Financial accounting Chapter 4 mcgraw hill

Determine which of the following statements about merchandise is correct.

Merchandise is acquired for resale to customers.

Cost of goods sold is characterized by which of the following statements? (Check all that apply.)

-Cost of goods sold includes the expenses of buying and preparing an item for sale.

-Cost of goods sold is an expense reported on the income statement.

-Cost of goods sold is used to figure gross profit.

-Cost of goods sold is also called cost of sales.

How do you compute net income for a merchandiser.

Net sales - cost of goods sold - other expenses.

Which of the following costs are included in merchandise inventory? (Check all that apply.)

Costs necessary to ready the merchandise for sale

Purchase costs

Shipping fees

In the operating cycle for a merchandiser with credit sales, after purchasing merchandise inventory for sale to customers, the next step is to make a

Credit sale

Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of __________ that a company acquires to resell to __________

1. products or goods

2. customers

Which of the statements below are correct regarding cost of goods sold?

Cost of goods sold is the expense of buying and preparing merchandise.

Determine which statements below are correct regarding merchandise available for sale during a period.(Check all that apply.)

-Ending inventory + Cost of goods sold = Merchandise available for sale

-Beginning inventory + Net purchases = Merchandise available for sale

To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract other ___________

expenses

X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Cash $300.

Merchandise inventory can be described as: (Check all that apply.)

-an account appearing on a balance sheet of a merchandiser.

-an asset increased with a debit.

-products that a company owns and intends to sell.

Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.)

-The full payment is due within a 30-day credit period.

-The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

The cash operating cycle for a merchandiser begins with cash purchases of merchandise and ends with _____

receipt of cash

Determine which of the following statements below regarding a merchandiser are correct. (Check all that apply.)

-Merchandisers can be a retailer.

-Merchandisers can be a wholesaler.

-A merchandiser earns net income by buying and selling merchandise.

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) _________ and is reported on the ____________ and merchandise that is sold during the period is considered a(n) ______________ and reported on the ____________

asset

Balance sheet

expense

income statement

X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Accounts Payable $300.

Review the following credit terms and identify the one that states that the buyer will receive a 3% discount if the payment is made within 15 days. Otherwise, full payment is expected within 45 days of the invoice date.

3/15,n/45

Show your understanding of a merchandiser by completing the following statement. Merchandisers earn net income by ___________ and ______ merchandise

Buying

Selling

What is a purchase return?

A purchase return refers to merchandise a buyer acquires, but then returns to the seller.

The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below. (Check all that apply.)

-Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.

-Terms FOB destination means that the seller is responsible for shipping costs.

-Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business.

-When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.

Gross profit is computed as net _______ minus cost of goods sold.

sales

Sales is a(n) ______ account.

revenue

Jan's Jams makes a credit sale for $300 with terms of 2/10,n/30. The cost of the merchandise is $200. The required journal entry to record the sale and the cost of the sale is:

debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

FOB destination

Explain how to determine gross profit on an income statement by selecting the correct statement below.

Cost of goods sold is subtracted from net sales.

Sales is a(n) ___________account and is reported on the _________ ___________

revenue

income

statement

Jo's Market makes a credit sale for $1,000 with terms of 2/10,n/30. The cost of the merchandise is $400. The required journal entry to record the sale and cost of the sale is:

debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle. (Check all that apply.)

-Beginning inventory + net purchases = Merchandise available for sale.

-Merchandise that is purchased becomes an asset reported on the balance sheet.

-Merchandise that is sold becomes an expense reported on the income statement.

-Ending inventory + Cost of goods sold = Total merchandise available for sale.

Sticky Company's merchandise inventory balance at year end is $15,050, but a physical count reveals that only $15,000 of inventory exists. The adjusting entry to record the shrinkage includes:

Credit to Merchandise Inventory for $50

Debit to Cost of Goods Sold for $50

The balance sheet of a merchandiser and a service business have one major difference. Select the item below that would appear only on a merchandiser's balance sheet.

Merchandise inventory

Which of the following equations correctly identify the cost flow of a merchandising company?

Net purchases plus beginning inventory equals merchandise available for sale

Identify the statement below that is the correct definition of "shrinkage".

Shrinkage refers to the loss of inventory due to theft, breakage or deterioration.

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. (Check all that apply.)

-The Dividends account is closed to Retained Earnings

-Sales is closed as a revenue account.

-Cost of goods sold is closed with the expense accounts.

-Sales Discounts is closed with the expense accounts.

-Sales Returns and Allowances is closed with the expense accounts.

Jo's Market makes a credit sale for $1,000 with terms of 2/10,n/30. The cost of the merchandise is $400. The required journal entry to record the sale and cost of the sale is:

debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400

Identify the financial statements of a merchandiser. (Check all that apply.)

Balance sheet

Income statement

Statement of retained earnings

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. (Check all that apply.)

Close the dividends account.

Close the income summary account.

Close expense accounts.

Close revenue accounts.

Identify the items or sub-headings below that would appear on a multiple-step income statement. (Check all that apply.)

Gross profit

Net sales

Income from operations

General and administrative expenses

Cost of goods sold

Selling expenses

Identify the statements below which are correct regarding a merchandiser's multi-step income statement. (Check all that apply).

-All expenses are subtracted from gross profit in order to calculate net income.

-Cost of goods sold is subtracted from net sales in order to determine gross profit.

True or false: A single-step income statement shows only one subtotal for expenses.

T

Which of the following are the three main parts of a multiple-step income statement? (Check all that apply.)

Gross profit

Net income

Income from operations

True or false: Merchandise inventory is generally converted to cash more quickly than accounts receivable.

false

The components of a merchandiser's multi-step income statement are shown below. In which order would they appear on the statement?

1. net sales

2. cost of goods sold

3. gross profit

4. expenses

5. net income

Recall the formula for calculating a company's acid-test ratio.

(Cash plus Short-term investments plus Current receivables) divided by Current liabilities

A single-step income statement can be identified by which of the following formats?

It shows only one total for all expenses.

The Merchandise Inventory account on a classified balance sheet is reported in the:

current assets section

True or false: A single-step income statement shows only one subtotal for expenses.

true

Which are the two classifications of operating expenses on a multiple-step income statement?

Selling; general and administrative

1. Cash would be credited for $980 on August 14.

2. Purchases would be debited for $980 on August 5.

3. Purchases discounts would be credited for $20 on August 14

1. Both methods

2. net method

3. gross method

A single-step income statement can be identified by which of the following formats?

It shows only one total for all expenses.

the net

method records invoices initially at the gross amount less any cash discount offered.