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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.  May 1 Purchased merchandise from Craft Company for $7,800 under credit terms  of 1/10,n/30,FOB shipping point, invoice dated May 1. May 2 Purchased merchandise from Bow Company for $10,600 under credit terms  2/05, n/20,FOB destination.  May 4 Paid $300 cash for the freight charges on the May 1 purchase of  merchandise.  May 5 Received an $800 credit memorandum from Craft Company for the return  of part of the merchandise purchased on May 1. May 6  Paid Bow Company the balance due within the discount period.  May 11  Paid Craft Company the balance due within the discount period. \begin{array} { | l | l | } \hline \text { May } 1 & \begin{array} { l } \text { Purchased merchandise from Craft Company for } \$ 7,800 \text { under credit terms } \\\text { of } 1 / 10 , \mathrm { n } / 30 , \mathrm { FOB } \text { shipping point, invoice dated May } 1 .\end{array} \\\hline \text { May } 2 & \begin{array} { l } \text { Purchased merchandise from Bow Company for } \$ 10,600 \text { under credit terms } \\\text { 2/05, } \mathrm { n } / 20 , \mathrm { FOB } \text { destination. }\end{array} \\\hline \text { May } 4 & \begin{array} { l } \text { Paid } \$ 300 \text { cash for the freight charges on the May } 1 \text { purchase of } \\\text { merchandise. }\end{array} \\\hline \text { May } 5 & \begin{array} { l } \text { Received an } \$ 800 \text { credit memorandum from Craft Company for the return } \\\text { of part of the merchandise purchased on May } 1 .\end{array} \\\hline \text { May 6 } & \text { Paid Bow Company the balance due within the discount period. } \\\hline \text { May 11 } & \text { Paid Craft Company the balance due within the discount period. }\\\hline \end{array}

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The following statements regarding merchandise inventory are true except:


A) Merchandise inventory is reported on the balance sheet as a current asset.
B) Merchandise inventory refers to products a company owns and intends to sell.
C) Merchandise inventory may include the costs of freight in and making them ready for sale.
D) Merchandise inventory appears on the balance sheet of a service company.
E) Purchasing merchandise inventory is part of the operating cycle for a business.

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

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A company records the following journal entry: debit Cash $1,470,debit Sales Discounts $30,and credit Accounts Receivable $1,500.This means that a customer has taken what percentage cash discount for early payment?


A) 1%
B) 2%
C) 5%
D) 10%
E) 15%

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

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

A) True
B) False

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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. -Ryan uses the periodic inventory system and the net method of accounting for sales.On September 14,Johnson returns some of the merchandise.The selling price of the merchandise is $500 and the cost of the merchandise returned is $350.Johnson pays the invoice on September 18,and takes the appropriate discount.The journal entry that Ryan makes on September 18 is:


A)  Cash 5,800 Accounts receivable 5,800\begin{array} { | l | r | r | } \hline \text { Cash } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}
B)  Cash 5,194 Accounts receivable 5,194\begin{array} { | l | r | r | } \hline \text { Cash } & 5,194 & \\\hline \text { Accounts receivable } & & 5,194 \\\hline\end{array}
C)  Cash 5,194 Sales discounts 106 Accounts receivable 5,300\begin{array} { | l | r | r | } \hline \text { Cash } & 5,194 & \\\hline \text { Sales discounts } & 106 & \\\hline \text { Accounts receivable } & & 5,300 \\\hline\end{array}
D)  Cash 5,684 Accounts receivable 5,684\begin{array} { | l | r | r | } \hline \text { Cash } & 5,684 & \\\hline \text { Accounts receivable } & & 5,684 \\\hline\end{array}
E)  Cash 5,684 Sales discounts 116 Accounts receivable 5,800\begin{array} { | l | r | r | } \hline \text { Cash } & 5,684 & \\\hline \text { Sales discounts } & 116 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}

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

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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:


A) 0.94.
B) 1.07.
C) 1.48.
D) 1.57.
E) 2.40.

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

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A debit memorandum is:


A) Required whenever a journal entry is recorded.
B) The source document for the purchase of merchandise inventory.
C) Required when a purchase discount is granted.
D) The document a buyer issues to inform the seller of a debit made to the seller's account payable in the buyer's records.
E) Not necessary in a perpetual inventory system.

F) C) and D)
G) A) and D)

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

A) True
B) False

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Johnnycake Restaurant uses a periodic inventory system and the gross method of accounting for purchases.Prepare general journal entries to record the following transactions for Johnnycake:  Johnny cake purchased merchandise on credit from Foster Foods for  Aug. 10 $9,000, terms 2/10,n/30,FOB destination Transportation costs of $350 were paid by Foster. 12 Johnny cake returned $600 of merchandise from the August 10 purchase. 19Johnny cake paid Foster for the August 10 purchase. \begin{array} { | l | l | } \hline & \text { Johnny cake purchased merchandise on credit from Foster Foods for } \\\text { Aug. 10 } & \begin{array} { l } \$ 9,000 , \text { terms } 2 / 10 , n / 30 , F O B\text { destination Transportation costs of } \$ 350 \\\text { were paid by Foster. }\end{array} \\\hline 12 & \text { Johnny cake returned } \$ 600 \text { of merchandise from the August } 10 \text { purchase. } \\\hline 19 & \text {Johnny cake paid Foster for the August } 10 \text { purchase. } \\\hline\end{array}

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None...

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When purchases are recorded at net amounts,any discounts lost as a result of late payments are reported as an operating expense.

A) True
B) False

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What is inventory shrinkage? How do managers account for shrinkage?

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Inventory shrinkage is the loss of merch...

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Match the following definitions with the appropriate terms. -Inventory losses that can occur as a result of theft or deterioration and require an adjusting entry to account for those losses.


A) Single-step income statement
B) Acid-test ratio
C) Multiple-step income statement
D) Inventory shrinkage
E) FOB shipping point
F) Selling expenses
G) General and administrative expenses
H) Merchandise inventory
I) Trade discount
J) FOB destination

K) B) and D)
L) A) and D)

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


A) Purchases of merchandise to inventory to cash sales.
B) Purchases of merchandise to inventory to accounts receivable to cash sales.
C) Inventory to purchases of merchandise to cash sales.
D) Accounts receivable to purchases of merchandise to inventory to cash sales.
E) Accounts receivable to inventory to cash sales.

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

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Match the following definitions with the appropriate terms. -The expenses that support a company's overall operations and include costs related to accounting,human resource management and financial management.


A) Single-step income statement
B) Acid-test ratio
C) Multiple-step income statement
D) Inventory shrinkage
E) FOB shipping point
F) Selling expenses
G) General and administrative expenses
H) Merchandise inventory
I) Trade discount
J) FOB destination

K) None of the above
L) A) and G)

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FOB ________ means ownership of goods transfers to the buyer when the goods arrive at the buyer's place of business.The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit.

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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.

A) True
B) False

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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)  Bales returns and allowances 600 Accounts receivable 600 Merchandise inventory 350 Cost of goods sold 350\begin{array} { | l | r | r | } \hline \text { Bales returns and allowances } & 600 & \\\hline \text { Accounts receivable } & & 600 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}
B)  Sales returns and allowances 600 Accounts receivable 60q\begin{array} { | l | r | r | } \hline \text { Sales returns and allowances } & 600 & \\\hline \text { Accounts receivable } & & 60 \mathrm { q } \\\hline\end{array}
C)  Accounts receivable 600 Sales returns and allowarnces 60q\begin{array} { | l | r | r | } \hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowarnces } & & 60 \mathrm { q } \\\hline\end{array}
D)  Accounts receivable 600 Sales returns and allowanes 600 Cost of goods sold 350 Merchandise inventory 350\begin{array} { | l | r | r | } \hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowanes } & & 600 \\\hline \text { Cost of goods sold } & 350 & \\\hline \text { Merchandise inventory } & & 350 \\\hline\end{array}
E)  Sales returns and allowances 350 Accounts receivable 350\begin{array} { | l | r | r | } \hline \text { Sales returns and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}

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

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Cushman Company had $800,000 in net sales,$350,000 in gross profit,and $200,000 in operating expenses.Cost of goods sold equals:


A) $150,000.
B) $450,000.
C) $800,000.
D) $350,000.
E) $200,000.

F) A) and E)
G) B) and D)

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Which of the following accounts would be closed at the end of the accounting period with a debit?


A) Sales Discounts.
B) Sales Returns and Allowances.
C) Cost of Goods Sold.
D) Operating Expenses.
E) Sales.

F) B) and E)
G) A) and D)

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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.The journal entry or entries that Shilling will make on May 1 is:


A)  Sales 5,800 Accounts receivable 5,800\begin{array} { | l | r | r | } \hline \text { Sales } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}
B)  Sales 5,800 Accounts receivable 5,800 Cost of goods sold 4,000 Merchandise Inventory 4,000\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}
C)  Accounts receivable 5,800 Sales 5,800\begin{array} { | l | r | r | } \hline \text { Accounts receivable } & 5,800 & \\\hline \text { Sales } & & 5,800 \\\hline\end{array}
D)  Accounts receivable 5,800 Sales 5,800 Cost of goods sold 4,000 Merchandise Inventory 4,000\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}
E)  Accounts receivable 4,000 Sales 4,000\begin{array} { | l | r | r | } \hline \text { Accounts receivable } & 4,000 & \\\hline \text { Sales } & & 4,000 \\\hline\end{array}

F) A) and B)
G) A) and D)

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