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Exam 4: Reporting and Analyzing Merchandising Operations

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Question 31

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Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are credited during the closing process.

A) True
B) False

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Question 32

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Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.

A) True
B) False

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Question 33

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

The net method of recording purchases refers to recording:

Stevenson Corporation reports unadjusted first-year sales of $400,000 and cost of goods sold of $240,000.The company expects future returns and allowances equal to 3% of sales and 3% of cost of sales.Prepare the adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

Cost of goods sold represents the cost of buying and preparing merchandise for sale.

A period's beginning inventory is equal to the prior period's ________.

Products that a company owns and intends to sell are called ________.

A company's current assets are $23,420,its quick assets are $13,890 and its current liabilities are $12,220.Its acid-test ratio equals:

In its first month of business,Clausen Corporation reports sales of $1,750,000 and cost of goods sold of $950,000.Clausen estimates that current and future returns and allowances will equal 4% of those sales.Prepare the October 31 adjusting entries necessary to record the revenue side and cost side estimates for returns and allowances.

A company's current assets are $17,980,its quick assets are $11,420 and its current liabilities are $12,190.Its quick ratio equals:

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:

In a periodic inventory system,cost of goods sold is recorded as each sale occurs.

A service company earns net income by buying and selling merchandise.

Identify and explain the key components of a merchandiser's net income.

Delivery expense is reported as part of selling expenses in the seller's income statement.

The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

Under the net method,when a company uses a perpetual inventory system,an invoice for $2,000 with terms of 2/10,n/30 should be recorded with a debit to Merchandise Inventory and a credit to Accounts Payable of $2,000.

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

Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.