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Exam 5: Accounting for Merchandising Operations

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Question 61

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A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the merchandise return on July 7 is:

A) Debit Merchandise Inventory $200; credit Accounts Payable $200.
B) Debit Accounts Payable $200; credit Merchandise Inventory $200.
C) Debit Merchandise Inventory $200; credit Sales Returns $200.
D) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.
E) Debit Merchandise Inventory $1,600; credit Cash $1,600.

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

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Question 62

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A company had a gross profit of $300,000 based on sales of $400,000. Its cost of goods sold equals $700,000.

A) True
B) False

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Question 63

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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.

Farmen Company had net sales of $600,000 and cost of goods sold of $450,000. Calculate Farmen's gross profit.

On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The amount that Klein receives from Babson on March 20 is:

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account.

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

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

FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross margin equals $890,000.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:

On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. Babson pays the invoice on March 17, and takes the appropriate discount. The journal entry that Klein makes on March 17 is: $\begin{array}{l}\text { A) }\\\begin{array} { | l | r | r | } \hline \text { Cash } & 7,644 & \\\hline \text { Sales discounts } & 156 & \\\hline \text { Accounts receivable } & & 7,800 \\\hline\end{array}\end{array}$ B) $\begin{array}{|l|r|r|}\hline \text { Cash } & 4,410 & \\\hline \text { Sales discounts } & 90 & \\\hline \text { Accounts receivable } & & 4,500 \\\hline\end{array}$ C) $\begin{array}{|l|r|r|}\hline \text { Cash } & 4,500 & \\\hline \text { Accounts receivable } & & 4,500 \\\hline\end{array}$ D) $\begin{array}{|l|r|r|}\hline \text { Cash } & 7,644 & \\\hline \text { Accounts receivable } & & 7,644 \\\hline\end{array}$ E) $\begin{array}{|l|r|r|}\hline \text { Cash } & 7,800 & \\\hline \text { Accounts receivable } & & 7,800 \\\hline\end{array}$

The acid-test ratio differs from the current ratio in that:

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $500, was added to the invoice amount. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.

Purchase discounts are the same as trade discounts.

Distinguish between selling expenses and general and administrative expenses.

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

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: