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Exam 4: Reporting and Analyzing Merchandising Operations

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Question 71

Multiple Choice

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A company had sales of $375,000 and gross profit of $157,500.Its cost of goods sold was:

A) $(217,000) .
B) $375,000.
C) $157,500.
D) $217,500.
E) $532,500.

F) All of the above
G) C) and D)

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Question 72

True/False

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A company's current ratio is 1.2 and its quick ratio is 0.25.This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.

A) True
B) False

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Question 73

Short Answer

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A company has sales of $2,530,000,sales discounts of $200,000,sales returns and allowances of $323,000,shipping charges of $115,000,sales commissions of $234,000,net income of $863,500,and cost of goods sold of $1,012,000.What is the gross profit/margin for the period?

If a company sells merchandise with credit terms 2/10,n/60,the credit period is 10 days and the discount period is 60 days.

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.

With credit terms of 2/10,n/30,the seller is offering the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date.Otherwise,the full amount is due in 30 days.

Home Brew Supplies Inc.uses the perpetual inventory method.Home Brew requested a price reduction from a vendor because the merchandise that was purchased did not meet specifications.The vendor sent Home Brew a credit memorandum for $2,300 to resolve the issue.How would Home Brew record this transaction?

A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.

ABC Corporation had total quick assets of $5,888,000,current assets of $11,700,000,and current liabilities of $8,000,000.Its acid-test ratio equals:

Sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts.

When preparing the unadjusted trial balance in a periodic inventory system,the amount that appears as Merchandise Inventory is the ending inventory amount.

The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

When a company has no reportable nonoperating activities,its income from operations is reported as ___________________.

Leighton Company uses the perpetual inventory method.On September 6,Loughton sold merchandise to Cray Company on terms of FOB shipping point.That same day,Loughton paid $700 cash for related shipping charges.How would Leighton record this payment?

A journal entry with a debit to cash of $980,a debit to Sales Discounts of $20,and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

Match the following definitions and terms:

Merchandise inventory:

A company reported the following year-end information: Required: a.Explain the purpose of the acid-test ratio. b.Calculate the acid-test ratio for this company. c.What does the acid-test ratio reveal about this company?

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

From the adjusted trial balance for the Worker Products Company,prepare a multiple-step income statement in good form.