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Exam 5: Accounting for Merchandising Operations

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Question 71

Multiple Choice

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A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

A) $3,995.00.
B) $4,075.00.
C) $4,000.50.
D) $3,725.00.
E) $3,925.00.

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

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Question 72

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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 within the discount period, what is the net cost of the merchandise?

A) $19,600.
B) $13,000.
C) $13,720.
D) $6,860.
E) $12,740.

F) D) and E)
G) All of the above

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Question 73

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

Quick assets include cash and cash equivalents, inventory, and current receivables.

On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry or entries that Klein must make on March 15 is: A) $\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}$ B) $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowances } & & 600 \\\hline \text { Cost of goods sold } & 350 & \\\hline \text { Merchandise inventory } & & 350 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 600 & \\\hline \text { Accounts receivable } & & 600 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowances } & & 600 \\\hline\end{array}$ E) $\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 600 & \\\hline \text { Accounts receivable } & & 600 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}$

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.

A perpetual inventory system continually updates accounting records for merchandising transactions.

Harley's Antique Shop had net sales of $772,000. The gross profit was $415,000. Calculate Harley's cost of goods sold.

Prentice Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:

Discuss the period-end adjusting entries that are required in the new revenue recognition standards for estimating sales discounts and sales returns and allowances.

Beginning inventory plus net purchases equals merchandise available for sale.

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 correct journal entry to record the purchase on August 7 is:

On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is: A) $\begin{array}{|l|r|r|}\hline \text { Cash } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}$ B) \begin{tabular} { | l | r | r | } $\begin{array}{|l|r|r|}\hline \text { Cash } & 5,684 & \\\hline \text { Accounts receivable } & & 5,684 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Cash } & 3,920 & \\\hline \text { Sales discounts } & 80 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Cash } & 4,000 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}$ E) $\begin{array}{|l|r|r|}\hline \text { Cash } & 5,684 & \\\hline \text { Sales discounts } & 116 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}$

Liquidity problems are likely to exist when a company's acid-test ratio:

A company's current assets are $17,980, its quick assets are $11,420 and its current liabilities are $12,190. Its quick ratio equals:

Identify and explain the key components of a merchandiser's net income.

Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:

A company 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. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, The correct journal entry to record the purchase on July 5 is:

Fragment Company is a wholesaler that sells merchandise in large quantities. Its catalog indicates a list price of $300 per unit on a particular product and a 40% trade discount is offered for quantity purchases of 50 units or more. The cost of shipping the merchandise is $7 per unit under terms FOB shipping point. If a customer purchases 100 units of this product, what is the amount of sales revenue that Fragment will record from this sale?

Merchandise inventory: