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Exam 5: Accounting for Merchandising Operations

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Question 81

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A company has net sales and cost of goods sold of $825,000 and $547,000,respectively.Its net income is $98,500.The company's gross margin and operating expenses are ________ and ____________,respectively.

A) $209,000; $191,470
B) $278,000; $179,500
C) $278,000; $98,500
D) $179,500; $98,500
E) $645,500; $179,500

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

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Question 82

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A company reported the following year-end information: Cash…………………………………...………..$ 52,000 Short-term investments………………………... 12,000 Accounts receivable………………………….... 54,000 Inventory………………………………..……...325,000 Prepaid expenses………………………………. 17,500 Accounts payable………………………..……..106,500 Other current payables………………………… 25,000 Required: 1.Explain the purpose of the acid-test ratio. 2.Calculate the acid-test ratio for this company. 3.What does the acid-test ratio reveal about this company?

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1.The acid-test ratio measures the abili...

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Question 83

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Gross profit is also called gross margin.

A merchandiser's classified balance sheet reports merchandise inventory as a current asset.

The profit margin ratio is gross margin divided by total assets.

The quick assets are defined as:

A ___________ inventory system updates the accounting record for inventory only at the end of a period.

Under the ___________ system,each purchase,purchase return and allowance,purchase discount,and transportation-in transaction is recorded in a separate temporary account.

A common rule of thumb is that a company's acid-test ratio should be at least 2 or a company may face near-term liquidity problems.

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.

A company had net sales of $340,500,its cost of goods sold was $257,000,and its net income was $13,750.The company's gross margin ratio equals 24.5%.

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

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

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

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

Shock Company purchased merchandise from Mee Company with an invoice price of $300,000 and credit terms of 2/10,n/30.The merchandise had cost Mee Company $200,000.Shock Company paid within the discount period.Assume that both buyer and seller use a perpetual inventory system. 1.Prepare entries that the buyer should record for (a)the purchase and (b)the cash payment. 2.Prepare entries that the seller should record for (a)the sale and (b)the cash collection. 3.Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 9% and paid it back on the last day of the credit period.Compute how much the buyer saved by following this strategy.(Assume a 365-day year and round dollar amounts to the nearest cent.)

A buyer failed to take advantage of the vendor's credit terms of 2/15,n/45,but instead paid the invoice in full at the end of 60 days.By not taking advantage of the cash discount,the buyer lost the equivalent of ____________ annual interest on the amount of the purchase.

A retailer is an intermediary that buys products from manufacturers and sells them to wholesalers.

What is the difference between the periodic and perpetual inventory systems?

Operating expenses are classified into two categories: selling expenses and cost of goods sold.