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Exam 5: Accounting for Merchandising Operations

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Question 91

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Identify and explain the key components of income for a merchandising company.

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Question 92

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Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

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Question 93

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A merchandising company's ___________ begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.

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.

Explain the cost flows and operating activities of a merchandising company.

The acid-test ratio reflects the ___________ of a company.

The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge was $500. 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:

Herald Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Herald Company's net sales equals:

The gross margin ratio:

A company reported the following information for the month of November: Required: Calculate this company's gross margin ratio.

Merchandise inventory consists of products that a company acquires to resell to customers.

The periodic inventory system requires updating the inventory account only at the end of the period to reflect the quantity and cost of both the goods available and the goods sold.

On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses the periodic inventory system. The journal entry or entries that Courtland will make on October 1 is:

______________________ are nonoperating activities that include interest expense, losses from asset disposals, and casualty losses.

In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

Purchase discounts are the same as trade discounts.

A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03. $147,000/$143,000 = 1.03

What is the acid-test ratio? How does it measure a company's liquidity?

The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.