Question 1

Describe the recording process (including costs) for sales of merchandise inventory using a perpetual inventory system.

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Question 2

A company purchases merchandise with a catalog price of $20,000. The company receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made on time, what is the net cost of the merchandise?
A) $13,720.
B) $19,600.
C) $6,860.
D) $13,000.
E) $12,740.

Accepted Answer

First, calculate the amount of trade discount: 
$20,000 x 35% = $7,000

Then, subtract the trade discount from the catalog price to get the net price: 
$20,000 - $7,000 = $13,000

Next, apply the credit terms: 
2/10 means a 2% discount is offered if payment is made within 10 days, 
n/30 means the full amount is due within 30 days

If the company pays within 10 days, they will receive a discount of: 
$13,000 x 2% = $260

So the net cost of the merchandise if paid within 10 days is: 
$13,000 - $260 = $12,740

Therefore, the best choice is E, with a net cost of $12,740.

Question 3

Match the following definitions and terms by placing the letter for the terms a through j in the blank space next to the best definition.

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Question 4

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

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Question 5

Using the following year-end information for Brim, LLC, calculate the current ratio and acid-test ratio:
A) 3.01 and 1.21
B) 3.16 and .97
C) 3.04 and 1.21
D) 1.09 and 4.77
E) None of these

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Question 6

Describe the recording process (including costs) for purchasing merchandise inventory using a perpetual inventory system.

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Question 7

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

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Question 8

Match the following terms with the appropriate definition.

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Question 9

What is the acid-test ratio? How does it measure a company's liquidity?

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Question 10

What is the difference between the periodic and perpetual inventory systems?

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Question 11

List the steps of the operating cycle for a merchandiser with credit sales.

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Question 12

What does FOB stand for? Differentiate between FOB shipping point (or FOB factory) and FOB destination.

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Question 13

A company has net sales and cost of goods sold of $825,000 and $547,000, respectively. Its net income is $98,500. The company's gross margin and total other expenses are ________ and ___________, respectively.
A) $209,000; $191,470
B) $278,000; $179,500
C) $278,000; $98,500
D) $179,500; $98,500
E) $645,500; $179,500

Accepted Answer

Gross margin is calculated as net sales minus cost of goods sold, which is $825,000 - $547,000 = $278,000. Total other expenses are calculated by subtracting the gross margin from net sales and then subtracting net income, which gives us $825,000 - $278,000 - $98,500 = $448,500. However, the correct calculation for total other expenses should be gross margin minus net income, which is $278,000 - $98,500 = $179,500.

Question 14

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

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Question 15

Explain the cost flows and operating activities of a merchandising company.

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Question 16

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:
A) 46.6%.
B) 53.4%.
C) 28.3%.
D) 31.5%.
E) 40.5%.

Accepted Answer

Gross margin ratio = (Net sales - Cost of goods sold) / Net sales= (775,420 - 413,890) / 775,420= 0.466 or 46.6%

Question 17

Identify and explain the key components of income for a merchandising company.

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Question 18

A company's current assets are $23,420, its quick assets were $13,890 and its current liabilities were $12,220. Its acid-test ratio equals:
A) 0.88.
B) 1.91.
C) 1.14.
D) .52.
E) 1.41.

Accepted Answer

The acid-test ratio is calculated as quick assets divided by current liabilities. So, $13,890 / $12,220 = 1.14.

Question 19

Describe the difference between wholesalers and retailers.

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Question 20

Describe the key attributes of inventory for a merchandising company.

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Quiz 5: Accounting for Merchandising Operations