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Exam 4: Accounting for Merchandising Operations

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Question 1

True/False

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Merchandise inventory is reported in the long-term assets section of the balance sheet.

A) True
B) False

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Question 2

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Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

A) True
B) False

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Question 3

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Cost of goods sold:

Describe the recording process (including costs) for the types of transactions associated with sales of merchandise inventory using a perpetual inventory system.

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

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 within the discount period, what is the net cost of the merchandise?

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

Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals:

Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:

Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.

Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.

Jasper Company, Inc. is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit. Jasper's total purchase price per unit will be:

The acid-test ratio is defined as current assets divided by current liabilities.

Assets tied up in inventory are not considered productive assets.

Juniper Company, Inc. uses a perpetual inventory system. 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 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:

In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of the accounting period.

Delivery expense is reported as part of general and administrative expense in the seller's income statement.

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.

A service company earns net income by buying and selling merchandise.