Question 1

A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was
$13,750. The company's gross margin ratio equals 24.5%.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  24.1%. 
B)  $264,050. 
C)  75.9%. 
D)  4.2%. 
E)  $83,750. 
A)  24.1%. 
B)  $264,050. 
C)  75.9%. 
D)  4.2%. 
E)  $83,750.

Question 3

From the adjusted trial balance for Brookstone Art Supplies given below, prepare a multiple-step income statement in good form.
Brookstone Art SuppliesAdjusted Trial BalanceDecember 31
 $\text { Brookstone Art SuppliesAdjusted Trial BalanceDecember } 31$
$\begin{array}{|l|r|l|}
\hline & \text { Debit } & \text { Credit } \
\hline \text { Cash } & \$ 9,400 & \
\hline \text { Accounts receivable } & 25,000 & \
\hline \text { Merchandise inventory } & 36,000 & \
\hline \text { Office supplies } & 900 & \
\hline \text { Store equipment } & 75,000 &\
\hline \text { Accumulated depreciation-store equipment } & & \$ 22,000 \
\hline \text { Office equipment } & 60,000 & \
\hline \text { Accumulated depreciation-office equipment } & & 15,000 \
\hline \text { Accounts payable } & & 42,000 \
\hline \text { Notes payable } & & 10,000 \
\hline \text { A. Brookstone, Capital } & & 110,700 \
\hline \text { A. Brookstone, Withdrawals } & 48,000 & \
\hline \text { Sales } & & 325,000\
\hline
\end{array}$

$$\begin{array} {| l | r | r |} 
\hline\text { Sales discounts } & 6,000 & \
\hline \text { Sales returns and allowances } & 16,500 & \
\hline \text { Cost of goods sold } & 195,000 & \
\hline \text { Selling expenses } & 32,500 & \
\hline \text { General and adrministrative expenses } & 19,800 & \
\hline \text { Interest expense } & 600 & \
\hline \text { Totals } & \$ 524,700 & \$ 524,700 \
\hline
\end{array}$$

Accepted Answer

Brookstone Art Suppl

Question 4

The following information is for Barrel and its competitor Crate.
 $$\begin{array} { | l | l | l | l | l | } 
\hline & { \text { Barrel } } &&{ \text { Crate } } \
\hline & \underline { \text { Year 1 } } & \text { Year 2 } & \underline { \text { Year 1 } } & \text { Year 2 } \
\hline \text { Net sales } & \$ 347,850 & \$ 365.418 & \$ 579.750 & \$ 664,395 \
\hline \text { Cost of sales } & 121.747 & 146,167 & 318,862 & 312,265 \
& & & & \
\hline
\end{array}$$ Required:
1. Calculate the dollar amount of gross margin and the gross margin ratio to the nearest percent, for each company for both years.
2. Which company had the more favorable ratio for each year?
3. Which company had the more favorable change in the gross margin ratio over this 2-year period?

Accepted Answer

1.
11eeeb48_71c8_2a6f_947b_b9e740771e86_b9e7

Question 5

A company purchases merchandise with a catalog price of $20,000. The company receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made within the discount period, what is the net cost of the merchandise?

Accepted Answer

A)  $19,600. 
B)  $13,000. 
C)  $13,720. 
D)  $6,860. 
E)  $12,740. 
A)  $19,600. 
B)  $13,000. 
C)  $13,720. 
D)  $6,860. 
E)  $12,740.

Question 6

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.
- Jepson uses the periodic inventory system and the gross method of accounting for purchases. The journal entry that Jepson will make on September 12 is:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 5,800 & \
\hline \text { Accounts payable } & & 5,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 5,800 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite inventory } & 5,800 & \
\hline \text { Accounts payable } & & 5,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Accounts payable } & 4,000 & \
\hline \text { Merchandite inventory } & & 4,000 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 4,000 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 5,800 & \
\hline \text { Accounts payable } & & 5,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 5,800 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite inventory } & 5,800 & \
\hline \text { Accounts payable } & & 5,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | l | } 
\hline \text { Accounts payable } & 4,000 & \
\hline \text { Merchandite inventory } & & 4,000 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 4,000 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$

Question 7

A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03.

Accepted Answer

A) True 
 B)False

Question 8

Merchandise inventory is reported in the long-term assets section of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 9

Purchase allowances refer to a price reduction (allowance) granted to a buyer of defective or unacceptable merchandise.

Accepted Answer

A) True 
 B)False

Question 10

Under the net method, when a company uses a perpetual inventory system, an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Merchandise Inventory and a credit to Accounts Payable of $2,000.

Accepted Answer

A) True 
 B)False

Question 11

A buyer failed to take advantage of the vendor's credit terms of 2/15, n/45, but instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the equivalent annual interest lost on the amount of the purchase is:

Accepted Answer

A)  24.5% 
B)  16.2% 
C)  24.3% 
D)  18.9% 
E)  12.2% 
A)  24.5% 
B)  16.2% 
C)  24.3% 
D)  18.9% 
E)  12.2%

Question 12

Describe the key attributes of inventory for a merchandising company.

Accepted Answer

Merchandise inventory refers to products

Question 13

All of the following statements regarding sales returns and allowances are true except:

Accepted Answer

A)  Sales returns and allowances are rarely disclosed in published financial statements. 
B)  Sales returns and allowances are recorded in a separate contra-revenue account. 
C)  There is no relationship between sales returns and allowances and the possibility of lost future sales. 
D)  Sales returns and allowances are closed to the Income Summary account. 
E)  A reduction in the selling price because of damaged merchandise is included in sales returns and allowances. 
A)  Sales returns and allowances are rarely disclosed in published financial statements. 
B)  Sales returns and allowances are recorded in a separate contra-revenue account. 
C)  There is no relationship between sales returns and allowances and the possibility of lost future sales. 
D)  Sales returns and allowances are closed to the Income Summary account. 
E)  A reduction in the selling price because of damaged merchandise is included in sales returns and allowances.

Question 14

The following information refers to Percy's Records and its competitors in the music store business.
 $$\begin{array} { | l | r | r | } 
\hline & \begin{array} { c } 
\text { Curreat } \
\text { Ratio }
\end{array} &{ \begin{array} { c } 
\text { Quick } \
\text { Ratio }
\end{array} } \
\hline \text { Percy's Records } & 2.0 & 0.95 \
\hline \text { Jewel CDs } & 1.5 & 1.00 \
\hline \text { Rudy's Raps } & 1.8 & 1.20 \
\hline \text { Marvin's Jazz } & 1.9 & 0.80 \
\hline \text { Industry Average } & 2.0 & 1.00 \
\hline
\end{array}$$ Required:
Comment on the relative liquidity positions of these companies.

Accepted Answer

Both Jewel CDs and Rudy's Raps have acce

Question 15

A company reported the following year-end information:
 $$\begin{array} { | l | r | } 
\hline \text { Cash } & \$ 52,000 \
\hline \text { Short-term investments } & 12,000 \
\hline \text { Accounts receivable } & 54,000 \
\hline \text { Inventory } &3 2 5 , 0 0 0  \
\hline \text { Prepaid expenses } & 17,500 \
\hline \text { Accounts payable } & 106,500 \
\hline \text { Other eurrent payables } & 25,000 \
\hline
\end{array}$$ Required:
1. Explain the purpose of the acid-test ratio.
2. Calculate the acid-test ratio for this company.
3. What does the acid-test ratio reveal about this company?

Accepted Answer

1. The acid-test ratio measures the abil

Question 16

Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

Accepted Answer

A) True 
 B)False

Question 17

A company's net sales were $676,600, its cost of goods sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:

Accepted Answer

A)  35%. 
B)  9.6%. 
C)  5%. 
D)  285.7%. 
E)  65%. 
A)  35%. 
B)  9.6%. 
C)  5%. 
D)  285.7%. 
E)  65%.

Question 18

Cost of goods sold represents the cost of buying and preparing merchandise for sale.

Accepted Answer

A) True 
 B)False

Question 19

Describe the recording process (including costs) for the types of transactions involved in purchasing merchandise inventory when a perpetual inventory system is used.

Accepted Answer

The cost of merchandise purchased for re

Question 20

When purchases are recorded at net amounts, any discounts lost as a result of late payments are reported as an operating expense.

Accepted Answer

A) True 
 B)False

Exam 5: Accounting for Merchandising Operations

A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company's gross margin ratio equals 24.5%.

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

A company purchases merchandise with a catalog price of $20,000. The company receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made within the discount period, what is the net cost of the merchandise?

A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03.

Merchandise inventory is reported in the long-term assets section of the balance sheet.

Purchase allowances refer to a price reduction (allowance) granted to a buyer of defective or unacceptable merchandise.

Under the net method, when a company uses a perpetual inventory system, an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Merchandise Inventory and a credit to Accounts Payable of $2,000.

A buyer failed to take advantage of the vendor's credit terms of 2/15, n/45, but instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the equivalent annual interest lost on the amount of the purchase is:

Describe the key attributes of inventory for a merchandising company.

All of the following statements regarding sales returns and allowances are true except:

Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

A company's net sales were $676,600, its cost of goods sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:

Cost of goods sold represents the cost of buying and preparing merchandise for sale.

Describe the recording process (including costs) for the types of transactions involved in purchasing merchandise inventory when a perpetual inventory system is used.

When purchases are recorded at net amounts, any discounts lost as a result of late payments are reported as an operating expense.

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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