Exam 5: Accounting for Merchandising Operations

Prepare journal entries to record the following merchandise transactions of Martinez Excavation Equipment, which applies the perpetual inventory system and the gross method of recording invoices. May 1 Purchased merchandise from Kona Company for \ 12,700 under credit terms of 2/15,/45, destination, and invoice dated May 1. 3 Sold merchandise to Walton for \ 8,000 under credit terms of 1/10,/30, FOB destination, invoice date May 3. The merchandise had cost \ 5,000. 5 Returned \ 2,000 of the merchandise purchased on May 1 to Kona Company. 6 Walton returned merchandise from the May 3 sale that had cost Martinez \ 625 and had been sold for \ 1,000. The merchandise was restored to inventory. 13 Received the balance due from Walton less the return. 14 Paid the amount due Kona Company.

Liquidity problems are likely to exist when a company's acid-test ratio:

Jasper Company is a wholesaler that buys merchandise in large quantities. Its supplier's catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit. Jasper's total purchase price per unit will be:

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

Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.

If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

Mega Skateboard Supplier had net sales of $2.8 million, its cost of goods sold was $1.6 million, and its net income was $0.9 million. Its gross margin ratio equals:

Match the following terms with the appropriate definition. A. Debit memorandum B. Credit period C. Credit terms D. Credit memorandum E. Discount period F. Gross profit G. Periodic inventory system H. Perpetual inventory system I. Sales discount J. Purchase discount

A periodic inventory system requires updating of the inventory account only at the beginning of an accounting period.

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

Quick assets include cash and cash equivalents, inventory, and current receivables.

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 table. 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:

Under the net method of recording purchases, the Discounts Lost account is used when the purchaser fails to take a discount offered by the seller.

At its fiscal year-end of June 30, Kendall Wholesale's general ledger shows the following selected account balances. Kendall Wholesale uses the perpetual inventory system. Merchandise Inventory \ 60,000 Sales 940,000 Sales discounts 16,000 Sales returns and allowanees 8,000 Cost of goods sold 456,000 A physical count of its June 30 year-end inventory discloses that the cost of the merchandise inventory still available is $58,160. Prepare the entry to record any inventory shrinkage.

On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. - Ryan uses the periodic inventory system and the net method of accounting for sales. On September 14, Johnson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ryan must make on September 14 is (are):

Sales less sales discounts less sales returns and allowances equals:

The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

FOB ________ means the buyer accepts ownership when the goods depart the seller's place of business. The buyer is responsible for paying shipping costs and bears the risk of damage or loss when goods are in transit.

The gross margin ratio equals net sales less ________ divided by net sales.

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.)