Exam 6: Merchandising Activities

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:

In preparing monthly bills to be sent to individual credit customers,the billing department will use the accounts payable subsidiary ledger,rather than the general ledger.

All of the following accounts normally have debit balances except:

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

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

A factor that might suggest that a periodic inventory system is appropriate is that all merchandise is stored at the sales site.

The basic purpose of a subsidiary ledger is to:

Effects of transactions upon the accounting equation Listed below are selected transactions of Simon's,a retail store that 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.

Regardless of the number of special journals used,every business needs a general journal.

On July 1,the inventory of at Barnett Shoes was $60,000.Because of anticipated back-to-school sales,the owner wants to have an inventory of $105,000 on hand at the beginning of August.Net sales during July are expected to total $70,000,with a gross profit rate of 45%.During July,the company should purchase merchandise costing:

If Bounder Dog Supplies,Inc purchased inventory at $2,200 list price and the terms were 3/10 n/30,what would be the value associated with the inventory if payment was made within 10 days?

Subsidiary ledgers Explain the nature of subsidiary ledgers,and give two specific examples.For each of these examples,explain (1)the unit of organization within this ledger,and (2)the usefulness of this ledger in business operations.

In a periodic inventory system,the ending inventory can be determined from the accounting records,and a physical count of the merchandise on hand will confirm the amount.

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

In a perpetual inventory system,when merchandise is purchased,it is debited to an account called Purchases.

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.

In comparing a perpetual inventory system with a periodic inventory system,which of the following statements is not correct?

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:

Inventory systems Briefly distinguish between a perpetual inventory system and a periodic inventory system.

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