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Exam 4: Reporting and Analyzing Merchandising Operations

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Question 41

True/False

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A perpetual inventory system continually updates accounting records for merchandising transactions.

A) True
B) False

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Question 42

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Either the gross method or net method may be used to record sales with cash discounts, but the net method requires a period-end adjusting entry to estimate expected future sales discounts taken.

A) True
B) False

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Question 43

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On February 3, Smart Company, Inc. sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the gross method of accounting for sales and a perpetual inventory system. Truman pays the invoice on February 18, which is after the discount period. The journal entry that Smart makes on February 18 is:

Purchase discounts are the same as trade discounts.

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Mega Skateboard Supplier, Inc. had net sales of $2.8 million, its cost of goods sold was $1.6 million, and its net income was $0.9 million. Its gross margin ratio equals:

A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that the customer has taken what percentage cash discount for early payment?

KLM Corporation's quick assets are $5,888,000, its current assets are $11,700,000 and its current liabilities are $8,000,000. Its acid-test ratio equals:

Expenses to promote sales by displaying and advertising merchandise, making sales, and delivering goods to customers are known as:

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. The journal entry that Jepson will make on September 12 is:

A multiple-step income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.

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. On September 14, Jepson returns some of the merchandise. The purchase price of the returned merchandise is $500. The entry or entries that Jepson must make on September 14 is:

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

Prepare journal entries to record the following merchandising transactions of Prosser Company, Inc., which uses the net method of accounting for sales and a perpetual inventory system. Prosser offers all of its credit customers credit terms of 2/10, n/30.

A retailer is an intermediary that buys products from manufacturers and sells them to wholesalers.

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

Farmen Company, Inc. had net sales of $600,000 and cost of goods sold of $450,000. Calculate Farmen's gross profit.

Sales Discounts is added to the Sales account when computing a company's net sales.

A company reported the following information for the month of July: Required: Calculate this company's gross margin ratio.

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