Question 1

What is gross margin ratio? How is it used as an indicator of profitability?

Accepted Answer

The answer of What is gross margin ratio? How is...

Question 2

A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals:

Accepted Answer

A)  40.5%. 
B)  46.6%. 
C)  31.5%. 
D)  53.4%. 
E)  28.3%.

Question 3

Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite Inventory } & 15,000 & \
\hline \text { Accounts Payable } & & 15,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Payable } & 15,000 & \
\hline \text { Merchandite Inventory } & & 15,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | l | } 
\hline \text { Merchandite Inventory } & 14.700 & \
\hline \text { Accounts Payable } & & 14.700 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 14.700 & \
\hline \text { Accounts Payable } & & 14.700 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 15,000 & \
\hline \text { Accounts Payable } & & 15,000 \
\hline
\end{array}$$

Question 4

In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of the accounting period.

Accepted Answer

A) True 
 B)False

Question 5

Sales returns:

Accepted Answer

A)  Refer to reductions in the selling price of merchandise sold to customers. 
B)  Represent trade discounts. 
C)  Are not recorded under the perpetual inventory system until the end of each accounting period. 
D)  Refer to merchandise that customers return to the seller after the sale. 
E)  Represent cash discounts.

Question 6

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. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Ryan makes on September 18 is:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Sales discounts } & 116 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Accounts receivable } & & 5,684 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,800 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,000 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 3,920 & \
\hline \text { Sales discounts } & 80 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$

Question 7

Beginning inventory plus net purchases is:

Accepted Answer

A)  Ending inventory. 
B)  Cost of goods sold. 
C)  Shown on the balance sheet. 
D)  Merchandise (goods) available for sale. 
E)  Sales.

Question 8

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.
- Johnson uses the periodic inventory system and the net method of accounting for purchases. The journal entry that Johnson will make on September 12 is:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite inventory } & 5,800 & \
\hline \text { Accounts payable } & & 5,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 5,800 & \
\hline \text { Accounts payable } & & 5,800 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Merchandite inventory } & 5,684 & \
\hline \text { Accounts payable } & & 5,684 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Purchases } & 5,684 & \
\hline \text { Accounts payable } & & 5,684 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | l | l | } 
\hline \text { Accounts payable } & 4,000 & \
\hline \text { Merchandite inventory } & & 4,000 \
\hline
\end{array}$$

Question 9

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

Accepted Answer

A)  $1,600. 
B)  $1,800. 
C)  $1,568. 
D)  $1,564. 
E)  $200.

Question 10

The amount recorded for merchandise inventory includes all of the following except:

Accepted Answer

A)  Purchase discounts. 
B)  Returns and allowances. 
C)  Freight costs paid by the buyer. 
D)  Trade discounts. 
E)  Freight costs paid by the seller.

Question 11

Delivery expense is reported as part of general and administrative expense in the seller's income statement.

Accepted Answer

A) True 
 B)False

Question 12

Under the ________ inventory accounting system, each purchase, purchase return and allowance, purchase discount, and transportation-in transaction is recorded in a separate temporary account.

Accepted Answer

The answer of Under the ________ inventory accounting system, each...

Question 13

Sabor Company uses a perpetual inventory system and the gross method of accounting for purchases. Sabor purchased $17,800 of merchandise on April 7 with credit terms of 1/10, n/30. Merchandise with a cost of $1,800 was damaged and returned to the seller on April 10. On April 16 the company paid the amount due. Prepare the journal entries to record the transactions on all three dates.

Accepted Answer

The answer of Sabor Company uses a perpetual inventory system...

Question 14

New revenue recognition rules require that sellers report sales net of expected sales discounts.

Accepted Answer

A) True 
 B)False

Question 15

Johnnycake Restaurant uses a periodic inventory system and the gross method of accounting for purchases. Prepare general journal entries to record the following transactions for Johnnycake:
 $$\begin{array} { | c | l | } 
\hline \text { Aug. 10 } & \text { Johnncake purchased merchandise on credit from Foster Foods for } \
& \begin{array} { l } 
\text { \$9,000, terms 2/10, n/30, FOB destination. Transportation costs of } \$ 350 \
\text { were paid by Foster. }
\end{array} \
\hline 12 & \text { Johnrycake returned \$600 of merchandise from the August 10 purchase. } \
\hline 19 & \text { Johnnycake paid Foster for the August } 10 \text { purchase. } \
\hline
\end{array}$$

Accepted Answer

The answer of Johnnycake Restaurant uses a periodic inventory system...

Question 16

A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

Accepted Answer

A)  $3,995.00. 
B)  $4,075.00. 
C)  $4,000.50. 
D)  $3,725.00. 
E)  $3,925.00.

Question 17

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise.
- On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:

Accepted Answer

A)  $8,152.50. 
B)  $8,167.50. 
C)  $9,750.00. 
D)  $8,250.00. 
E)  $9,652.50.

Question 18

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

Accepted Answer

The answer of ________ expenses are those costs that support...

Question 19

A merchandiser:

Accepted Answer

A)  Earns net income by buying and selling merchandise. 
B)  Earns profit from fares only. 
C)  Earns profit from commissions only. 
D)  Receives fees only in exchange for services. 
E)  Buys products from consumers.

Question 20

On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system and the gross method table. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Sales discounts } & 116 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Accounts receivable } & & 5,684 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,800 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,000 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 3,920 & \
\hline \text { Sales discounts } & 80 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$

Exam 5: Accounting for Merchandising Operations

What is gross margin ratio? How is it used as an indicator of profitability?

A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals:

Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:

In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of the accounting period.

Sales returns:

Beginning inventory plus net purchases is:

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

The amount recorded for merchandise inventory includes all of the following except:

Delivery expense is reported as part of general and administrative expense in the seller's income statement.

Under the ________ inventory accounting system, each purchase, purchase return and allowance, purchase discount, and transportation-in transaction is recorded in a separate temporary account.

New revenue recognition rules require that sellers report sales net of expected sales discounts.

A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

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

A merchandiser: