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Exam 5: Accounting for Merchandising Operations

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Question 51

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A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has taken a ___ cash discount for early payment.

A) 1%
B) 2%
C) 5%
D) 10%
E) 15%

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

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Question 52

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What does FOB stand for? Differentiate between FOB shipping point (or FOB factory) and FOB destination.

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FOB stands for free on board. If goods a...

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Question 53

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A company has net sales and cost of goods sold of $825,000 and $547,000, respectively. Its net income is $98,500. The company's gross margin and total other expenses are ________ and ___________, respectively.

On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses the periodic inventory system. The journal entry or entries that Courtland will make on October 1 is:

Using the following year-end information for Breanna Boutique, calculate the current ratio and acid-test ratio for the boutique:

In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

The profit margin ratio is gross margin divided by total assets.

A retailer is an intermediary that buys products from manufacturers and sells them to wholesalers.

Assets tied up in inventory are not productive assets.

An account used in the periodic inventory system that is not used in the perpetual inventory system is

The acid-test ratio reflects the ___________ of a company.

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

Purchase returns refer to merchandise a buyer acquires but then returns to the seller.

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.

Sales discounts is a contra revenue account, meaning that the Sales Discounts account is added to the Sales account when computing a company's net sales.

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

A company purchases merchandise with a catalog price of $20,000. The company receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made on time, what is the net cost of the merchandise?

The acid-test ratio is also called the quick ratio.

Maia's Bike Shop uses the perpetual inventory system and had the following transactions during the month of May: Prepare the required journal entries that Maia's Bike Shop must make to record these transactions.