Exam 5: Accounting for Merchandising Operations

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $500, was added to the invoice amount. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

A merchandiser's classified balance sheet reports merchandise inventory as a current asset.

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

Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.

If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.

Describe why tracking inventory activities are necessary for a merchandising company.

Merchandise inventory:

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

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 12, 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 12 is:

Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this $1,370 of inventory shrinkage is:

The following statements regarding gross profit are true except:

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

Craig's Snowboards uses the perpetual inventory system and the gross method of accounting for sales, and had the following sales transactions during June: June 2 Sold merchandise to General Sports Store on eredit for \4 ,800, terms 1/15, n/60. The items sold had a cost of \ 2,700. June 4 General Sports Store returned merchandise that had a selling price of \ 200. Th cost of the merchandise returned was \ 110. June 13 General Sports Store paid for the merchandise sold on June 2 less the return, taking any appropriate discount earned. Prepare the journal entries that Craig's Snowboards must make to record these transactions.

In the current year, 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 unadjusted balance in Inventory Returns Estimated is a debit of $6,000, and the unadjusted balance in Sales Refund Payable is a credit of $10,000. The adjusting entry or entries to record the expected sales returns is (are):

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.

A company reported the following information for the month of July: Sales \ 50,475 Sales discounts 1,235 Sales returns and allowances 2,840 Cost of goods sold 33,975 Required: Calculate this company's gross profit.

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. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

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

A period's beginning inventory is equal to the prior period's ________.