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Exam 5: Accounting for Merchandising Operations

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Question 101

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On October 1, Whaley Company sold merchandise in the amount of $5,800 to Lee Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Whaley uses the perpetual inventory system. Lee pays the invoice on October 8, and takes the appropriate discount. The journal entry that Whaley makes on October 8 is:

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

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

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Question 102

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From the adjusted trial balance given below for the Mirror Company, prepare a multiple-step income statement in good form. Salaries expense and depreciation expense on the building are equally divided between selling activities and the general and administrative activities.

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Question 103

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What is inventory shrinkage? How do managers account for shrinkage?

A company had sales of $695,000 and cost of goods sold of $278,000. Its gross margin equals:

Sales less sales discounts less sales returns and allowances equals:

A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company's gross margin ratio equals 24.5%. ($340,500 - $257,000)/$340,500 = 24.5%

Describe the key attributes of inventory for a merchandising company.

What is gross margin ratio? How is it used as an indicator of profitability?

Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles.

Maia's Bike Shop uses the periodic inventory system and had the following transactions during the month of May: Prepare the required journal entries that Maia's Bike Shop must make to record these transactions.

Steve's Skateboards uses the perpetual inventory system and had the following sales transactions during April: Prepare the journal entries that Steve's Skateboards must make to record these transactions.

Sales Discounts and Sales Returns and Allowances are credited to close the accounts during the closing process.

Prepare journal entries to record the following merchandising transactions of Dean Company, which applies the perpetual inventory system. Dean Company offers all of its credit customers credit terms of 2/10, n/30.

A seller usually prepares a ____________________ to confirm a buyer's return or allowance, and informs the buyer of the seller's credit to the buyer's Account Receivable on the seller's books.

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

Neutron uses a periodic inventory system. Prepare general journal entries to record the following transactions for Neutron:

A company's net sales are $775,420, its costs of goods sold are $413,890, and its net income is $117,220. Its gross margin ratio equals:

Sam's Wholesale shows the following account balances in its ledger on June 30, its fiscal year-end. Sam's Wholesale uses the perpetual inventory system. A physical count of its June 30 year-end inventory discloses that the cost of the merchandise inventory still available is $57,160. Prepare the entry to record any inventory shrinkage.