Exam 6: Merchandising Activities

During the year 2015,the inventory of Debra's Gift Shop decreased by $50,000.If the income statement for the year 2015 reported cost of goods sold of $350,000,purchases during the year must have amounted to:

Subsidiary ledgers Listed below are several merchandising transactions of Siegel's Garden Center,a garden supply store. (a)Purchased merchandise from Bayview Wholesale on account. (b)Sold merchandise for cash. (c)Sold merchandise on account to Dom's Landscaping Co. (d)Paid the account payable to Bayview Wholesale. (e)Collected the account receivable from Dom's Landscaping Co. Among the accounting records maintained by Siegel's are subsidiary ledgers for inventory,accounts receivable,and accounts payable. For each of the five transactions,you are to indicate any subsidiary ledger (or ledgers)to which the transaction would be posted.Use the code: Inv = Inventory subsidiary ledger AR = Accounts receivable subsidiary ledger AP = Accounts payable subsidiary ledger Also indicate whether each posting causes the balance in the subsidiary ledger account to increase or decrease.Organize your answer in tabular form as illustrated below.The answer for transaction a is provided as an example.

Accounting terminology Listed below are nine technical accounting terms introduced in this chapter: Gross profit Gross profit rate General ledger Cost of goods sold Physical inventory Subsidiary ledger Perpetual inventory system Periodic inventory system Inventory shrinkage Each of the following statements may (or may not)describe one of these technical terms.In the space provided below each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms. ______ a.An approach to accounting for inventories and the cost of goods sold used primarily in small businesses with manual accounting systems. ______ b.A reason why perpetual inventory records may not be entirely accurate. ______ c.The difference between the revenue earned by selling merchandise and the cost of goods sold. ______ d.Gross profit divided by average total stockholders' equity. ______ e.An accounting procedure used in both perpetual and periodic inventory systems.In a perpetual system,this procedure brings to light the amount of inventory shrinkage.In a periodic system,it is the basis for computing the cost of goods sold. ______ f.An accounting record showing the individual items comprising the balance of a general ledger account. ______ g.The accounting record in which transactions initially are recorded.

If a company records a purchase at the gross invoice price and then takes advantage of the discount,the discount is treated as a reduction in the cost of goods sold.

Gross profit is the difference between:

Cost of goods sold is an expense shown separately from other expenses in an income statement.

VanRoy Supplies reports net sales of $1,750,000,net income of $175,000,and gross profit of $300,000.The company's cost of goods sold is:

The Cost of Goods Sold account is closed by:

Which of the following companies would be more likely to use a periodic inventory system?

A large company with many different kinds of low-cost items would tend to use a perpetual inventory system.

Net sales and gross profit Mayflower Supply House had gross sales revenue of $1,700,000,cost of goods sold of $950,000,sales returns and allowances of $52,500,and allowed sales discounts of $30,000. Compute for the year:

The purchasing agent of Superb Service Co.wants to know the dollar amount of inventory purchased on account during the year from a particular supplier.This information can be found most easily in Superb Service's:

If costs of goods sold is $560,000 and its gross profit rate is 20%,what is the gross profit?

Cumberland,Inc.has applied to its bank for a loan.The bank asks Cumberland's controller about the total amount of the company's accounts receivable.Assuming that all accounting records are up-to-date,the controller can best answer this question by

The contra-revenue accounts,Sales Returns and Allowances and Sales Discounts,should be closed by crediting these accounts and debiting Income Summary for each account.

At the beginning of the year,Saratoga Dress Co.had an inventory of $300,000.During the year,the company purchased merchandise costing $850,000.Net sales for the year totaled $1,200,000,and the gross profit rate was 45%.The cost of goods sold and the ending inventory,respectively,were:

Effects of transactions upon the accounting equation Listed below are selected transactions of Simon's,a retail store which uses a perpetual inventory system: (a)Purchased merchandise on account. (b)Made an entry to recognize the revenue from a sale of merchandise on account.(Ignore the cost of goods sold.) (c)Recognized the cost of goods sold relating to the sale in Transaction b. (d)Collected in cash the account receivable from the customer in Transaction b. (e)Following the taking of a physical inventory at year-end,made an adjusting entry to record a normal amount of inventory shrinkage. Indicate the effects of each of these transactions upon the elements of the company's financial statements.Organize your answer in tabular form,using the column headings shown below.(Notice that the cost of goods sold is shown separately from all other expenses.)Use the code letters I for increase,D for decrease,and NE for no effect.The answer for Transaction a is provided as an example.

In a periodic inventory system,the Cost of Goods Sold account may be created during the closing process by debiting Cost of Goods Sold and crediting the Beginning Inventory and the Purchases account.

Perpetual inventory system: transactions and closing entries Danny's Wholesale 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.)

If cost of goods sold is $360,000 and the gross profit rate is 40%,what is the gross profit?