Exam 5: Accounting for Merchandising Operations

On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses the periodic inventory system. On October 4, Carter returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Carter pays the invoice on October 8, and takes the appropriate discount. The journal entry that Courtland makes on October 8 is:

Merchandise inventory:

Expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers are:

When a company has no reportable nonoperating activities, its income from operations is simply labeled net income.

Operating expenses are classified into two categories: selling expenses and cost of goods sold.

Brig Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Net income equals:

Brig Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals:

A company uses the perpetual inventory system and recorded the following entry This entry reflects a:

Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account.

A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.

A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment. $20/$1,000 = 2% discount

Maia's Bike Shop uses the perpetual inventory system and had the following transactions during the month of May: Prepare the required journal entries that Maia's Bike Shop must make to record these transactions.

The acid-test ratio is also called the quick ratio.

A merchandising company:

Shock Company purchased merchandise from Mee Company with an invoice price of $300,000 and credit terms of 2/10, n/30. The merchandise had cost Mee Company $200,000. Shock Company paid within the discount period. Assume that both buyer and seller use a perpetual inventory system. 1. Prepare entries that the buyer should record for (a) the purchase and (b) the cash payment. 2. Prepare entries that the seller 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.)

A retailer is an intermediary that buys products from manufacturers and sells them to wholesalers.

The following information is available for Trico and its two main competitors in the industry (Duco and Unico): The industry standard for the current ratio is 1.8 and the industry standard for the acid-test ratio is 1. Required: 1. Calculate the current ratio and acid-test ratio for each firm. 2. Rank the firms in decreasing order of liquidity. 3. Comment on Trico's relative liquidity position.

___________ expenses are those expenses that support a company's overall operations and include expenses related to accounting, human resource management, and financial management.

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

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.