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Serene Spa Sales, Inc. uses the gross method for recording purchases and sales and a perpetual inventory system and had the following transactions during August. Serene Spa Sales, Inc. uses the gross method for recording purchases and sales and a perpetual inventory system and had the following transactions during August. Required: Prepare the general journal entries to record these transactions. Required: Prepare the general journal entries to record these transactions.

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Prepare journal entries to record the following merchandise transactions of Martinez Excavation Equipment, Inc., which uses the gross method of accounting for purchases and sales and a perpetual inventory system. Prepare journal entries to record the following merchandise transactions of Martinez Excavation Equipment, Inc., which uses the gross method of accounting for purchases and sales and a perpetual inventory system.

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Which of the following accounts is used in a periodic inventory system to record the cost of freight to transport purchased merchandise?


A) Merchandise Inventory
B) Freight Expense
C) Miscellaneous Expense
D) Purchases
E) Transportation-In

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

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All of the following statements related to U.S. GAAP and IFRS are true except:


A) Accounting for basic inventory transactions is identical under both systems.
B) The closing process for merchandisers is the same under both systems.
C) U.S.GAAP offers little guidance about the presentation order of expenses.
D) Neither system requires separate disclosure of items when their size, nature, or frequency are important.
E) Neither system defines operating income.

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

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A company's gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio equals:


A) 4.2%.
B) 24.1%.
C) 75.9%.
D) $83,750.
E) $264,050.

F) C) and D)
G) B) and D)

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Cost of goods sold represents the cost of buying and preparing merchandise for sale.

A) True
B) False

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FOB _________________ means ownership of goods transfers to the buyer when the goods arrive at the buyer's place of business. The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit.

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Wellington Company had sales this year of $2,180,000 and cost of goods sold of $1,050,000. Wellington expects returns and allowances in the following year to equal 6% of sales, half being returns of goods and half allowances for merchandise kept by the buyer. The adjusting entry or entries to record the expected sales returns is(are) :


A) Wellington Company had sales this year of $2,180,000 and cost of goods sold of $1,050,000. Wellington expects returns and allowances in the following year to equal 6% of sales, half being returns of goods and half allowances for merchandise kept by the buyer. The adjusting entry or entries to record the expected sales returns is(are) : A) B) C) D) E)
B) Wellington Company had sales this year of $2,180,000 and cost of goods sold of $1,050,000. Wellington expects returns and allowances in the following year to equal 6% of sales, half being returns of goods and half allowances for merchandise kept by the buyer. The adjusting entry or entries to record the expected sales returns is(are) : A) B) C) D) E)
C) Wellington Company had sales this year of $2,180,000 and cost of goods sold of $1,050,000. Wellington expects returns and allowances in the following year to equal 6% of sales, half being returns of goods and half allowances for merchandise kept by the buyer. The adjusting entry or entries to record the expected sales returns is(are) : A) B) C) D) E)
D) Wellington Company had sales this year of $2,180,000 and cost of goods sold of $1,050,000. Wellington expects returns and allowances in the following year to equal 6% of sales, half being returns of goods and half allowances for merchandise kept by the buyer. The adjusting entry or entries to record the expected sales returns is(are) : A) B) C) D) E)
E) Wellington Company had sales this year of $2,180,000 and cost of goods sold of $1,050,000. Wellington expects returns and allowances in the following year to equal 6% of sales, half being returns of goods and half allowances for merchandise kept by the buyer. The adjusting entry or entries to record the expected sales returns is(are) : A) B) C) D) E)

F) D) and E)
G) B) and C)

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When using the net method of recording sales, discounts not taken by the purchaser are recorded by the seller as Interest Revenue at the time of collection on account.

A) True
B) False

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Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. Payment was made on May 20. The journal entry to record the payment is:


A) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. Payment was made on May 20. The journal entry to record the payment is: A) B) C) D) E)
B) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. Payment was made on May 20. The journal entry to record the payment is: A) B) C) D) E)
C) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. Payment was made on May 20. The journal entry to record the payment is: A) B) C) D) E)
D) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. Payment was made on May 20. The journal entry to record the payment is: A) B) C) D) E)
E) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. Payment was made on May 20. The journal entry to record the payment is: A) B) C) D) E)

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

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A buyer issues a _______________________ to inform the seller of a debit made to the seller's account payable in the buyer's records.

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Assets tied up in inventory are not considered productive assets.

A) True
B) False

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A company that uses the net method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:


A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
D) Debit Accounts Payable $1,800; credit Cash $1,800.
E) Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600.

F) C) and E)
G) B) and D)

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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. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is:


A) 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. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A) B) C) D) E)
B) 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. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A) B) C) D) E)
C) 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. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A) B) C) D) E)
D) 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. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A) B) C) D) E)
E) 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. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A) B) C) D) E)

F) B) and C)
G) D) and E)

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Johnnycake Restaurant uses the gross method of accounting for purchases and a periodic inventory system. Prepare general journal entries to record the following transactions for Johnnycake: Johnnycake Restaurant uses the gross method of accounting for purchases and a periodic inventory system. Prepare general journal entries to record the following transactions for Johnnycake:

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Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited during the closing process.

A) True
B) False

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A company using the gross method of accounting for purchases and a perpetual inventory system recorded the following entry: A company using the gross method of accounting for purchases and a perpetual inventory system recorded the following entry: This entry reflects a: A) Purchase of merchandise on credit. B) Return of merchandise. C) Sale of merchandise on credit. D) Payment of the account payable less a 2% cash discount taken. E) Payment of the account payable less a 1% cash discount taken. This entry reflects a:


A) Purchase of merchandise on credit.
B) Return of merchandise.
C) Sale of merchandise on credit.
D) Payment of the account payable less a 2% cash discount taken.
E) Payment of the account payable less a 1% cash discount taken.

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

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If goods are shipped FOB destination, the seller is responsible for paying shipping charges and bears the risk of damage or loss in transit.

A) True
B) False

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A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases in a Delivery Expense account.

A) True
B) False

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The acid-test ratio is defined as current assets divided by current liabilities.

A) True
B) False

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