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Exam 5: Accounting for Merchandising Operations

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Question 1

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Under the net method, when a company uses a perpetual inventory system, an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Merchandise Inventory and a credit to Accounts Payable of $2,000.

A) True
B) False

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Question 2

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Under the net method of recording purchases, the Discounts Lost account is used when the purchaser fails to take a discount offered by the seller.

A) True
B) False

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Question 3

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Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals:

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

A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals $150,000.

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

A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company's gross margin ratio equals 24.5%.

Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

Match the appropriate definition with correct term.

Gross profit is also called gross margin.

Describe the key attributes of inventory for a merchandising company.

A merchandiser:

Either the gross method or net method may be used to record sales with cash discounts, but the net method requires a period-end adjusting entry to estimate expected future sales discounts taken.

A periodic inventory system requires updating of the inventory account only at the beginning of an accounting period.

A trade discount is:

On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system and the gross method table. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is: A) $\begin{array}{|l|r|r|}\hline \text { Cash } & 5,684 & \\\hline \text { Sales discounts } & 116 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}$ B) $\begin{array}{|l|r|r|}\hline \text { Cash } & 5,684 & \\\hline \text { Accounts receivable } & & 5,684 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Cash } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Cash } & 4,000 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}$ E) $\begin{array}{|l|r|r|}\hline \text { Cash } & 3,920 & \\\hline \text { Sales discounts } & 80 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}$

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

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 16, it paid the full amount due. The amount of the cash paid on August 16 equals: