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Exam 5: Accounting for Merchandising Operations

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Question 51

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A company purchases merchandise with a catalog price of $20,000. The company receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made on time, what is the net cost of the merchandise?

A) $13,720.
B) $19,600.
C) $6,860.
D) $13,000.
E) $12,740.

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

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Question 52

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Ceres Computer Sales uses the perpetual inventory system and had the following transactions during December. Required: Prepare the general journal entries to record these transactions.

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Question 53

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

The following statements are true regarding the operating cycle of a merchandising company except:

Selling expenses support a company's overall operations and include expenses related to accounting, human resource management, and financial management.

Assets tied up in inventory are not productive assets.

A buyer did not take advantage of a supplier's credit terms of 2/10, n/30, and instead paid the invoice in full at the end of 30 days. By not taking the discount the buyer lost the equivalent of 18% annual interest on the amount of the purchase.

___________________ refer to reductions in the selling price of merchandise sold to customers, often involving damaged or defective merchandise that a customer is willing to purchase with a decrease in the selling price.

Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.

A company's current assets are $23,420, its quick assets were $13,890 and its current liabilities were $12,220. Its acid-test ratio equals:

The operating cycle for a merchandiser that sells only for cash moves from:

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

From the adjusted trial balance for Worker Products Company given below, prepare a multiple-step income statement in good form.

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

____________________ refer to merchandise that customers return to the seller after a sale.

What does FOB stand for? Differentiate between FOB shipping point (or FOB factory) and FOB destination.

An account used in the periodic inventory system that is not used in the perpetual inventory system is

The __________________ inventory system continually updates accounting records for merchandise transactions for the amounts of inventory available for sale and inventory sold.

Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.

A perpetual inventory system requires updating of the inventory account only at the beginning of an accounting period.