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Exam 4: Accounting for Merchandising Operations

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Question 81

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Which of the following statements regarding sales returns and allowances is not true?

A) New revenue recognition rules require sellers to report sales net of expected returns and allowances for annual periods.
B) The Inventory Returns Estimated account is a current liability account.
C) Sales returns and allowances estimates are typically made as period-end adjustments.
D) When sales returns and allowances adjustments are made to sales,an estimate must also be made for the cost side.
E) Sales Refund Payable is a current liability account.

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

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Question 82

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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. -Gross profit equals:

A) $770,000.
B) $115,000.
C) $390,000.
D) $402,000.
E) $408,000.

F) A) and D)
G) None of the above

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Question 83

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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:

The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

Vincent Company purchased merchandise from Liu Company with an invoice price of $300,000 and credit terms of 2/10,n/30.Liu Company's cost for the merchandise was $200,000.Vincent Company paid within the discount period.Assume that both buyer and seller use a perpetual inventory system and the gross method of recording invoices. 1.Prepare entries that Vincent should record for (a)the purchase and (b)the cash payment. 2.Prepare entries that Liu should record for (a)the sale and (b)the cash collection. 3.Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 9% and paid it back on the last day of the credit period.Compute how much the buyer saved by following this strategy.(Assume a 365-day year and round dollar amounts to the nearest cent.)

A trade discount is:

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

The profit margin ratio is the same as the gross profit ratio.

On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000. -Johnson uses the periodic inventory system and the net method of accounting for purchases.Johnson pays the invoice on September 18,and takes the appropriate discount.The journal entry that Johnson makes on September 18 is:

Stevenson Corporation reports unadjusted first-year sales of $400,000 and cost of goods sold of $240,000.The company expects future returns and allowances equal to 3% of sales and 3% of cost of sales.Prepare the adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

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

Prepare journal entries to record the following merchandising transactions of Margin Company,which applies the perpetual inventory system and the gross method of recording invoices.Margin Company offers all of its credit customers credit terms of 2/10,n/30.

Morgan,Inc.uses a perpetual inventory system and the net method of recording purchases.On May 12,a merchandise purchase of $15,000 was made on credit,2/10,n/30.The journal entry to record this purchase is:

Martin Corporation allows customers to return merchandise within 60 days of purchase.At year-end,Martin estimates that sales of $20,000,with a cost of $14,000 will be returned in the upcoming year.The unadjusted balance in Inventory Returns Estimated is a debit of $4,000,and the unadjusted balance in Sales Refund Payable is a credit of $2,500.Prepare the adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

Beginning inventory plus net purchases is:

Describe why tracking inventory activities are necessary for a merchandising company.

Cost of goods sold is also called cost of sales.

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 12,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 payment on July 12 is:

Sales Discounts is added to the Sales account when computing a company's net sales.

The liquidity of a company can be measured using the current ratio and the ________,which only includes the most liquid current assets in its calculation.