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Exam 4: Accounting for Merchandising Operations

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Question 111

True/False

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A merchandising company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from the sale.

A) True
B) False

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Question 112

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Which of the following statements regarding the operating cycle of a merchandising company is not true?

A) The operating cycle begins with the purchase of merchandise.
B) The operating cycle is shortened by credit sales.
C) The operating cycle ends with the collection of cash from the sale of merchandise.
D) The operating cycle can vary in length among different merchandising companies.
E) The operating cycle sometimes involves accounts receivable.

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

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Question 113

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Describe the recording process (including costs)for the types of transactions involved in purchasing merchandise inventory when a perpetual inventory system is used.

Which of the following is not included on a purchase invoice?

What are the steps of the operating cycle for a merchandiser with credit sales?

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.On September 14,Johnson returns some of the non-defective merchandise,which is restored to inventory.The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350.The entry or entries that Ryan must make on September 14 is (are) :

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

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.

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

A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.

The gross margin ratio:

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Purchase returns refer to merchandise a buyer purchases but then returns to the seller.

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

Quick assets are defined as:

Netherland Corporation has the following unadjusted balances: Accounts Receivable,$80,000 (debit) ,and Allowance for Sales Discounts $300 (credit) .Of the receivables,$50,000 of them are within the 2% discount period,and Netherland expects buyers to take $1,000 in future-period discounts ($50,000 × 2%) arising from this period's sales.The adjusting entry or entries to estimate sales discounts is (are) :

Credit terms of 2/10,n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date.Otherwise,the full amount is due in 30 days.

Inventory Returns Estimated,which reflects an adjustment to inventory for expected future returns,is a liability account reported in the balance sheet,usually under Current Liabilities.

Match the following definitions with terms.