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

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The acid-test ratio is calculated by div...

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Trade discounts are recorded in a Trade Discounts account in the accounting system.

A) True
B) False

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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.

A) True
B) False

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A company's gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio equals:


A) 4.2%
B) 24.1%
C) 75.9%
D) $83,750
E) $264,050

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

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The following information is available for Trico and its two main competitors in the industry (Duco and Unico): The following information is available for Trico and its two main competitors in the industry (Duco and Unico): The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio is 1. Required: 1. Calculate the current ratio and acid-test ratio for each firm. 2. Rank the firms in decreasing order of liquidity. 3. Comment on Trico's relative liquidity position. The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio is 1. Required: 1. Calculate the current ratio and acid-test ratio for each firm. 2. Rank the firms in decreasing order of liquidity. 3. Comment on Trico's relative liquidity position.

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Part 1
blured image blured image blured image blured image Part 2: Rank order:
blured image Part 3...

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

A) True
B) False

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An account used in the periodic inventory system that is not used in the perpetual inventory system is:


A) Merchandise Inventory
B) Sales
C) Sales Returns and Allowances
D) Accounts Payable
E) Purchases

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

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


A) $5,200
B) $129,800
C) $133,000
D) $135,000
E) $140,200

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

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On October 1, Robertson Company sold merchandise in the amount of $5,800 to Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses the periodic inventory system. Alberts pays the invoice on October 8 and takes the appropriate discount. The journal entry that Robertson makes on October 8 is:


A)  Cash 5,800 Accounts Receivable 5,800\begin{array}{|c|r|r|}\hline \text { Cash } & 5,800 & \\\hline \text { Accounts Receivable } & & 5,800 \\\hline\end{array}
B)  Cash 4,000 Accourts Receivable 4,000\begin{array} { | l | r | r | } \hline \text { Cash } & 4,000 & \\\hline \text { Accourts Receivable } & & 4,000 \\\hline\end{array}
C)  Cash 3,920 Sales Discourts 80 Accourits Receivable 4,000\begin{array} { | c | r | r | } \hline \text { Cash } & 3,920 & \\\hline \text { Sales Discourts } & 80 & \\\hline \text { Accourits Receivable } & & 4,000 \\\hline\end{array}
D)  Cash 5,684 Accourts Receivable 5,684\begin{array} { | l | r | r | } \hline \text { Cash } & 5,684 & \\\hline \text { Accourts Receivable } & & 5,684 \\\hline\end{array}
E)  Cash 5,684 Sales Discourts 116 Accourits Receivable 5,800\begin{array} { | c | r | r | } \hline \text { Cash } & 5,684 & \\\hline \text { Sales Discourts } & 116 & \\\hline \text { Accourits Receivable } & & 5,800 \\\hline\end{array}

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

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Distinguish between selling expenses and general and administrative expenses.

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Selling expenses include the expenses of...

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On July 22, a company purchased merchandise inventory at a cost of $5,250 with credit terms 2/10, net 30. If the company pays for the purchase on August 7, what would be the appropriate journal entry?


A)  Merchardise Irventory 5,250 Accourts Payable 5,250\begin{array} { | c | c | c | } \hline \text { Merchardise Irventory } & 5,250 & \\\hline \text { Accourts Payable } & & 5,250 \\\hline\end{array}
B)  Accounts Payable 5,250 Merchandise Inventory 5,250\begin{array}{|c|c|c|}\hline \text { Accounts Payable } & 5,250 & \\\hline \text { Merchandise Inventory } & & 5,250 \\\hline\end{array}
C)  Accounts Payable 5,250 Cash 5,250\begin{array}{|c|c|c|}\hline \text { Accounts Payable } & 5,250 & \\\hline \text { Cash } & & 5,250 \\\hline\end{array}
D)  Accourts Payable 5,145 Cash 5,145\begin{array} { | c | c | c | } \hline \text { Accourts Payable } & 5,145 & \\\hline \text { Cash } & & 5,145 \\\hline\end{array}
E)  Accounts Payable 5,250 Merchandise Inventory 105 Cash 5,145\begin{array}{|l|r|r|}\hline \text { Accounts Payable } & 5,250 & \\\hline \text { Merchandise Inventory } & & 105 \\\hline \text { Cash } & & 5,145 \\\hline\end{array}

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

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A company that uses the perpetual inventory system purchased merchandise inventory at a cost of $4,300 with credit terms 3/15, net 45. If the company elects to pay within the discount period, what would be the appropriate journal entry to record the payment?


A)  Merchardise Irventory 4,300 Accourts Payable 4,300\begin{array} { | c | c | c | } \hline \text { Merchardise Irventory } & 4,300 & \\\hline \text { Accourts Payable } & & 4,300 \\\hline\end{array}
B)  Accourts Payable 4,300 Merchardise Irventory 4,300\begin{array} { | c | c | c | } \hline \text { Accourts Payable } & 4,300 & \\\hline \text { Merchardise Irventory } & & 4,300 \\\hline\end{array}
C)  Purchase Discourt 4,171 Accourts Payable 4,171\begin{array} { | c | c | c | } \hline \text { Purchase Discourt } & 4,171 & \\\hline \text { Accourts Payable } & & 4,171 \\\hline\end{array}
D)  Accourts Payable 4,171 Cash 4,171\begin{array} { | c | c | c | } \hline \text { Accourts Payable } & 4,171 & \\\hline \text { Cash } & & 4,171 \\\hline\end{array}
E)  Accourts Payable 4,300 Merchardise Irventory 129 Cash 4,171\begin{array} { | l | r | r | } \hline \text { Accourts Payable } & 4,300 & \\\hline \text { Merchardise Irventory } & & 129 \\\hline \text { Cash } & & 4,171 \\\hline\end{array}

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

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A company had a gross profit of $300,000 based on sales of $400,000, which means its cost of goods sold is equal to $700,000.

A) True
B) False

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

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A _____________________ income statement format shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items.

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A company has net sales of $1,832,000, sales commissions of $194,000, net income of $366,400, and the gross profit ratio of 60%. What is the amount of cost of goods sold?


A) $ 538,800
B) $ 732,800
C) $ 655,200
D) $ 879,360
E) $1,099,200

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

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

A) True
B) False

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A company purchased $6,000 of merchandise on credit with terms 4/15, n/30. How much will be debited to Accounts Payable if the company pays $800 cash on this account within 10 days?


A) $833.33
B) $800
C) Nothing will debited to Accounts Payable; the account should be credited in this situation.
D) $5,760
E) $5,333.33

F) A) and B)
G) A) and C)

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


A)  Sales 5,800 Accounts Receivable 5,800\begin{array}{|c|r|r|}\hline \text { Sales } & 5,800 & \\\hline \text { Accounts Receivable } & & 5,800 \\\hline\end{array}
B)  Sales 5,800 Accourts Receivable 5,800 Cost of Goods Sold 4,000 Merchardise Irventory 4,000\begin{array} { | c | r | r | } \hline \text { Sales } & 5,800 & \\\hline \text { Accourts Receivable } & & 5,800 \\\hline \text { Cost of Goods Sold } & 4,000 & \\\hline \text { Merchardise Irventory } & & 4,000 \\\hline\end{array}
C)  Accounts Receivable 5,800 Sales 5,800\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 5,800 & \\\hline \text { Sales } & & 5,800 \\\hline\end{array}
D)  Accourts Receivable 5,800 Sales 5,800 Cost of Goods Sold 4,000 Merchardise Irventory 4,000\begin{array} { | l | r | r | } \hline \text { Accourts Receivable } & 5,800 & \\\hline \text { Sales } & & 5,800 \\\hline \text { Cost of Goods Sold } & 4,000 & \\\hline \text { Merchardise Irventory } & & 4,000 \\\hline\end{array}
E)  Accounts Receivable 4,000 Sales 4,000\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 4,000 & \\\hline \text { Sales } & & 4,000 \\\hline\end{array}

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

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Merchandise inventory:


A) Is a long-term asset.
B) Is a current asset.
C) Includes supplies.
D) Is classified with investments on the balance sheet.
E) Must be sold within one month.

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

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