Chapter 4 ACG 2021 PDF

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Chapter 4...

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Chapter 4 S. B. Reading & Questions 1. To compute net income for a merchandiser, you will start with net sales, subtract cost of goods sold and subtract other expenses 2. Cost of goods sold is characterized by which of the following statements? (Check all that apply.) Cost of Cost of Cost of Cost of sale.

goods goods goods goods

sold sold sold sold

is also called cost of sales. is used to figure gross profit. is an expense reported on the income statement. includes the expenses of buying and preparing an item for

1. Merchandise inventory can be described as: (Check all that apply.) an account increased with a debit. an account appearing on a balance sheet of a merchandiser. an asset account. products that a company owns and intends to sell.

2. Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) ________ (asset/expense/revenue) and is reported on the ____________ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) _______ (asset/expense/liability) and reported on the ____________ (balance sheet/income statement). asset -> balance sheet -> expense -> income statement 3. X-Mart purchased $300 of merchandise on credit. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used. Debit Merchandise Inventory $300; credit Accounts Payable $300. 4. How do you compute net income for a merchandiser. Net sales - cost of goods sold - other expenses. 5. 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 date. 3/15,n/45 6. Which of the statements below are correct regarding cost of goods sold? Cost of goods sold is the expense of buying and preparing merchandise. 7. Identify the statements below which summarize what cash discounts are. (Check all that apply.) Sellers can grant a cash discount to encourage buyers to pay earlier. A reduced payment applies to the discount period. A seller views a cash discount as a sales discount. A buyer views a cash discount as a purchase discount. Cash discounts are described in credit terms 8. 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. 9. The discount period is the time between

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1 between ,

Correct Unavailable (before/between) the invoice date and a specified date on which the payment amount owed can be reduced Blank 2Blank 2 reduced , Correct Unavailable (increased/reduced) because of early payment. 10. Determine which statements below are correct regarding merchandise available for sale during a period.(Check all that apply.) Beginning inventory + Net purchases = Merchandise available for sale Ending inventory + Cost of goods sold = Merchandise available for sale 1. 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. 2. Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.)

The full payment is due within a 30-day credit period. The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date. 3. A purchase return refers to merchandise a buyer

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1 buyer ,

Correct Unavailable (buyer/seller/creditor) purchased, but then returns to the seller

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2 seller , Correct

Unavailable (buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.

4. A cash discount can be summarized as a discount given to buyers

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1Blank

1 buyers , Correct Unavailable (buyers/creditors/sellers) to encourage them to pay earlier Blank 2Blank 2 earlier , Correct Unavailable(earlier/later/less/more). 5. If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as: FOB destination 1. 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. 2. Gross profit is computed as net sales

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1 sales , Correct

Unavailable minus cost of goods sold. 3. Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) asset Blank 1Blank 1 asset , Correct Unavailable (asset/expense/revenue) and is reported on the balance sheet Blank 2Blank 2 balance sheet , Correct Unavailable (balance

sheet/income statement) and merchandise that is sold during the period is considered a(n) expense

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3 expense , Correct

Unavailable (asset/expense/liability) and reported on the income

statement Blank 4Blank 4 income statement , Correct

Unavailable (balance sheet/income statement). 4. Sales is a(n) ______ account. revenue 1. What is a purchase return? A purchase return refers to merchandise a buyer acquires, but then returns to the seller. 2. Jan's Jams makes a credit sale for $300 with terms of 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 3. 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. (Check all that apply.)

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. 4. 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. 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. 5. 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.

6. Which of the following are the three main parts of a multiple-step income statement? (Check all that apply.) Net income Income from operations Gross profit

7. Sales is a(n) revenue

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1 revenue , Correct

Unavailable (expense/revenue/asset) account and is reported on the income Blank 2Blank 2 income , Correct Unavailable (income/balance) statement

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3 statement ,

Correct Unavailable (statement/sheet). 8. A single-step income statement can be identified by which of the following formats?

It shows only one total for all expenses. 1. 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 Blank 1Blank 1 Merchandise Inventory , Correct Unavailable (Merchandise Inventory/Accounts Payable/Cash) account and credit the Cash Blank 2Blank 2 Cash , Correct Unavailable (Cash/Merchandise Inventory/Accounts Payable) account.

2. True or false: Merchandise inventory is generally converted to cash more quickly than accounts receivable. 3. Jo's Market makes a credit sale for $1,000 with terms of 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

1. Under a periodic inventory system when a sale is made: the revenue but not the cost of goods sold is recorded

2. 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. (Check all that apply.) Credit Cost of Goods Sold $100. Debit Merchandise Inventory $100. Credit Accounts Receivable $400. Debit Sales Returns and Allowances $400. 3. Under a periodic inventory system, purchases are recorded in a separate temporary account which is closed at period end 4. Identify the items or sub-headings below that would appear on a multiple-step income statement. (Check all that apply.) Gross profit Cost of goods sold Income from operations Selling expenses Net sales General and administrative expenses 5. True or false: A single-step income statement shows only one subtotal for expenses. 6. X-Mart uses the periodic 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 sale by selecting all of the correct actions below. (Check all that apply.)

Debit Accounts Receivable $1,400. Credit Sales $1,400. 1. The Merchandise Inventory account on a classified balance sheet is reported in the: current assets section 2. Juice Drinks has beginning inventory of $10,000, purchases in the amount of $150,000, and ending inventory of $8,000. Juice Drinks cost of goods sold is $ 152000

3. Summarize a periodic inventory system by selecting all of the correct statements below. (Check all that apply.) The Purchase Discounts account is used during the period. The Purchases account is used during the period. Cost of goods sold is computed at the end of the period. The Merchandise Inventory account is updated only at the end of the period. The balance in the Merchandise Inventory account remains the beginning balance until the end of the period. The Purchase Returns and Allowances account is used during the period. 1. Recall that Merchandise Inventory is considered a(n) (current/plant/intangible) current

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1 current , Correct

Unavailable asset on the (balance/income) balance

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balance , Correct Unavailable (sheet/statement) sheet

2

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3

sheet , Correct Unavailable of a merchandiser using the periodic inventory system. 2. Name the temporary accounts used to record the costs of merchandise purchased in a periodic inventory system. (Check all that apply.) Purchases Purchase returns and allowances Purchase discounts Transportation-in 1. Which are the two classifications of operating expenses on a multiplestep income statement?

Selling; general and administrative 2. Under the periodic inventory system, a sale on account will result in the following journal entry: debit to Accounts Receivable and a credit to Sales 3. Which of the following items are included in a merchandising company's income statement but are not included in a service company's income statement? (Check all that apply.) Cost of goods sold Loss from defective merchandise Sales discounts Gross profit Sales returns

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