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Exam 4: Accounting for Merchandising Operations

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Question 91

True/False

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Sales Discounts, Sales Returns and Allowances, and Cost of Goods Sold are all closed to the Income Summary account with debits.

A) True
B) False

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Question 92

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Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

A) True
B) False

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Question 93

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The following information is for Trico and its competitor Unico: Required: A. Calculate the dollar amount of gross margin and the gross margin ratio to the nearest percent for each company for both years. B. Which company had the more favorable ratio for each year? C. Which company had the more favorable change in the gross margin ratio over this two-year period?

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

Which of the following accounts would be closed with a debit?

A company purchased $1,800 of merchandise on December 5. On December 7, it returned $200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 is:

A ___________ is an intermediary that buys products from manufacturers and sells to retailers.

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

Merchandise inventory is reported in the long-term assets section of the balance sheet.

When a credit customer returns merchandise, a seller that uses the perpetual system would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

What are the differences between the periodic and the perpetual inventory systems?

A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

A company had net sales of $741,800. Its cost of goods sold must have been _________ to yield a gross profit of $282,884.

A company's current ratio is 1.2 and its quick ratio is 0.25. This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.

Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

In a perpetual inventory system, the merchandise inventory account must be closed at the end of the accounting period.

The following information refers to Annie's Attic and its competitors in the antiques business: Required: Comment on the relative liquidity positions of these companies.

A company's cost of goods sold was $4,000. Determine net purchases and ending inventory given goods available for sale were $11,000 and beginning inventory was $5,000.

___________ expenses are those expenses that support a company's overall operations and include expenses related to accounting, human resource management, and financial management.

Inventory shrinkage can be computed by comparing the ___________ of inventory with recorded quantities and amounts.