Question 1

Austin's Pub Supply uses the periodic inventory system and the gross method of accounting for sales. The company had the following sales transactions during August:
 $$\begin{array} { | l | l | } 
\hline \text { August 2 } & \begin{array} { l } 
\text { Sold merchandise to Jo's Pub and Grub on oredit for \$3,750, terms } 2 / 15 , \
\text { n/60. The items sold had a cost of \$1,200. }
\end{array} \
\hline \text { August 4 } & \begin{array} { l } 
\text { Jo's Pub and Grub retuned merchandise that had a selling price of \$300. } \
\text { The cost of the merchandise returned was \$110. }
\end{array} \
\hline \text { August 13 } & \begin{array} { l } 
\text { Jo's Pub and Grub paid for the merchandise sold on August 2, taking any } \
\text { appropriate discount eaned. }
\end{array} \
\hline
\end{array}$$ Prepare the journal entries that Austin's Pub Supply must make to record these transactions.

Accepted Answer

\[\begin{array} { l l l l }
\text { Aug...

Question 2

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

Accepted Answer

A) True 
 B)False

Question 3

The periodic inventory system requires updating the inventory account only at the end of the period to reflect the quantity and cost of goods available for sale and the cost of goods sold.

Accepted Answer

A) True 
 B)False  True

Question 4

Netherland Corporation has the following unadjusted balances: Accounts Receivable, $80,000 (debit) , and Allowance for Sales Discounts $300 (credit) . Of the receivables, $50,000 of them are within the 2% discount period, and Netherland expects buyers to take $1,000 in future-period discounts ($50,000 × 2%)  arising from this period's sales. The adjusting entry to estimate sales discounts is (are) :

Accepted Answer

A)     Accounts Recivable 80,000 Sales 80,000\begin{array} { | l | r | r | } \hline 	ext { Accounts Recivable } & 80,000 & \\hline 	ext { Sales } & & 80,000 \\hline\end{array} Accounts Recivable  Sales ​80,000​80,000​​ 
B)     Sales Discounts 700 Allowance for Sales Discounts 700\begin{array} { | l | r | r | } \hline 	ext { Sales Discounts } & 700 & \\hline 	ext { Allowance for Sales Discounts } & & 700 \\hline\end{array} Sales Discounts  Allowance for Sales Discounts ​700​700​​ 
C)     Sales Discounts 50,000 Sales 50,000 Cost of Goods Sold 1,000 Inventory Returns Estimated 1,000\begin{array} { | l | r | l | } \hline 	ext { Sales Discounts } & 50,000 & \\hline 	ext { Sales } & & 50,000 \\hline 	ext { Cost of Goods Sold } & 1,000 & \\hline 	ext { Inventory Returns Estimated } & & 1,000 \\hline\end{array} Sales Discounts  Sales  Cost of Goods Sold  Inventory Returns Estimated ​50,0001,000​50,0001,000​​ 
D)     Sales Discounts 1,000 Allowance for Sales Discounts 1,000\begin{array} { | l | r | r | } \hline 	ext { Sales Discounts } & 1,000 & \\hline 	ext { Allowance for Sales Discounts } & & 1,000 \\hline\end{array} Sales Discounts  Allowance for Sales Discounts ​1,000​1,000​​ 
E)     Sales Discounts 1,000 Accounts receivable 1,000\begin{array} { | l | r | r | } \hline 	ext { Sales Discounts } & 1,000 & \\hline 	ext { Accounts receivable } & & 1,000 \\hline\end{array} Sales Discounts  Accounts receivable ​1,000​1,000​​F) A) and B)
G) C) and E)

Question 5

Describe the difference between wholesalers and retailers.

Accepted Answer

A wholesaler is an intermediary that buy...

Question 6

Prepare journal entries to record the following merchandising transactions of Margin Company, which applies the perpetual inventory system and the gross method of recording invoices. Margin Company offers all of its credit customers credit terms of 2/10, n/30.
 \(\begin{array}{|l|l|}
\hline \text { May 1 } & \begin{array}{l}
\text { Purchased merchandise from Craft Company for } \$ 7,800 \text { under credit terms } \
\text { of } 1 / 10, \mathrm{n} / 30, \mathrm{FOB} \text { shipping point, invoice dated May } 1 .
\end{array} \
\hline \text { May 2 } & \begin{array}{l}
\text { Purchased merchandise from Bow Company for } \$ 10,600 \text { under credit } \
\text { terms 2/05, n/20, FOB destination. }
\end{array} \
\hline \text { May 4 } & \begin{array}{l}
\text { Paid } \$ 300 \text { cash for the freight charges on the May 1 purchase of } \
\text { merchandise. }
\end{array} \
\hline \text { May 5 } & \begin{array}{l}
\text { Received an } \$ 800 \text { credit memorandum from Craft Company for the return } \
\text { of part of the merchandise purchased on May } 1 .
\end{array} \
\hline \text { May 6 } & \text { Paid Bow Company the balance due within the discount period. } \
\hline \text { May 11 } & \text { Paid Craft Company the balance due within the discount period. } \
\hline
\end{array}\)

Accepted Answer

The answer of Prepare journal entries to record the following...

Question 7

Stevenson Corporation reports unadjusted first-year sales of $400,000 and cost of goods sold of
$240,000. The company expects future returns and allowances equal to 3% of sales and 3% of cost of sales. Prepare the adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

Accepted Answer

None...

Question 8

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

Accepted Answer

A)     Accounts receivable 4,000 Sales 4,000\begin{array} { | l | r | r | } \hline 	ext { Accounts receivable } & 4,000 & \\hline 	ext { Sales } & & 4,000 \\hline\end{array} Accounts receivable  Sales ​4,000​4,000​​ 
B)     Sales 5,800 Accounts receivable 5,800\begin{array} { | l | r | r | } \hline 	ext { Sales } & 5,800 & \\hline 	ext { Accounts receivable } & & 5,800 \\hline\end{array} Sales  Accounts receivable ​5,800​5,800​​ 
C)     Accounts receivable 5,800 Sales 5,800 Cost of goods sold 4,000 Merchandise Inventory 4,000\begin{array} { | l | r | r | } \hline 	ext { Accounts receivable } & 5,800 & \\hline 	ext { Sales } & & 5,800 \\hline 	ext { Cost of goods sold } & 4,000 & \\hline 	ext { Merchandise Inventory } & & 4,000 \\hline\end{array} Accounts receivable  Sales  Cost of goods sold  Merchandise Inventory ​5,8004,000​5,8004,000​​ 
D)     Sales 5,800 Accounts receivable 5,800 Cost of goods sold 4,000 Merchandise Inventory 4,000\begin{array} { | l | r | r | } \hline 	ext { Sales } & 5,800 & \\hline 	ext { Accounts receivable } & & 5,800 \\hline 	ext { Cost of goods sold } & 4,000 & \\hline 	ext { Merchandise Inventory } & & 4,000 \\hline\end{array} Sales  Accounts receivable  Cost of goods sold  Merchandise Inventory ​5,8004,000​5,8004,000​​ 
E)     Accounts receivable 5,800 Sales 5,800\begin{array} { | l | r | r | } \hline 	ext { Accounts receivable } & 5,800 & \\hline 	ext { Sales } & & 5,800 \\hline\end{array} Accounts receivable  Sales ​5,800​5,800​​F) None of the above
G) B) and E)

Question 9

In its first year of business, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales. The adjusting entry or entries to record the expected sales returns is (are) :

Accepted Answer

A)     Sales returns and allowances 160,000 Sales 160,000 Cost of Goods Sold 96,000 Inventory Returns Estimated 96,000\begin{array} { | l | r | l | } \hline 	ext { Sales returns and allowances } & 160,000 & \\hline 	ext { Sales } & & 160,000 \\hline 	ext { Cost of Goods Sold } & 96,000 & \\hline 	ext { Inventory Returns Estimated } & & 96,000 \\hline\end{array} Sales returns and allowances  Sales  Cost of Goods Sold  Inventory Returns Estimated ​160,00096,000​160,00096,000​​ 
B)     Sales Refind Payable 160,000 Accounts receivable 160,000\begin{array} { | l | l | l | } \hline 	ext { Sales Refind Payable } & 160,000 & \\hline 	ext { Accounts receivable } & & 160,000 \\hline\end{array} Sales Refind Payable  Accounts receivable ​160,000​160,000​​ 
C)     Sales 2,000,000 Sales Refind Payable 160,000 Accounts receivable 1,840,000\begin{array} { | l | r | r | } \hline 	ext { Sales } & 2,000,000 & \\hline 	ext { Sales Refind Payable } & & 160,000 \\hline 	ext { Accounts receivable } & & 1,840,000 \\hline\end{array} Sales  Sales Refind Payable  Accounts receivable ​2,000,000​160,0001,840,000​​ 
D)     Sales Returns and Allowances 160,000 Sales Refund Payable 160,000 Inventory Returns Estimated 96,000 Cost of goods sold 96,000\begin{array} { | l | r | l | } \hline 	ext { Sales Returns and Allowances } & 160,000 & \\hline 	ext { Sales Refund Payable } & & 160,000 \\hline 	ext { Inventory Returns Estimated } & 96,000 & \\hline 	ext { Cost of goods sold } & & 96,000 \\hline\end{array} Sales Returns and Allowances  Sales Refund Payable  Inventory Returns Estimated  Cost of goods sold ​160,00096,000​160,00096,000​​ 
E)     Accounts Recivable 2,000,000 Sales 2,000,000\begin{array} { | l | l | l | } \hline 	ext { Accounts Recivable } & 2,000,000 & \\hline 	ext { Sales } & & 2,000,000 \\hline\end{array} Accounts Recivable  Sales ​2,000,000​2,000,000​​F) A) and B)
G) D) and E) D

Question 10

What is the acid-test ratio? How does it measure a company's liquidity?

Accepted Answer

The acid-test ratio is a measure of a me...

Question 11

Cost of goods sold is an expense, and is reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 12

From the adjusted trial balance given below for the Grayson Company, prepare a multiple-step income statement in good form. Salaries expense and building depreciation expense should be equally divided between selling activities and the general and administrative activities.

Accepted Answer

None...

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The acid-test ratio:

Accepted Answer

A)   Measures return on assets.
B)   Is also called the quick ratio.
C)   Is generally greater than the current ratio.
D)   Measures profitability.
E)   Measures inventory turnover.F) B) and D)
G) B) and C)

Question 15

A ________ company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.

Accepted Answer

The answer of A ________ company's operating cycle begins with...

Question 16

All of the following statements related to U.S. GAAP and IFRS are true except:

Accepted Answer

A)   Neither system defines operating income.
B)   U.S. GAAP offers little guidance about the presentation order of expenses.
C)   Accounting for basic inventory transactions is the same under the two systems.
D)   Neither system requires separate disclosure of items when their size, nature, or frequency are important.
E)   The closing process for merchandisers is the same under both systems.F) B) and C)
G) A) and E)

Question 17

From the adjusted trial balance for Fabricated Products Company given below, prepare the necessary closing entries.
Fabricated Products CompanyAdjusted Trial BalanceDecember 31

Accepted Answer

None...

Question 18

Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Accepted Answer

A) True 
 B)False

Question 19

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. 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 correct journal entry to record the purchase on August 7 is:

Accepted Answer

A)   Debit Merchandise Inventory $9,750; credit Sales Returns $1,500; credit Cash $8,250.
B)   Debit Accounts Payable $8,250; debit Purchase Returns $1,500; credit Merchandise Inventory $9,750.
C)   Debit Accounts Payable $9,750; credit Merchandise Inventory $9,750.
D)   Debit Merchandise Inventory $9,750; credit Cash $9,750.
E)   Debit Merchandise Inventory $9,750; credit Accounts Payable $9,750.F) C) and D)
G) All of the above

Question 20

A retailer buys products from manufacturers and sells them to wholesalers.

Accepted Answer

A) True 
 B)False  False

Exam 5: Accounting for Merchandising Operations

Correct Answer
verified
\[\begin{array} { l l l l }
\text { Aug...
View Answer

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

Correct Answer
verified

The periodic inventory system requires updating the inventory account only at the end of the period to reflect the quantity and cost of goods available for sale and the cost of goods sold.

Correct Answer
verified
True

Correct Answer
verified

Describe the difference between wholesalers and retailers.

Correct Answer
verified
A wholesaler is an intermediary that buy...
View Answer

Correct Answer
verified

Correct Answer
verified
None...
View Answer

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

Correct Answer
verified

In its first year of business, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales. The adjusting entry or entries to record the expected sales returns is (are) :

Correct Answer
verified
D

What is the acid-test ratio? How does it measure a company's liquidity?

Correct Answer
verified
The acid-test ratio is a measure of a me...
View Answer

Cost of goods sold is an expense, and is reported on the income statement.

Correct Answer
verified

From the adjusted trial balance given below for the Grayson Company, prepare a multiple-step income statement in good form. Salaries expense and building depreciation expense should be equally divided between selling activities and the general and administrative activities.

Correct Answer
verified
None...
View Answer

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

Correct Answer
verified

The acid-test ratio:

Correct Answer
verified

A ________ company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.

Correct Answer
verified

All of the following statements related to U.S. GAAP and IFRS are true except:

Correct Answer
verified

From the adjusted trial balance for Fabricated Products Company given below, prepare the necessary closing entries. Fabricated Products CompanyAdjusted Trial BalanceDecember 31

Correct Answer
verified
None...
View Answer

Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Correct Answer
verified

Correct Answer
verified

A retailer buys products from manufacturers and sells them to wholesalers.

Correct Answer
verified
False

Exam 5: Accounting for Merchandising Operations

Correct Answerverified\[\begin{array} { l l l l } \text { Aug...View AnswerShow Answer

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

Correct AnswerverifiedShow Answer

The periodic inventory system requires updating the inventory account only at the end of the period to reflect the quantity and cost of goods available for sale and the cost of goods sold.

Correct AnswerverifiedTrue

Correct AnswerverifiedShow Answer

Describe the difference between wholesalers and retailers.

Correct AnswerverifiedA wholesaler is an intermediary that buy...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNone...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

In its first year of business, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales. The adjusting entry or entries to record the expected sales returns is (are) :

Correct AnswerverifiedD

What is the acid-test ratio? How does it measure a company's liquidity?

Correct AnswerverifiedThe acid-test ratio is a measure of a me...View AnswerShow Answer

Cost of goods sold is an expense, and is reported on the income statement.

Correct AnswerverifiedShow Answer

From the adjusted trial balance given below for the Grayson Company, prepare a multiple-step income statement in good form. Salaries expense and building depreciation expense should be equally divided between selling activities and the general and administrative activities.

Correct AnswerverifiedNone...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

The acid-test ratio:

Correct AnswerverifiedShow Answer

A ________ company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.

Correct AnswerverifiedShow Answer

All of the following statements related to U.S. GAAP and IFRS are true except:

Correct AnswerverifiedShow Answer

From the adjusted trial balance for Fabricated Products Company given below, prepare the necessary closing entries. Fabricated Products CompanyAdjusted Trial BalanceDecember 31

Correct AnswerverifiedNone...View AnswerShow Answer

Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A retailer buys products from manufacturers and sells them to wholesalers.

Correct AnswerverifiedFalse

Correct Answer
verified
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\text { Aug...
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True

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A wholesaler is an intermediary that buy...
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None...
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D

Correct Answer
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The acid-test ratio is a measure of a me...
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None...
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False