Exam 5: Accounting for Merchandising Operations

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 retailer buys products from manufacturers and sells them to wholesalers.

In its first year of business, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales. The adjusting entry or entries to record the expected sales returns is (are):

What is the acid-test ratio? How does it measure a company's liquidity?

The acid-test ratio:

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

On May 1, Shilling Company sold merchandise in the amount of $5,800 to Anders, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method table. The journal entry or entries that Shilling will make on May 1 is:

A ________ company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.

Stevenson Corporation reports unadjusted first-year sales of $400,000 and cost of goods sold of $240,000. The company expects future returns and allowances equal to 3% of sales and 3% of cost of sales. Prepare the adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

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

Austin's Pub Supply uses the periodic inventory system and the gross method of accounting for sales. The company had the following sales transactions during August: August 2 Sold merchandise to Jo's Pub and Grub on oredit for \3 ,750, terms 2/15, n/60. The items sold had a cost of \1 ,200. August 4 Jo's Pub and Grub retuned merchandise that had a selling price of \3 00. The cost of the merchandise returned was \1 10. August 13 Jo's Pub and Grub paid for the merchandise sold on August 2, taking any appropriate discount eaned. Prepare the journal entries that Austin's Pub Supply must make to record these transactions.

Cost of goods sold is an expense, and is reported on the income statement.

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. May 1 Purchased merchandise from Craft Company for \ 7,800 under credit terms of 1/10,/30, shipping point, invoice dated May 1. May 2 Purchased merchandise from Bow Company for \ 10,600 under credit terms 2/05, n/20, FOB destination. May 4 Paid \ 300 cash for the freight charges on the May 1 purchase of merchandise. May 5 Received an \ 800 credit memorandum from Craft Company for the return of part of the merchandise purchased on May 1. May 6 Paid Bow Company the balance due within the discount period. May 11 Paid Craft Company the balance due within the discount period.

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. 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 16, it paid the full amount due. The correct journal entry to record the purchase on August 7 is:

All of the following statements related to U.S. GAAP and IFRS are true except:

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):

Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Describe the difference between wholesalers and retailers.

Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

From the adjusted trial balance for Fabricated Products Company given below, prepare the necessary closing entries. Fabricated Products CompanyAdjusted Trial BalanceDecember 31