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What is the gross margin ratio? How is it used as an indicator of profitability?

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The gross margin ratio computes the rela...

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

A) True
B) False

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A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals:


A) 46.6%.
B) 53.4%.
C) 28.3%.
D) 31.5%.
E) 40.5%.

F) A) and C)
G) None of the above

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Forrest's Cycle Shop, Inc. uses the gross method of accounting for sales and a perpetual inventory accounting system and had the following transactions during the month of July: Forrest's Cycle Shop, Inc. uses the gross method of accounting for sales and a perpetual inventory accounting system and had the following transactions during the month of July: Prepare the required journal entries that Forrest's Cycle Shop, Inc. must make to record these transactions. Prepare the required journal entries that Forrest's Cycle Shop, Inc. must make to record these transactions.

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Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

A) True
B) False

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A period's ending Merchandise Inventory account balance is the next period's beginning Merchandise Inventory balance.

A) True
B) False

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Jasper Company, Inc. is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase, and the supplier offers a 30% trade discount for large quantity purchases. The cost of shipping the merchandise is $7 per unit. Jasper's net purchase price per unit will be:


A) $507
B) $350
C) $357
D) $343
E) $493

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

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On September 12, Jepson Company purchased merchandise in the amount of $5,800 from Vander Company, Inc. on credit with terms of 2/10, n/30. Jepson uses the gross method of accounting for purchases and a periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is:


A) On September 12, Jepson Company purchased merchandise in the amount of $5,800 from Vander Company, Inc. on credit with terms of 2/10, n/30. Jepson uses the gross method of accounting for purchases and a periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is: A) B) C) D) E)
B) On September 12, Jepson Company purchased merchandise in the amount of $5,800 from Vander Company, Inc. on credit with terms of 2/10, n/30. Jepson uses the gross method of accounting for purchases and a periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is: A) B) C) D) E)
C) On September 12, Jepson Company purchased merchandise in the amount of $5,800 from Vander Company, Inc. on credit with terms of 2/10, n/30. Jepson uses the gross method of accounting for purchases and a periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is: A) B) C) D) E)
D) On September 12, Jepson Company purchased merchandise in the amount of $5,800 from Vander Company, Inc. on credit with terms of 2/10, n/30. Jepson uses the gross method of accounting for purchases and a periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is: A) B) C) D) E)
E) On September 12, Jepson Company purchased merchandise in the amount of $5,800 from Vander Company, Inc. on credit with terms of 2/10, n/30. Jepson uses the gross method of accounting for purchases and a periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is: A) B) C) D) E)

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

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Calculate the gross margin ratio for each of the following separate cases A through C: Calculate the gross margin ratio for each of the following separate cases A through C:

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A = ($145,000 - $83,600)/$145,...

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Juniper Company, Inc. uses a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:


A) $8,167.50.
B) $9,652.50.
C) $9,750.00.
D) $8,250.00.
E) $8,152.50.

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

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On July 1, Ferguson Company, Inc. sold merchandise in the amount of $3,700 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,000. Ferguson uses the gross method of accounting for sales and a perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise returned is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 to record the return is:


A) On July 1, Ferguson Company, Inc. sold merchandise in the amount of $3,700 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,000. Ferguson uses the gross method of accounting for sales and a perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise returned is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 to record the return is: A) B) C) D) E)
B) On July 1, Ferguson Company, Inc. sold merchandise in the amount of $3,700 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,000. Ferguson uses the gross method of accounting for sales and a perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise returned is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 to record the return is: A) B) C) D) E)
C) On July 1, Ferguson Company, Inc. sold merchandise in the amount of $3,700 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,000. Ferguson uses the gross method of accounting for sales and a perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise returned is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 to record the return is: A) B) C) D) E)
D) On July 1, Ferguson Company, Inc. sold merchandise in the amount of $3,700 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,000. Ferguson uses the gross method of accounting for sales and a perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise returned is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 to record the return is: A) B) C) D) E)
E) On July 1, Ferguson Company, Inc. sold merchandise in the amount of $3,700 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,000. Ferguson uses the gross method of accounting for sales and a perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise returned is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 to record the return is: A) B) C) D) E)

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

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Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:


A) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is: A) B) C) D) E)
B) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is: A) B) C) D) E)
C) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is: A) B) C) D) E)
D) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is: A) B) C) D) E)
E) Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is: A) B) C) D) E)

F) B) and C)
G) None of the above

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If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

A) True
B) False

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

A) True
B) False

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Garza Company made a $135,000 sale with terms 2/10, n/45: If the company uses the gross method of accounting for sales, the sale should be recorded with a debit to Accounts Receivable and a credit to Sales for which of the following amounts?


A) $135,000.
B) $132,300.
C) $137,700.
D) $121,500.
E) $148,500.

F) None of the above
G) A) and D)

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A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:


A) $(217,000) .
B) $375,000.
C) $157,500.
D) $217,500.
E) $532,500.

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

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

A) True
B) False

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Merchandise inventory:


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

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

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Describe the difference between wholesalers and retailers.

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A wholesaler is an intermediary that buy...

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____________________ can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts.

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