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Exam 5: Accounting for Merchandising Operations

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Question 91

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Cost of goods sold is also called cost of sales.

A) True
B) False

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Question 92

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From the adjusted trial balance for Worker Products Company given below, prepare an income statement.

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Question 93

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Explain the main parts of an income statement for a merchandising company.

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

The following statements regarding gross profit are except:

Beginning merchandise inventory plus the net cost of purchases is the merchandise available for sale.

Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.

A company's net sales were $676,600, its cost of good sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

A service company earns net income by buying and selling merchandise.

FOB shipping point (or FOB factory) implies that ownership of goods transfers to the buyer at the buyer's place of business.

____________________ refer to merchandise that customers return to the seller after a sale.

A company that uses the perpetual inventory system purchased $8,500 on September 25. Terms of the purchase were 2/10, n/30. The invoice was paid in full on October 4. Prepare the journal entries to record these merchandise transactions.

Shock Company purchased merchandise from Mee Company with an invoice price of $300,000 and credit terms of 2/10, n/30. The merchandise had cost Mee Company $200,000. Shock Company paid within the discount period. Assume that both buyer and seller use a perpetual inventory system. 1. Prepare entries that the buyer should record for (a) the purchase and (b) the cash payment. 2. Prepare entries that the seller should record for (a) the sale and (b) the cash collection. 3. Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 9% and paid it back on the last day of the credit period. Compute how much the buyer saved by following this strategy. (Assume a 365-day year and round dollar amounts to the nearest cent.)

Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account.

A trade discount is:

Sales Discounts and Sales Returns and Allowances are credited to close the accounts during the closing process.

Expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers are:

Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Match the following terms with the appropriate definition.