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Exam 4: Accounting for Merchandising Operations

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Question 21

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

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 to a supplier.

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

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Question 22

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Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account.

A) True
B) False

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Question 23

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Because sellers assume that their customers will pay within the discount period, the seller usually records the discount at the time of the sale.

The profit margin ratio is the same as the gross profit ratio.

Cushman Company, Inc. had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals:

A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases in a Delivery Expense account.

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

On September 12, Vander Company, Inc. sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system. The journal entry or entries that Vander will make on September 12 is:

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

On September 12, Vander Company, Inc. sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system. On September 14, Jepson returns some of the merchandise. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Vander must make on September 14 is: A) $\begin{array} { | l | r | r | } \hline \text { Sales returns and allowances } & 500 & \\\hline \text { Accounts receivable } & & 500 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}$ B) $\begin{array} { | l | r | r | } \hline \text { Sales returns and allowances } & 500 & \\\hline \text { Accounts receivable } & & 500 \\\hline\end{array}$ C) $\begin{array} { | l | r | r | } \hline \text { Accounts receivable } & 500 & \\\hline \text { Sales returns and allowances } & & 500 \\\hline\end{array}$ D) $\begin{array} { | l | r | r | } \hline \text { Accounts receivable } & 500 & \\\hline \text { Sales returns and allowances } & & 500 \\\hline \text { Cost of goods sold } & 350 & \\\hline \text { Merchandise inventory } & & 350 \\\hline \end{array}$ E) $\begin{array} { | l | r | r | } \hline \text { Sales returns and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}$

On February 3, Smart Company, Inc. sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

A company had a gross profit of $300,000 based on sales of $400,000. Its cost of goods sold equals $700,000.

Multiple-step income statements:

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

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.

Expenses related to accounting, human resource management, and financial management are known as selling expenses.

A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross margin equals $890,000.

A trade discount is:

The acid-test ratio differs from the current ratio in that:

When a company has no reportable non-operating activities, its income from operations is simply labeled net income.