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Exam 4: Reporting and Analyzing Merchandising Operations

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Question 121

True/False

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A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

A) True
B) False

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Question 122

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A company has net sales of $752,000 and cost of goods sold of $543,000.Its net income is $17,530.The company's gross margin and operating expenses,respectively,are:

A) $209,000 and $191,470
B) $191,470 and $209,000
C) $525,470 and $227,000
D) $227,000 and $525,470
E) $734,000 and $191,470

F) B) and E)
G) A) and D)

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Question 123

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A ________ inventory system updates the accounting record for inventory only at the end of an accounting period.

Prepare journal entries to record the following merchandising transactions of Margin Company,which applies the perpetual inventory system and the gross method of recording invoices.Margin Company offers all of its credit customers credit terms of 2/10,n/30.

The following information refers to Percy's Records and its competitors in the music store business. $\begin{array} { | l | c | c | } \hline & \begin{array} { l } \text { Current } \\\text { Ratio }\end{array} & \begin{array} { l } \text { Quick } \\\text { Ratio }\end{array} \\\hline \text { Percy's Records } & 2.0 & 0.95 \\\hline \text { Tewel CDs } & 1.5 & 1.00 \\\hline \text { Rudy's Raps } & 1.8 & 1.20 \\\hline \text { Marvin's Jazz } & 1.9 & 0.80 \\\hline \text { Industry Average } & 2.0 & 1.00 \\\hline\end{array}$ Required: Comment on the relative liquidity positions of these companies.

Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system?

Craig's Snowboards uses the perpetual inventory system and the gross method of accounting for sales,and had the following sales transactions during June: Prepare the journal entries that Craig's Snowboards must make to record these transactions.

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:

________ can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts.

If a company sells merchandise with credit terms 2/10 n/30,the credit period is 30 days and the discount period is 10 days.

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

A company's quick assets are $147,000 and its current liabilities are $143,000.This company's acid-test ratio is 1.03.

The year-end adjusted trial balance of Gordon Produce for the current year,is shown below: GORDON PRODUCE Adjusted Trial Balance December 31 Prepare closing entries at December 31 for the current year.

The following statements regarding gross profit are true except:

The gross margin ratio is defined as gross margin divided by net sales.

The acid-test ratio:

Sales less sales discounts,less sales returns and allowances equals:

The periodic inventory system requires updating the inventory account only at the end of the period to reflect the quantity and cost of goods available for sale and the cost of goods sold.

All of the following statements regarding sales returns and allowances are true except:

Sales discounts has a normal debit balance because it decreases Sales,which has a normal credit balance.