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Exam 5: Accounting for Merchandising Operations

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Question 91

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Describe the difference(s)between the periodic and the perpetual inventory accounting systems.

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Under a perpetual system each purchase, ...

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Question 92

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A wholesaler buys products from manufacturers or other wholesalers and sells them to consumers.

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Question 93

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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. On September 14, Jepson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Vander must make on September 14 is: A) $\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}$ B) $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 500 & \\\hline \text { Sales returns and allowances } & & 500 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 500 & \\\hline \text { Accounts receivable } & & 500 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 500 & \\\hline \text { Accounts receivable } & & 500 \\\hline\end{array}$ E) $\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 500 & \\\hline \text { Sales returns and allowances } & & 500 \\\hline \text { Cost of goods sold } & 350 & \\\hline \text { Merchandise inventory } & & 350 \\\hline\end{array}$

The gross margin ratio:

A company's current ratio is 1.2 and its quick ratio is 0.25. This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.

The operating cycle for a merchandiser that sells only for cash moves from:

Beginning inventory plus net purchases is:

Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Net income equals:

Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system?

Purchase allowances refer to a price reduction (allowance)granted to a buyer of defective or unacceptable merchandise.

A company has net sales of $752,000 and cost of goods sold of $543,000. Its net income is $17,530. The company's gross margin and operating expenses, respectively, are:

Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory)and FOB destination.

Under a perpetual inventory system, when a credit customer returns non-defective merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

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

When a company has no reportable non-operating activities, its income from operations is simply labeled net income.

If goods are shipped FOB destination, 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 single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.

Sales discounts has a normal debit balance because it decreases Sales, which has a normal credit balance.

Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.