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Exam 5: Accounting for Merchandising Operations

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Question 31

True/False

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

A) True
B) False

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Question 32

Multiple Choice

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Benson Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Benson's net sales for this period equal:

A) $94,275.
B) $172,550.
C) $174,250.
D) $176,025.
E) $177,725.

F) A) and C)
G) B) and C)

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Question 33

Essay

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Distinguish between selling expenses and administrative expenses.

Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.

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

The following information refers to Annie's Attic and its competitors in the antiques business. Required: Comment on the relative liquidity positions of these companies.

Describe the key attributes of inventory for a merchandising company.

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

Because sellers assume that their customers will pay within the discount period, the seller usually records the discount at the time of the sale.

A buyer failed to take advantage of the vendor's credit terms of 2/15, n/45, but instead paid the invoice in full at the end of 60 days. By not taking advantage of the cash discount, the buyer lost the equivalent of ____________ annual interest on the amount of the purchase.

On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses the periodic inventory system. On October 4, Carter returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Courtland must make on October 4 is:

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

A debit memorandum is:

ABC Corporation's total quick assets were $5,888,000, its current assets were $11,700,000 and its current liabilities were $8,000,000. Its acid-test ratio equals:

The __________________ inventory system continually updates accounting records for merchandise transactions for the amounts of inventory available for sale and inventory sold.

A company's gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio equals:

Calculate the gross margin ratio for each of the following separate cases A through D:

Sales less sales discounts less sales returns and allowances equals:

When a credit customer returns merchandise to the seller, under a perpetual inventory system, the seller would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

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