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Exam 5: Accounting for Merchandising Operations

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Question 1

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

A) True
B) False

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Question 2

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The year-end adjusted trial balance of ABC Supply for the current year,is shown below: Prepare closing entries at December 31 for the current year.

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

Describe how tracking inventory activities are necessary for a merchandising company.

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Sales Discounts is a contra revenue account,meaning that the Sales Discounts account is added to the Sales account when computing a company's net sales.

Peg had net sales of $28,496 million,its cost of goods sold was $19,092 million,and its net income was $997 million.Its gross margin ratio equals:

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

Describe the difference between wholesalers and retailers.

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

Beginning inventory plus net purchases is:

Because sellers assume that their customers will pay within the discount period,the seller usually records the discount at the time of the sale.

A company purchased $10,000 of merchandise on June 15 with terms of 3/10,n/45,and FOB shipping point.The freight charge was $500.On June 20,it returned $800 of that merchandise.On June 24,it paid the balance owed for the merchandise taking any discount it is entitled to.The cash paid on June 24 equals:

Brig Company had $800,000 in sales,sales discounts of $12,000,sales returns and allowances of $18,000,cost of goods sold of $380,000,and $275,000 in operating expenses.Gross profit equals:

When a company has no reportable non-operating activities,its income from operations is simply labeled net income.

A company purchased $4,000 worth of merchandise.Transportation costs were an additional $350.The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period.The total amount paid for this merchandise is:

A debit memorandum is:

FOB shipping point (or FOB factory)implies that ownership of goods transfers to the buyer at the buyer's place of business.

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

Calculate the gross margin ratio for each of the following separate cases A through D: A B C D Net sales…………… $135,000 $623,500 $37,800 $259,600 Cost of goods sold… 83,600 249,200 3,230 127,204