Exam 6: Merchandising Activities

Regal Artworks Co.records purchases net of all available purchase discounts.If the company makes payment after the discount has expired,the entry to record the payment should include a:

Under the perpetual inventory system which journal entry would indicate a purchase of merchandise?

In a periodic inventory system,the formula used in computing the cost of goods sold may be summarized as follows:

Jayson Products uses a perpetual inventory system.At year-end,the Inventory account had a balance of $280,000,but a complete year-end physical inventory indicated goods on hand costing only $273,000.Jayson should:

Under the periodic inventory system,no effort is made to keep up-to-date records of either Inventory or Cost of Goods Sold as transactions occur.

Which of the following businesses is likely to have the shortest operating cycle?

Net Sales is computed as total sales revenue less sales returns and allowances less sales discounts.

The operating cycle of a merchandiser is longer and more complex than the operating cycle of a manufacturer.

Which of the following should not be classified as inventory in the balance sheet of a large automobile dealership?

Inventory shrinkage refers to unrecorded decreases in inventory resulting from breakage, theft, and shoplifting.

Merchandising companies:

If a company has 240 credit customers,there are 480 individual customer accounts in the accounts receivable subsidiary ledger (one for sales for each customer,one for receipts from each customer).

The average gross profit margin is a measure of relative profitability.

Perpetual inventory system: basic entries Renato Company uses a perpetual inventory system.A partial chart of accounts is shown below,followed by a series of merchandising transactions.Indicate the accounts that should be debited and credited in recording each transaction.(Ignore sales taxes.)

Bernice Beverages is not satisfied with the quality of merchandise purchased from Reade Supplies.If Reade Supplies agrees to settle this matter by granting Bernice Beverages a sales allowance,Bernice Beverages will:

Gross profit The table below contains information from a recent annual report of Molloy,Inc.(Dollar amounts are stated in millions.)Fill in the missing amounts.

A customer purchased merchandise for $400 which cost the seller $200.The customer was dissatisfied with some of the goods and thus returned $100 worth and received a cash refund. (a)What journal entries should the seller make when the merchandise is sold and at the time of the return? Assume that the seller uses a perpetual inventory system. (b)If the seller uses a periodic inventory system,what entries would be made?

In a periodic inventory system,the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

If cost of goods sold is $480,000 and the gross profit rate is 40%,what is the gross profit?

Gross profit rates a practical application Note to instructor: The following exercise requires students to use gross profit rates in a manner not specifically illustrated in the chapter.We view this as an exercise in critical thinking and,as such,it is more challenging than the typical exercise.Part d requires an expository answer.Some instructors may choose to omit part d. Your store sells computers and software.The average computer sells for $1,350,but the customer buying a computer also buys an average of $750 in software.You earn only 10% gross profit rate on sales of computers,but you make a 40% gross profit rate on software.You currently are selling 150 computers per month. (a)What is the total amount of your monthly gross profit? $________________. (b)To increase sales,you are thinking about selling computers at cost ($1,215.)This would be the "cheapest price in town," and should attract more customers.You expect each customer who buys a computer to also buy $750 worth of software.Under these assumptions,how many computers must you sell each month in order to earn the same amount of gross profit as you are earning now? (c)Assume that as a result of reducing the sales price of computers to cost ($1,215),you are able to sell 250 computers each month,and that each customer now buys $850 worth of software.What will be the total amount of your monthly gross profit? (d)Assume that you achieve the results specified in part c (250 sales transactions per month,including an average of $850 in software).Would you consider the policy of selling computers at cost successful or unsuccessful? Explain specifically why this strategy is working out favorably or unfavorably.