Question 1

The acid-test ratio is also called the quick ratio.

Accepted Answer

A) True 
 B)False

Question 2

Fill in the blanks (a) through (g) for the Morrison Company for each of the income statements for years 1, 2, and 3.
 $\begin{array}{c}
 \text {Morrison Company}\
 \text {Income Statements}\
 \text {For the years ended December 31}\ 
\begin{array}{|l|l|l|l|}
\hline & \text { Year 2 } & \text { Year 2 } & \text { Year 3 } \
\hline \text { Sales } & \$ 7,500 & \$ 10,000 & \text { (f) } \
\hline \text { Cost of goods sold } & & & \
\hline \text { Merchandise inventory (beginning) } & \text { (a) } & 375 & 750 \
\hline \text { Total cost of merchandise purchases } & 2,400 & 3,625 & 4,875 \
\hline \text { Merchandise inventory (ending) } & \text { (b) } & 750 & 625 \
\hline \text { Cost of goods sold } & \underline{2,770} & \text { (d) } & \underline{5,000} \
\hline
\end{array}\end{array}$

$\begin{array}{|l|l|l|l|}
\hline \text { Gross profit } & \text { (c) } & 6,750 & 5,200 \
\hline \text { Operating expenses } & 3,750 & 3,750 & (\mathrm{~g}) \
\hline \text { Net income } & \$ 980 & (\mathrm{e}) & \underline{\$ 2,500} \
\hline
\end{array}$

Accepted Answer

(a) 2,770 + 375 — 2400 = 745
(b) 375, th

Question 3

Frisco Company's Merchandise Inventory account at year-end has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cost of goods sold } & 215 & \
\hline \text { Merchandite Inventory } & & 215 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite Inventory } & 215 & \
\hline \text { Inventory shrinkage expense } & & 215 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cost of goods sold } & 215 & \
\hline \text { Purchases discounts } & & 215 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Inventory shrinkage expense } & 215 & \
\hline \text { Cost of goods sold } & & 215 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases discounts } & 215 & \
\hline \text { Cost of goods sold } & & 215 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cost of goods sold } & 215 & \
\hline \text { Merchandite Inventory } & & 215 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite Inventory } & 215 & \
\hline \text { Inventory shrinkage expense } & & 215 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cost of goods sold } & 215 & \
\hline \text { Purchases discounts } & & 215 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Inventory shrinkage expense } & 215 & \
\hline \text { Cost of goods sold } & & 215 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases discounts } & 215 & \
\hline \text { Cost of goods sold } & & 215 \
\hline
\end{array}$$

Question 4

Using the following year-end information for Calvin's Clothing, calculate the current ratio and acid-test ratio for the business: $$\begin{array} { l r } 
\text { Cash } & \$ 52,000 \
\text { Short-term investments } & 12,000 \
\text { Accounts receivable } & 54,000 \
\text { Inventory } & 325,000
\end{array}$$ $$\begin{array} { l r } 
\text { Prepaid expenses } & 17,500 \
\text { Accounts payable } & 106,500 \
\text { Other current payables } & 25,000
\end{array}$$

Accepted Answer

A)  1.97 and 1.52 
B)  1.80 and 0.90 
C)  3.50 and 0.90 
D)  1.80 and 1 
E)  2.73 and 1.52 
A)  1.97 and 1.52 
B)  1.80 and 0.90 
C)  3.50 and 0.90 
D)  1.80 and 1 
E)  2.73 and 1.52

Question 5

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.

Accepted Answer

The answer of FOB ________ means ownership of goods transfers...

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Using the following year-end information for Bauman, LLC, calculate the current ratio and acid-test ratio: $$\begin{array} { l r } 
\text { Cash } & \$ 48,000 \
\text { Short-term investments } & 12,000 \
\text { Accounts receivable } & 45,000 \
\text { Inventory } & 225,000 \
\text { Prepaid expenses } & 12,500 \
\text { Accounts payable } & 86,500 \
\text { Other eurrent payables } & 22,000
\end{array}$$

Accepted Answer

A)  3.01 and 1.21 
B)  3.16 and 1.21 
C)  3.04 and 1.21 
D)  3.16 and .97 
E)  1.09 and 4.77 
A)  3.01 and 1.21 
B)  3.16 and 1.21 
C)  3.04 and 1.21 
D)  3.16 and .97 
E)  1.09 and 4.77

Question 8

Identify and explain the key components of a merchandiser's net income.

Accepted Answer

The basic components of income begin wit

Question 9

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

Accepted Answer

Closing entries are similar for service

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

A ________ income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.

Accepted Answer

The answer of A ________ income statement format shows detailed...

Question 12

Serene Spa Sales uses the perpetual inventory system and the gross method of accounting for purchases and sales, and had the following transactions during August.
 \(\begin{array}{|l|l|}
\hline \text { Aug 1 } & \begin{array}{l}
\text { Sold merchandise on credit for } \$ 5,000, \text { terms } 3 / 10, \mathrm{n} / 30 . \text { The items sold had a } \
\text { cost of } \$ 3,500 .
\end{array} \
\hline 3 & \text { Purchased merchandise for cash, } \$ 2,720 . \
\hline 4 & \text { Purchased merchandise on credit for } \$ 2,600, \text { terms } 1 / 20, \mathrm{n} / 30 . \
\hline 5 & \begin{array}{l}
\text { Issued a credit memorandum for } \$ 3,000 \text { to a customer who returned } \
\text { merchandise purchased July } 20 . \text { The returned items had a cost of } \$ 2,010 .
\end{array} \
\hline 10 & \text { Received payment for merchandise sold August } 1 . \
\hline 15 & \begin{array}{l}
\text { Received a credit memorandum from the seller for the return of defective } \
\text { merchandise purchased on August } 4 \text { for } \$ 600 .
\end{array} \
\hline 18 & \begin{array}{l}
\text { Paid freight charges of } \$ 200 \text { for merchandise ordered last month. (FOB } \
\text { shipping point) }
\end{array} \
\hline 23 & \begin{array}{l}
\text { Paid for the merchandise purchased August } 4 \text { less the portion that was } \
\text { returned. } \
\end{array} \ 
\hline24 & \begin{array}{l}\text { Sold merchandise on credit for } \$ 7,000 \text {, terms } 2 / 10, n / 30 . \text { The items had a cost } \
\text { of } \$ 4,900\ 
\end{array} \
\hline 31 & \text { Received payment for merchandise sold on August } 24 .\
\hline
\end{array}\)
 Required:
Prepare the general journal entries to record these transactions.

Accepted Answer

The answer of Serene Spa Sales uses the perpetual inventory...

Question 13

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.
 \(\begin{array}{|l|l|}
\hline \text { May 1 } & \begin{array}{l}
\text { Purchased merchandise from Craft Company for } \$ 7,800 \text { under credit terms } \
\text { of } 1 / 10, \mathrm{n} / 30, \mathrm{FOB} \text { shipping point, invoice dated May } 1 .
\end{array} \
\hline \text { May 2 } & \begin{array}{l}
\text { Purchased merchandise from Bow Company for } \$ 10,600 \text { under credit } \
\text { terms 2/05, n/20, FOB destination. }
\end{array} \
\hline \text { May 3 } & \begin{array}{l}
\text { Sold merchandise to Sting Company for } \$ 5,600, \mathrm{FOB} \text { shipping point, } \
\text { invoice dated May 4. The merchandise had cost } \$ 3,000 .
\end{array} \
\hline \text { May 4 } & \begin{array}{l}
\text { Paid } \$ 300 \text { cash for the freight charges on the May 1 purchase of } \
\text { merchan dise. }
\end{array} \
\hline \text { May 5 } & \begin{array}{l}
\text { Received an } \$ 800 \text { credit memorandum from Craft Company for the return } \
\text { of part of the merchandise purchased on May 1. }
\end{array} \
\hline \text { May 8 } & \begin{array}{l}
\text { Said Bow Company the balance due within the discount period. } \
\text { invoice dated May } 8 . \text { The merchandise had a cost of } \$ 1,500 .
\end{array} \
\hline \text { May 11 } & \text { Paid Craft Company the balance due within the discount period. } \
\hline \text { May 13 } & \text { Received the balance due from Sting Company within the discount period. } \
\hline \text { May 14 } & \begin{array}{l}
\text { Issued a credit } \$ 300 \text { credit memorandum to Skeet Company for an } \
\text { allowance on defective merchandise. }
\end{array} \
\hline \text { May 17 } & \text { Received the balance due from Skeet Company within the discount period. } \
\hline
\end{array}\)

Accepted Answer

The answer of Prepare journal entries to record the following...

Question 14

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

Accepted Answer

The answer of A ________ income statement includes cost of...

Question 15

Inventory shrinkage can be computed by comparing the ________ of inventory with recorded quantities and amounts.

Accepted Answer

physical c

Question 16

If a buyer does not take advantage of a supplier's credit terms of 2/10, n/30, and instead pays the invoice in full at the end of 30 days, by not taking the discount the buyer loses the equivalent of 18% annual interest on the amount of the purchase.

Accepted Answer

A) True 
 B)False

Question 17

An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:

Accepted Answer

A)  Trade discounts. 
B)  Discounts earned. 
C)  Purchases discounts. 
D)  Discounts lost. 
E)  Sales discounts. 
A)  Trade discounts. 
B)  Discounts earned. 
C)  Purchases discounts. 
D)  Discounts lost. 
E)  Sales discounts.

Question 18

A seller usually prepares a __________ to confirm a buyer's return or allowance, and informs the buyer of the seller's credit to the buyer's Account Receivable on the seller's books.

Accepted Answer

The answer of A seller usually prepares a __________ to...

Exam 5: Accounting for Merchandising Operations

The acid-test ratio is also called the quick ratio.

Frisco Company's Merchandise Inventory account at year-end has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is:

Using the following year-end information for Calvin's Clothing, calculate the current ratio and acid-test ratio for the business: Cash \ 52,000 Short-term investments 12,000 Accounts receivable 54,000 Inventory 325,000 Prepaid expenses 17,500 Accounts payable 106,500 Other current payables 25,000

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.

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

Using the following year-end information for Bauman, LLC, calculate the current ratio and acid-test ratio: Cash \ 48,000 Short-term investments 12,000 Accounts receivable 45,000 Inventory 225,000 Prepaid expenses 12,500 Accounts payable 86,500 Other eurrent payables 22,000

Identify and explain the key components of a merchandiser's net income.

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

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

A ________ income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.

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

Inventory shrinkage can be computed by comparing the ________ of inventory with recorded quantities and amounts.

If a buyer does not take advantage of a supplier's credit terms of 2/10, n/30, and instead pays the invoice in full at the end of 30 days, by not taking the discount the buyer loses the equivalent of 18% annual interest on the amount of the purchase.

An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:

A seller usually prepares a __________ to confirm a buyer's return or allowance, and informs the buyer of the seller's credit to the buyer's Account Receivable on the seller's books.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

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