Principles Of Accounting Chapter 4 - Homework Assignment

A (periodic) inventory system can be described as an inventory system that updates the inventory account only at the end of the (period). A cash discount can be summarized as a discount given to (buyers) to encourage them to pay (earlier) A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below. Close the income summary account; Close the dividends account; Close revenue accounts; Close expense accounts A purchase allowance can be described as: a reduction in the cost of defective or unacceptable merchandise that a buyer acquires A purchase return refers to merchandise a (buyer) purchased, but then returns to the (seller) for a refund of the purchase price or reduction in the amount owed. A sales return refers to merchandise that (customers) return to the (seller) after a sale for a refund of the purchase price or reduction in the amount owed. A single-step income statement can be identified by which of the following formats? It shows only one total for all expenses Compare the gross method of recording purchases versus the net method by completing the following sentence. The gross method initially records the invoice at its gross amount (ignoring) the cash discount, but the net method initially records the invoice at its net amount assuming that the cash discount (was) taken. Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) _____ and is reported on the _____ and merchandise that is sold during the period is considered a(n) _____ and reported on the _____. Asset; Balance sheet; Expense; Income statement Cost of goods sold is characterized by which of the following statements? Cost of goods sold is an expense reported on the income statement; Cost of goods sold is used to figure gross profit; Cost of goods sold is also called cost of sales; Cost of goods sold includes the expenses of buying and preparing an item for sale Determine which of the definitions below describes gross profit. The difference between net sales and the cost of the goods sold Determine which of the definitions on the right go with the entity on the left. Retailer—buys products from manufacturers to wholesalers and sells them to consumers; Wholesaler—buys products from manufacturers and sells them to retailers; Merchandiser—earns net income by using and selling merchandise Determine which statements below are correct regarding merchandise available for sale during a period. Ending inventory + Cost of goods sold = Merchandise available for sale; Beginning inventory + Net purchases = Merchandise available for sale Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required journal entry to record the return by selecting all of the correct actions below. Credit Merchandise Inventory $50; Debit Accounts Payable $50 Dogs R US uses the perpetual inventory system to account for its merchandise. A customer returned merchandise. Assuming that the purchase was originally bought on credit for $400 with a cost to Dogs R US of $100, demonstrate required journal entry of Dogs R US to record the return by selecting all of the correct actions below. Credit Accounts Receivable $400; Credit Cost of Goods Sold $100; Debit Merchandise Inventory $100; Debit Sales Returns and Allowances $400 Explain how to compute gross profit by completing the following sentence. Gross profit is calculated by taking the net (sales) of a product and (subtracting) the cost of the goods sold. Explain how to determine gross profit on an income statement by selecting the correct statement below. Cost of goods sold is subtracted from net sales. Explain what the credit terms of 2/10,n/30 mean. The buyer can deduct 2% of the invoice amount if the payment is made within 10 days of the invoice date; The full payment is due within a 30-day credit period Gross profit is computed as net (sales) minus cost of goods sold. How do you compute net income for a merchandiser. Net sales – cost of goods sold – other expenses Identify the financial statements of a merchandiser. Income statement; Statement of retained earnings; Balance sheet Identify the items or sub-headings below that would appear on a multiple-step income statement. Net sales, general and administrative expenses; selling expenses; cost of goods sold; income from operations; gross profit Identify the statement below that is the correct definition of “shrinkage”. Shrinkage refers to the loss of inventory due to theft, breakage or deterioration. Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system. Sales Discounts is closed with the expense accounts; The Dividends account is closed to Retained Earnings; Cost of goods sold is closed with the expense accounts; Sales is closed as a revenue account; Sales Returns and Allowances is closed with the expense accounts Identify the statements below which are correct regarding a merchandiser’s multi-step income statement. Cost of goods sold is subtracted from net sales in order to determine gross profit; Expenses are subtracted from gross profit in order to calculate net income. Identify the statements below which summarize what cash discounts are. A buyer views a cash discount as a purchase discount; A reduced payment applies to the discount period; A seller views a cash discount as a sales discount; Sellers can grant a cash discount to encourage buyers to pay earlier; Cash discounts are described in credit terms Identify the two types of inventory systems from the choices below. Perpetual inventory system and periodic inventory system If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as: FOB destination In the operating cycle for a merchandiser with credit sales, after purchasing merchandising inventory for sale to customers, the next step is to make a (credit) sale. Jan’s Jams makes a credit sale for $300 with terms 2/10,n/30. The cost of the merchandise is $200. The required journal entry to record the sale and the cost of the sale is: debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200 Jo’s Market makes a credit sale for $1,000 with terms 2/10,n/30. The cost of the merchandise is $400. The required journal entry to record the sale and cost of the sale is: debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400 Merchandise inventory can be described as: products that a company owns and intends to sell; an asset increased with a debit; an account appearing on a balance sheet of a merchandiser On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart’s books for the allowance assuming the perpetual inventory method. Debit Accounts Payable $100; Credit Merchandise Inventory $100 On Jan 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. The seller uses the perpetual inventory system. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer. Debit Sales Returns and Allowances $500; Debit Merchandise Inventory $150; Credit Accounts Receivable $500; and Credit Cost of Goods Sold $150 On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchase discount that may be taken by X-Mart. $8 On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payment is made on May 28, calculate the purchase discount that may be taken by X-Mart. $15 Review the following credit terms and identify the one that states that the buyer will receive a 3% discount if the payment is made within 15 days. Otherwise, full payment is expected within 45 days of the invoice notice. 3/15,n45. Review the following statements and select the one that best describes a discount period. The discount period is the time period in which a discount may be taken by the buyer Sales is a(n) (revenue) account and is reported on the (income) (statement) Sales is a(n) _______ account. Revenue Select the statements below that correctly describe the flow of costs in a merchandiser’s accounting cycle. Ending Inventory + Cost of Goods Sold = Total Merchandise Available for Sale; Merchandise that is sold becomes and expense reported on the income statement; Merchandise that is purchased becomes an asset reported on the balance sheet; Beginning Inventory + Net Purchases = Merchandise Available for Sale Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of (goods) that a company acquires to resell to (customers) Sticky Company’s merchandise inventory balance at year end is $15,050, but a physical count reveals that only $15,000 of inventory exists. The adjusting entry to record the shrinkage includes: Debit to Cost of Goods Sold for $50; Credit to Merchandise Inventory for $50 The (net) method records invoices initially at the gross amount less any cash discount offered. The balance sheet of a merchandiser and a service business have one major difference. Select the item below that would appear only on a merchandiser’s balance sheet. Merchandise inventory The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below. When the shipping costs are the responsibility of the buyer; then the Merchandise Inventory account is debited for the freight charges; Terms FOB destination means that the seller is responsible for shipping costs; Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination; Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller’s place of business. The cash operating cycle for a merchandiser begins with cash purchases of merchandise and ends with _____. Receipt of cash/collection The components of merchandiser’s multi-step income statement are shown below. In which order would they appear on the statement? Net Sales  Cost of goods sold  Gross profit  Expenses  Net Income The discount period is the time (between) the invoice date and a specified date on which the payment amount owed can be (reduced) because of early payment. The Merchandise Inventory account on a classified balance sheet is reported in the: current assets section To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract other (expenses) Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun’s accountant would debit the (Merchandise Inventory) account and credit the (Cash) account. True or false: A single-step income statement shows only one subtotal for expenses. True True or false: Merchandise inventory is generally converted to cash more quickly than accounts receivable. False What is a purchase return? A purchase return refers to merchandise a buyer acquires, but then returns to the seller What is a sales return? A sales return refers to merchandise that customers return to the seller after a sale. Which are the two classifications of operating expenses on a multiple-step income statement? Selling; general and administrative Which of the following are the three main parts of a multiple-step income statement? Net Income; Gross Profit; Income from Operations Which of the following costs are included in merchandise inventory? Costs necessary to ready the merchandise for sale; Shipping fees; Purchase costs Which of the following equations correctly identify the cost flow of a merchandising company? Net purchases plus beginning inventory equals merchandise available for sale Which of the statements below are correct regarding costs of goods sold? Cost of goods sold is the expense of buying and preparing merchandise Which of the statements below summarize why a buyer would desire a purchase allowance? Purchased merchandise was defective or unacceptable; In order to keep defective, but still marketable merchandise, the buyer would need a reduction in the purchase price Which statement below correctly explains what merchandise inventory is? Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used. Debit Merchandise Inventory $300; credit Cash $300 X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. Debit Cost of Goods Sold $500; Credit Merchandise Inventory $500; Debit Cash $7,000; Credit Sales $7,000 X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the cost of the sale by selecting all of the correct actions below. Debit Cost of Goods Sold $500; Credit Merchandise Inventory $500; Credit Sales $1,400; Debit Cash $1,400