Chapter 4: Quick Study

QS 4-1: Applying Merchandising Terms Match each phrase with its definition: 1. Sales discount: Seller’s description of a cash discount granted to buyers in return for early payment. 2. Credit period: Time period that can pass before a customer’s full payment is due. 3. Discount period: Time period in which a cash discount is available. 4. FOB destination: Ownership of goods is transferred when delivered to the buyer’s place of business. 5. FOB shipping point: Ownership of goods is transferred when the seller delivers goods to the carrier. 6. Gross profit: Difference between net sales and the cost of goods sold. 7. Merchandise inventory: Goods a company owns and expects to sell to its customers. 8. Purchases discount: Purchaser’s description of a cash discount received from a supplier of goods. QS 4-2: Identifying Inventory Costs Costs to acquire goods: • • • Purchase cost: $5,000 Freight (FOB shipping point): $200 Other costs: $400 Total cost of merchandise inventory: 5,000+200+400=5,6005,000 + 200 + 400 = 5,6005,000+200+400=5,600 QS 4-3: Merchandise Accounts and Computations Given data (random order): • • • Goods Available for Sale = Beginning Inventory + Purchases COGS = Goods Available for Sale − Ending Inventory Gross Profit = Net Sales − COGS For the merchandiser: 1. Compute goods available for sale. 2. Compute cost of goods sold. 3. Compute gross profit. QS 4-4: Computing Net Invoice Amounts For each invoice: 1. Identify the discount terms (e.g., 2/10, n/30). 2. Calculate the discount amount (e.g., 2% of the gross amount). 3. Subtract the discount from the invoice amount to get the net invoice amount. QS 4-5: Recording Purchases, Returns, and Discounts Taken Transaction: Purchased 600 units at $10/unit, terms 2/10, n/60. 1. Nov. 5 - Purchase: o Debit Merchandise Inventory $6,000 o Credit Accounts Payable $6,000 2. Nov. 7 - Returned 25 units: o Debit Accounts Payable $250 o Credit Merchandise Inventory $250 3. Nov. 15 - Paid invoice minus return: o Payment amount = $5,750 − (2% of $5,750) = $5,635 o Debit Accounts Payable $5,750 o Credit Cash $5,635 o Credit Merchandise Inventory $115 (discount) QS 4-6: Recording Purchases and Discounts Taken Transaction: Purchased $60,000 merchandise, terms 3/10, n/30. 1. Aug. 1 - Purchase: o Debit Merchandise Inventory $60,000 o Credit Accounts Payable $60,000 2. Aug. 11 - Payment within discount period: o Payment = $60,000 − (3% of $60,000) = $58,200 o Debit Accounts Payable $60,000 o Credit Cash $58,200 o Credit Merchandise Inventory $1,800 (discount) QS 4-7: Recording Purchases and Discounts Missed Transaction: Purchased $35,000 merchandise, terms 2/5, n/15. 1. Sept. 15 - Purchase: o Debit Merchandise Inventory $35,000 o Credit Accounts Payable $35,000 2. Sept. 29 - Payment after discount period: o Debit Accounts Payable $35,000 o Credit Cash $35,000 QS 4-8: Recording Purchases and Returns; No Discounts Transaction: Purchased $800 merchandise, returned $100, no discounts. 1. May 1 - Purchase: o Debit Merchandise Inventory $800 o Credit Accounts Payable $800 2. May 7 - Return: o Debit Accounts Payable $100 o Credit Merchandise Inventory $100 3. May 31 - Payment: o Payment = $800 − $100 = $700 o Debit Accounts Payable $700 o Credit Cash $700 QS 4-9: Recording Purchases and Allowances; No Discounts Transaction: Purchased $450 merchandise, received $50 allowance. 1. June 1 - Purchase: o Debit Merchandise Inventory $450 o Credit Accounts Payable $450 2. June 9 - Allowance: o Debit Accounts Payable $50 o Credit Merchandise Inventory $50 3. June 30 - Payment: o Payment = $450 − $50 = $400 o Debit Accounts Payable $400 o Credit Cash $400