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Exam 5: Accounting for Merchandising Operations

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Question 71

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On October 1, Mutch Company sold merchandise in the amount of $5,800 to Carr Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Mutch uses the perpetual inventory system. On October 4, Carr returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Mutch must make on October 4 is:

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

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

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Question 72

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Cost of goods sold represents the cost of buying and preparing merchandise for sale.

A) True
B) False

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Question 73

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A period's ___________________ becomes the next period's beginning inventory.

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 equals:

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

Inventory is usually less liquid than accounts receivable because inventory must first be sold before cash can be received.

What is inventory shrinkage? How do managers account for shrinkage?

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

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.

Steve's Skateboards uses the perpetual inventory system and had the following sales transactions during April: Prepare the journal entries that Steve's Skateboards must make to record these transactions.

Liquidity problems are likely to exist when a company's acid-test ratio:

The Merchandise Inventory account balance at the end of the current period is equal to the amount of beginning merchandise inventory for the next period.

If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

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

A company's current assets were $17,980, its quick assets were $11,420 and its current liabilities were $12,190. Its quick ratio equals:

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

Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles.

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

Explain the cost flows and operating activities of a merchandising company.

The following statements regarding merchandise inventory are except: