Explain how to compute gross profit by completing the following sentence. Gross profit is calculated by taking the net _____ (sales/costs) of a product and _____ (adding/subtracting) the cost of the goods sold.
Sales, Subtracting
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.
A purchase allowance can be described as:
a reduction in the cost of defective or unacceptable merchandise that a buyer acquires
The discount period is the time _______(before/between) the invoice date and a specified date on which the payment amount owed can be ______ (increased/reduced) because of early payment.
between, reduced
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
Explain what a debit memorandum is by completing the following sentence. When a buyer returns or takes an allowance on merchandise, the _______(buyer/creditor/seller) issues a debit memorandum to inform the_______ (buyer/creditor/seller) of a debit made to the seller's account in the buyer's records.
buyer, seller
On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchase discount that may be taken by X-Mart.
$8 Reason: $400 x .02 =$8.
On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payment is made on May 28, calculate the purchase discount that may be taken by X-Mart.
$15 Reason: $500x.03=$15
What is a purchase return?
A purchase return refers to merchandise a buyer acquires, but then returns to the seller.
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.
Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the ________(Merchandise Inventory/Accounts Payable/Cash) account and credit the__________ (Cash/Merchandise Inventory/Accounts Payable) account.
Merchandise Inventory, cash
To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract other______
Expenses
Review the statements below and select the one that accurately describes a perpetual inventory system.
It is an inventory system that continually updates accounting records for merchandise transactions.
Which of the statements below summarize why a buyer would desire a purchase allowance? (Check all that apply.)
-In order to keep defective, but still marketable merchandise, the buyer would need a reduction in the purchase price. -Purchased merchandise was defective or unacceptable.
The components of a merchandiser's multi-step income statement are shown below. In which order would they appear on the statement?
-Net Sales -Cost of Goods Sold -Gross profit -expenses -net income
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.
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