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Exam 5: Accounting for Merchandising Operations

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Question 21

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Describe the difference between the periodic and perpetual inventory accounting systems.

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A periodic inventory system updates the ...

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Question 22

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Expenses to promote sales by displaying and advertising merchandise, make sales, and deliver goods to customers are known as:

A) Cost of goods sold.
B) Selling expenses.
C) Non-operating activities.
D) Purchasing expenses.
E) General and administrative expenses.

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

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Question 23

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On May 1, Shilling Company sold merchandise in the amount of $5,800 to Anders, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method table. The journal entry or entries that Shilling will make on May 1 is: $\begin{array}{l}\text { A) }\\\begin{array} { | l | r | r | } \hline \text { Accounts receivable } & 4,000 & \\\hline \text { Sales } & & 4,000 \\\hline\end{array}\end{array}$ B) $\begin{array}{|l|r|r|}\hline \text { Sales } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 5,800 & \\\hline \text { Sales } & & 5,800 \\\hline \text { Cost of goods sold } & 4,000 & \\\hline \text { Merchandise Inventory } & & 4,000 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Sales } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline \text { Cost of goods sold } & 4,000 & \\\hline \text { Merchandise Inventory } & & 4,000 \\\hline\end{array}$ E) $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 5,800 & \\\hline \text { Sales } & & 5,800 \\\hline\end{array}$

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

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

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.

What are the steps of the operating cycle for a merchandiser with credit sales?

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. 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 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:

If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

A company's current assets are $23,420, its quick assets are $13,890 and its current liabilities are $12,220. Its acid-test ratio equals:

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

Jasper Company is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit. Jasper's total purchase price per unit will be:

New revenue recognition rules require that sellers report sales net of expected sales discounts.

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

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

National Storage Company 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.

A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03.

Sales less sales discounts less sales returns and allowances equals:

The following statements regarding merchandise inventory are true except:

Cost of goods sold is an expense, and is reported on the income statement.