Question 1

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Accepted Answer

A)   Reflects an increase in amount due from a customer.
B)   Recognizes that a customer returned merchandise and/or received an allowance.
C)   Requires a debit memorandum to recognize the customer's return.
D)   Is recorded when a customer takes a discount.
E)   Reflects a decrease in amount due a supplier.F) D) and E)
G) A) and D)

Question 2

The following statements regarding merchandise inventory are true except:

Accepted Answer

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 can include the cost of shipping the goods to the store and making them ready for sale.
D)   Merchandise inventory does not appear on the balance sheet of a service company.
E)   Merchandise inventory purchases are not considered part of the operating cycle for a business.F) C) and D)
G) B) and C)

Question 3

The gross margin ratio is defined as gross margin divided by net sales.

Accepted Answer

A) True 
 B)False

Question 4

From the adjusted trial balance for Worker Products Company given below, prepare the necessary closing entries.

Accepted Answer

The answer of From the adjusted trial balance for Worker...

Question 5

A company had net sales and cost of goods sold of $752,000 and $543,000, respectively. Its net income was $17,530. The company's gross margin ratio equals:

Accepted Answer

A)   18.9%
B)   24.5%
C)   27.8%
D)   34.7%
E)   35.2%F) A) and B)
G) A) and C)

Question 6

Beginning inventory plus net purchases is:

Accepted Answer

A)   Cost of goods sold.
B)   Merchandise available for sale.
C)   Ending inventory.
D)   Sales.
E)   Shown on the balance sheet.F) A) and D)
G) B) and D)

Question 7

The credit terms 2/10, n/30 are interpreted as:

Accepted Answer

A)   2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
B)   10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
C)   30% discount if paid within 2 days.
D)   30% discount if paid within 10 days.
E)   2% discount if paid within 30 days.F) B) and E)
G) B) and D)

Question 8

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

Accepted Answer

A)   $209,000; $191,470
B)   $191,470; $209,000
C)   $525,470; $227,000
D)   $227,000; $525,470
E)   $734,000; $191,470F) A) and D)
G) C) and E)

Question 9

Multiple-step income statements:

Accepted Answer

A)   Are required by the FASB.
B)   Contain more detail than a simple listing of revenues and expenses.
C)   Are required for the perpetual inventory system.
D)   List cost of goods sold as an operating expense.
E)   Can only be used in perpetual inventory systems.F) A) and D)
G) B) and C)

Question 10

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 is entitled to. The cash paid on June 24 equals:

Accepted Answer

A)   $8,924.
B)   $9,700.
C)   $10,000.
D)   $9,800.
E)   $8,724.F) C) and D)
G) A) and B)

Question 11

Cost of Goods Sold is debited to close the account during the closing process.

Accepted Answer

A) True 
 B)False

Question 12

Sales returns:

Accepted Answer

A)   Refer to merchandise that customers return to the seller after the sale.
B)   Refer to reductions in the selling price of merchandise sold to customers.
C)   Represent cash discounts.
D)   Represent trade discounts.
E)   Are not recorded under the perpetual inventory system until the end of each accounting period.F) B) and C)
G) C) and E)

Question 13

Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

Accepted Answer

A) True 
 B)False

Question 14

Calculate the gross margin ratio for each of the following separate cases A through D:

Accepted Answer

The answer of Calculate the gross margin ratio for each...

Question 15

A _______________________ is a document the buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.

Accepted Answer

The answer of A _______________________ is a document the buyer...

Question 16

A service company earns net income by buying and selling merchandise.

Accepted Answer

A) True 
 B)False

Question 17

Describe the recording process (including costs) for purchasing merchandise inventory using a perpetual inventory system.

Accepted Answer

The answer of Describe the recording process (including costs) for...

Question 18

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.

Accepted Answer

A) True 
 B)False

Question 19

The acid-test ratio is defined as current assets divided by current liabilities.

Accepted Answer

A) True 
 B)False

Question 20

Under a periodic inventory system, purchases, purchases returns and allowances, purchase discounts, and transportation in transactions are recorded in separate temporary accounts

Accepted Answer

A) True 
 B)False

Exam 5: Accounting for Merchandising Operations

A service company earns net income by buying and selling merchandise.

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The credit terms 2/10, n/30 are interpreted as:

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A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

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

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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.

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Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

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Sales returns:

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Under a periodic inventory system, purchases, purchases returns and allowances, purchase discounts, and transportation in transactions are recorded in separate temporary accounts

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Beginning inventory plus net purchases is:

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A _______________________ is a document the buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.

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The following statements regarding merchandise inventory are true except:

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A company had net sales and cost of goods sold of $752,000 and $543,000, respectively. Its net income was $17,530. The company's gross margin ratio equals:

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Cost of Goods Sold is debited to close the account during the closing process.

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From the adjusted trial balance for Worker Products Company given below, prepare the necessary closing entries.

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The gross margin ratio is defined as gross margin divided by net sales.

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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 is entitled to. The cash paid on June 24 equals:

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Multiple-step income statements:

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The acid-test ratio is defined as current assets divided by current liabilities.

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Calculate the gross margin ratio for each of the following separate cases A through D:

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Describe the recording process (including costs) for purchasing merchandise inventory using a perpetual inventory system.

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

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