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Exam 4: Accounting for Merchandising Operations

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Question 101

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Cushman 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) $770,000.
B) $115,000.
C) $390,000.
D) $402,000.
E) $408,000.

F) C) and D)
G) B) and C)

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Question 102

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Multiple-step income statements:

A) Are required by the FASB and IASB.
B) Contain more detail than a simple listing of revenues and expenses.
C) Are required for the periodic inventory system.
D) List cost of goods sold as an operating expense.
E) Are only used in perpetual inventory systems.

F) All of the above
G) A) and E)

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Question 103

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A ________company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from merchandise sales.

Merchandise inventory is reported in the long-term assets section of the balance sheet.

On September 12,Vander Company sold merchandise in the amount of $5,800 to Jepson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000. -Jepson uses the periodic inventory system and the gross method of accounting for purchases.The journal entry that Jepson will make on September 12 is:

Describe the difference between the periodic and perpetual inventory accounting systems.

Describe the recording process (including costs)for the types of transactions associated with sales of merchandise inventory using a perpetual inventory system.

Farmen Company had net sales of $600,000 and cost of goods sold of $450,000.Calculate Farmen's gross profit.

Prepare journal entries to record the following merchandise transactions of Martinez Excavation Equipment,which applies the perpetual inventory system and the gross method of recording invoices.

A ________ income statement format shows detailed computations of net sales and other costs and expenses,and reports subtotals for various classes of items.

From the adjusted trial balance for Brookstone Art Supplies given below,prepare a multiple-step income statement in good form.

Quick assets include cash and cash equivalents,inventory,and current receivables.

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 correct journal entry to record the payment on August 16 is:

A company purchased $10,000 of merchandise on June 15 with terms of 3/10,n/45.On June 20,it returned $800 of that merchandise.On June 24,it paid the balance owed for the merchandise taking any discount it was entitled to.The cash paid on June 24 equals:

The following information is available for Flanders and its two main competitors in the industry,Sanders and Anders: $\begin{array} { | l | l | l | l | } \hline & \text { Flanders } & \text { Sanders } & \text { Anders } \\\hline \text { Cash } & \$ 9,800 & \$ 10,500 & \$ 26,500 \\\hline \text { Short-term investments } & 6,400 & 8,200 & 12,500 \\\hline \text { Accounts receivable } & 12,500 & 8,500 & 14,350 \\\hline \text { Merchandise inventory } & 30,150 & 40,000 & 40,150 \\\hline \text { Prepaid expense } & 900 & 6,750 & 2,450 \\\hline \text { Accounts payable } & 19,400 & 13,750 & 26,800 \\\hline \text { Salaries payable } & 1,200 & 3,500 & 6,250 \\\hline \text { Other current payables } & 600 & 1,200 & 2,150 \\\hline\end{array}$ 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 Flanders' relative liquidity position.

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory)and FOB destination.

Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.

Match the following definitions with the appropriate terms. -The point of transfer from seller to buyer that takes place when goods depart the seller's place of business.

A company's current ratio is 1.2 and its quick ratio is 0.25.This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.

What is the acid-test ratio? How does it measure a company's liquidity?