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Exam 4: Reporting and Analyzing Merchandising Operations

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Question 1

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Merchandise with an invoice price of $2,000 was purchased on February 3, terms 2/15, n/60. The company uses the gross method to record purchases and a perpetual inventory system. The entry to record a cash payment of this purchase obligation on February 17 is:

A) Debit Accounts Payable $1,960; credit Cash $1,960.
B) Debit Accounts Payable $2,000; credit Cash $2,000.
C) Debit Accounts Payable $1,960; debit Discounts Lost $40; credit Cash $2,000.
D) Debit Accounts Payable $2,000; credit Merchandise Inventory $40; credit Cash $1,960.
E) Debit Accounts Payable $2,000; credit Discounts Lost $40; credit Cash $1,960.

F) B) and D)
G) A) and E)

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Question 2

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The following statements regarding gross profit are true except:

A) Gross profit is also called gross margin.
B) Gross profit less other operating expenses equals income from operations.
C) Gross profit is not calculated on the multiple-step income statement.
D) Gross profit must cover all operating expenses to yield a return for the owner of the business.
E) Gross profit equals net sales less cost of goods sold.

F) B) and E)
G) A) and B)

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Question 3

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Discuss the period-end adjusting entries that are required in the new revenue recognition standards for estimating sales discounts and sales returns and allowances.

If a buyer of goods that uses the net method of accounting for purchases fails to take an early payment discount offered by the seller, the amount of the discount not taken is recorded by the seller as a credit to the ______________________ account.

The gross margin ratio:

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge of $500 was paid by the seller and added to the sales invoice. On June 20, the company returned $800 of the merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

Fragment Company, Inc. is a wholesaler that sells merchandise in large quantities. Its catalog indicates a list price of $300 on a particular product and a 40% trade discount is offered for quantity purchases of 50 units or more. The cost of shipping the merchandise is $7 per unit under terms FOB shipping point. If a customer purchases 100 units of this product, what is the amount of sales revenue that Fragment will record from this sale?

A company that uses the gross method of accounting for purchases and a perpetual inventory system made a February 1 purchase of merchandise inventory on account for $7,300 with terms of 1/10, n/30. The February 1 journal entry to record this transaction would include a:

Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.

Sales of $350,000 and net sales of $323,000 may reflect sales discounts of $27,000. $350,000 - $323,000 = $27,000; may be sales discounts, sales returns and allowances, or a combination of the two.

On February 3, Smart Company, Inc. sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the gross method of accounting for sales and a perpetual inventory system. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Operating expenses in a multiple-step income statement are classified into two categories: selling expenses and cost of goods sold.

A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company's gross margin ratio equals 24.5%. Gross Margin Ratio = (Sales - Cost of Goods Sold)/Sales Gross Margin Ratio = ($340,500 - $257,000)/$340,500 = 24.5%

A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals $150,000.

The acid-test ratio differs from the current ratio in that:

The acid-test ratio:

On September 12, Vander Company, Inc. sold merchandise in the amount of $5,800 to Jepson Company on credit with terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the gross method of accounting for sales and a periodic inventory system. The journal entry or entries that Vander will make on September 12 is(are) :

Under a perpetual inventory system, when a credit customer returns merchandise to the seller prior to paying for the merchandise, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

If a wholesaler offers a trade discount of 20% on a catalog item with a list price of $500, the buyer records the purchase at the net amount of list price minus trade discount.

Advertising expense is reported as part of general and administrative expenses in the seller's multiple-step income statement.