Exam 4: Accounting for Merchandising Operations

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:

Vincent Company purchased merchandise from Liu Company with an invoice price of $300,000 and credit terms of 2/10,n/30.Liu Company's cost for the merchandise was $200,000.Vincent Company paid within the discount period.Assume that both buyer and seller use a perpetual inventory system and the gross method of recording invoices. 1.Prepare entries that Vincent should record for (a)the purchase and (b)the cash payment. 2.Prepare entries that Liu should record for (a)the sale and (b)the cash collection. 3.Assume that the buyer borrowed enough cash to pay the balance on the last day of the discount period at an annual interest rate of 9% and paid it back on the last day of the credit period.Compute how much the buyer saved by following this strategy.(Assume a 365-day year and round dollar amounts to the nearest cent.)

The gross margin ratio is defined as gross margin divided by net sales.

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

Under a periodic inventory system,purchases,purchases returns and allowances,purchase discounts,and transportation in transactions are recorded in the Merchandise Inventory account.

A company had net sales of $545,000 and cost of goods sold of $345,000.Its gross margin equals $890,000.

Operating expenses are classified into two categories: selling expenses and cost of goods sold.

Sales returns:

Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.

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 payment on July 28 is:

The following statements are true regarding the operating cycle of a merchandising company except:

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

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):

On February 3,Smart Company 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 perpetual inventory system and the gross method.Truman pays the invoice on February 8,and takes the appropriate discount.The journal entry that Smart makes on February 8 is:

Merchandise that customers return to the seller after a sale is referred to as________.

Fill in the blanks (a)through (g)for the Morrison Company for each of the income statements for years 1,2,and 3. Morrison Company Income Statements For the vears ended December 31 Year 2 Year 2 Year 3 Sales \ 7,500 \ 10,000 (f) Cost of goods sold Merchandise inventory (beginning) (a) 375 750 Total cost of merchandise purchases 2,400 3,625 4,875 Merchandise inventory (ending) () 750 625 Cost of goods sold 2,770 () 5,000 Gross profit () 6,750 5,200 Operating expenses 3,750 3,750 () Net income \ 980 () \ 2,500

Beginning inventory plus the net cost of purchases is the ________.

The gross margin ratio:

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 journal entry that Klein makes on March 20 is:

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