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Exam 4: Reporting and Analyzing Merchandising Operations

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Question 31

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Juniper Company, Inc. uses the gross method of recording purchases and a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the purchase on August 7 is:

A) Debit Merchandise Inventory $9,750; credit Cash $9,750.
B) Debit Purchases $9,652.50; credit Accounts Payable $9,652.50.
C) Debit Merchandise Inventory $9,750; credit Sales Returns $1,500; credit Cash $8,250.
D) Debit Merchandise Inventory $9,750; credit Accounts Payable $9,750.
E) Debit Accounts Payable $8,250; debit Purchase Returns $1,500; credit Merchandise Inventory $9,750.

F) C) and D)
G) A) and C)

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Question 32

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In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of the accounting period.

A) True
B) False

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Question 33

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A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

Define Merchandise Inventory and describe the types of costs that are included in the inventory account for a merchandising company.

Akron Company, which uses a perpetual inventory system, purchased merchandise inventory costing $10,000 with credit terms of 2/10, n/30 on March 7. On March 15, the company paid 1/2 of the amount due. The remaining balance was paid on April 7. Required: Record the journal entries related to this transaction using the net method of recording purchases.

Prepare journal entries to record the following merchandising transactions of Margin Company, Inc., which uses the gross method of accounting for purchases and sales and a perpetual inventory system. Margin Company, Inc. offers all of its credit customers credit terms of 2/10, n/30.

Cost of goods sold is also called cost of sales.

Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.

Whitehorn Ski Company uses the gross method of accounting for purchases and a perpetual inventory system and had the following transactions during February: Prepare journal entries to record each of the preceding transactions.

The net method of recording purchases refers to recording:

Cost of goods sold is:

National Storage Company, Inc. had sales of $1,000,000, sales discounts of $2,500, sales returns and allowances of $15,000, and cost of goods sold of $525,000. Calculate National's gross profit.

The gross margin ratio equals net sales less ___________ divided by net sales.

Preston Office Furniture, Inc. uses the gross method of accounting for sales and a periodic inventory system and had the following transactions during the month of May: Prepare the required journal entries that Preston Office Furniture, Inc. must make to record these transactions.

Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

Identify and explain the key components of a merchandiser's net income as would be shown in its income statement.

A company's current assets are $17,980, its quick assets are $11,420 and its current liabilities are $12,190. Its acid-test ratio equals:

The credit terms 2/10, n/30 are interpreted as:

If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete before that point.

The __________________ inventory system continually updates accounting records for merchandise transactions - specifically, for those records of inventory available for sale and inventory sold.