Exam 4: Accounting for Merchandising Operations

In its first month of business,Clausen Corporation reports sales of $1,750,000 and cost of goods sold of $950,000.Clausen estimates that current and future returns and allowances will equal 4% of those sales.Prepare the October 31 adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

FOB ________ means ownership of goods transfers to the buyer when the goods arrive at the buyer's place of business.The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit.

The amount recorded for merchandise inventory includes all of the following except:

Which of the following statements regarding gross profit is not true?

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales. -On March 15,Babson returns some of the merchandise.The selling price of the merchandise is $600 and the cost of the merchandise returned is $350.Babson pays the invoice on March 20,and takes the appropriate discount.The amount that Klein receives from Babson on March 20 is:

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

What is inventory shrinkage? How do managers account for shrinkage?

Describe the difference between the periodic and perpetual inventory accounting systems.

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

On July 1,Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ferguson uses the perpetual inventory system and the gross method.On July 5,Tracey returns some of the merchandise.The selling price of the merchandise is $500 and the cost of the merchandise returned is $350.The entry or entries that Ferguson must make on July 5 is (are):

A company's gross profit (or gross margin)was $83,750 and its net sales were $347,800.Its gross margin ratio is:

Cushman Company had $800,000 in net sales,$350,000 in gross profit,and $200,000 in operating expenses.Cost of goods sold equals:

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.

The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales. -The journal entry or entries that Klein will make on March 12 is (are):

The credit terms 2/10,n/30 are interpreted as:

Gross profit is also called gross margin.

A company purchased $1,800 of merchandise on July 5 with terms 2/10,n/30.On July 7,it returned $200 worth of merchandise -On July 28,it paid the full amount due.Assuming the company uses a perpetual inventory system,and records purchases using the gross method,The correct journal entry to record the purchase on July 5 is:

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

On September 12,Vander Company sold merchandise in the amount of $5,800 to Jepson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000. -Vander uses the periodic inventory system and the gross method of accounting for sales.The journal entry or entries that Vander will make on September 12 is (are):