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Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases.The company purchased $9,750 of merchandise on August 7 with terms 1/10,n/30.On August 11,it returned $1,500 worth of merchandise.On August 26,it paid the full amount due.The amount of the cash paid on August 26 equals:


A) $8,167.50.
B) $9,652.50.
C) $9,750.00.
D) $8,250.00.
E) $8,152.50.

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

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Merchandise inventory is reported in the current assets section of the balance sheet.

A) True
B) False

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A company that uses the net method of recording purchases and a perpetual inventory system 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.The correct journal entry to record the payment on July 28 is:


A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
D) Debit Accounts Payable $1,800; credit Cash $1,800.
E) Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600.

F) None of the above
G) C) and D)

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A company purchased $10,000 of merchandise on January 5 with terms 2/10,n/30.On January 7,it returned $1,200 worth of merchandise.On January 12,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 payment on January 12 is:


A) Debit Merchandise Inventory $8,800; credit Cash $8,800.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $10,000; credit Merchandise Inventory $200; credit Cash $9,800.
D) Debit Accounts Payable $8,800; credit Merchandise Inventory,$176; credit Cash $8,624.
E) Debit Accounts Payable $8,624; credit Cash $8,624.

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

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A wholesaler buys products from manufacturers or other wholesalers and sells them to retailers.

A) True
B) False

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The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

A) True
B) False

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A trade discount is:


A) A term used by a purchaser to describe a cash discount given to customers for prompt payment.
B) A reduction in selling price below the list price.
C) A term used by a seller to describe a cash discount granted to customers for prompt payment.
D) A reduction in price for prompt payment.
E) Also called a rebate.

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

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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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Cushman Company had $800,000 in net sales,$350,000 in gross profit,and $200,000 in operating expenses.Cost of goods sold equals:


A) $150,000.
B) $450,000.
C) $800,000.
D) $350,000.
E) $200,000.

F) None of the above
G) B) and D)

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The net method initially records the invoice at its net amount (net of any cash discount).

A) True
B) False

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If a buyer does not take advantage of a supplier's credit terms of 2/10,n/30,and instead pays the invoice in full at the end of 30 days,by not taking the discount the buyer loses the equivalent of 18% annual interest on the amount of the purchase.

A) True
B) False

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The operating cycle for a merchandiser that sells only for cash moves from:


A) Purchases of merchandise to inventory to cash sales.
B) Purchases of merchandise to inventory to accounts receivable to cash sales.
C) Inventory to purchases of merchandise to cash sales.
D) Accounts receivable to purchases of merchandise to inventory to cash sales.
E) Accounts receivable to inventory to cash sales.

F) C) and E)
G) A) and B)

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From the adjusted trial balance for Brookstone Art Supplies given below,prepare a multiple-step income statement in good form. From the adjusted trial balance for Brookstone Art Supplies given below,prepare a multiple-step income statement in good form.

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

A) True
B) False

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Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820,but a physical count reveals that only $90,450 of inventory exists.The adjusting entry to record this $1,370 of inventory shrinkage is:


A)  Merchandise inventory 1,370 Inventory shrinkage expense 1,370\begin{array}{|l|r|r|}\hline \text { Merchandise inventory } & 1,370 & \\\hline \text { Inventory shrinkage expense } & & 1,370 \\\hline\end{array}
B)  Purchases discounts 1,370 Cost of goods sold 1,370\begin{array}{|l|r|r|}\hline \text { Purchases discounts } & 1,370 & \\\hline \text { Cost of goods sold } & & 1,370 \\\hline\end{array}
C)  Cost of goods sold 1,370 Merchandise inventory 1,370\begin{array}{|l|r|r|}\hline \text { Cost of goods sold } & 1,370 & \\\hline \text { Merchandise inventory } & & 1,370 \\\hline\end{array}
D)  Inventory shrinkage expense 1,370 Cost of goods sold 1,370\begin{array}{|l|r|r|}\hline \text { Inventory shrinkage expense } & 1,370 & \\\hline \text { Cost of goods sold } & & 1,370 \\\hline\end{array}
E)  Cost of goods sold 90,450 Merchandise inventory 90,450\begin{array}{|l|r|r|}\hline \text { Cost of goods sold } & 90,450 & \\\hline \text { Merchandise inventory } & & 90,450 \\\hline\end{array}

F) None of the above
G) A) and C)

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Netherland Corporation has the following unadjusted balances: Accounts Receivable,$80,000 (debit) ,and Allowance for Sales Discounts $300 (credit) .Of the receivables,$50,000 of them are within the 2% discount period,and Netherland expects buyers to take $1,000 in future-period discounts ($50,000 × 2%) arising from this period's sales.The adjusting entry to estimate sales discounts is (are) :


A)  Accounts Receivable 80,000 Sales 80,000\begin{array}{|l|r|r|}\hline \text { Accounts Receivable } & 80,000 & \\\hline \text { Sales } & & 80,000 \\\hline\end{array}
B)  Sales Discounts 50,000 Sales 50,000 Cost of Goods Sold 1,000 Inventory Returns Estimated 1,000\begin{array}{|l|r|r|}\hline \text { Sales Discounts } & 50,000 & \\\hline \text { Sales } & & 50,000 \\\hline \text { Cost of Goods Sold } & 1,000 & \\\hline \text { Inventory Returns Estimated } & & 1,000 \\\hline\end{array}
C)  Sales Discounts 700 Allowance for Sales Discounts 700\begin{array}{|l|r|r|}\hline \text { Sales Discounts } & 700 & \\\hline \text { Allowance for Sales Discounts } & & 700 \\\hline\end{array}
D)  Sales Discounts 1,000 Accounts receivable 1,000\begin{array}{|l|r|r|}\hline \text { Sales Discounts } & 1,000 & \\\hline \text { Accounts receivable } & & 1,000 \\\hline\end{array}
E)  Sales Discounts 1,000 Allowance for Sales Discounts 1,000\begin{array}{|l|r|r|}\hline \text { Sales Discounts } & 1,000 & \\\hline \text { Allowance for Sales Discounts } & & 1,000 \\\hline\end{array}

F) A) and B)
G) C) and E)

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


A) Liabilities are divided by current assets.
B) Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.
C) The acid-test ratio measures profitability and the current ratio does not.
D) The acid-test ratio excludes short-term investments from the calculation.
E) The acid-test ratio is a measure of liquidity but the current ratio is not.

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

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On July 1,Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ferguson uses the perpetual inventory system and the gross method.On July 5,Tracey notifies Ferguson that some of the merchandise is defective.Ferguson agrees to a full refund for the items,and Tracey is allowed to keep the merchandise.The selling price of the merchandise is $500 and the cost of the merchandise is $350.The entry or entries that Ferguson must make on July 5 is:


A)  Sales returns and allowances 500 Accounts receivable 500 Merchandise inventory 350 Cost of goods sold 350\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 500 & \\\hline \text { Accounts receivable } & & 500 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}
B)  Sales retums and allowances 500 Accounts receivable 500\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 500 & \\\hline \text { Accounts receivable } & & 500 \\\hline\end{array}
C)  Accounts receivable 500 Sales returns and allowances 500\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 500 & \\\hline \text { Sales returns and allowances } & & 500 \\\hline\end{array}
D)  Accounts receivable 500 Sales returns and allowances 500 Cost of goods sold 350 Merchandise inventory 350\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 500 & \\\hline \text { Sales returns and allowances } & & 500 \\\hline \text { Cost of goods sold } & 350 & \\\hline \text { Merchandise inventory } & & 350 \\\hline\end{array}
E)  Sales retums and allowances 350 Accounts receivable 350\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}

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

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The current period's ending inventory is:


A) The next period's beginning inventory.
B) The current period's cost of goods sold.
C) The prior period's beginning inventory.
D) The current period's net purchases.
E) The current period's beginning inventory.

F) A) and E)
G) A) and C)

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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,which is not defective.The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350.The entry or entries that Klein must make on March 15 is:


A)  Sales returns and allowances 600 Accounts receivable 600 Merchandise inventory 350 Cost of goods sold 350\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 600 & \\\hline \text { Accounts receivable } & & 600 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}
B)  Sales retums and allowances 600 Accounts receivable 600\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 600 & \\\hline \text { Accounts receivable } & & 600 \\\hline\end{array}
C)  Accounts receivable 600 Sales returns and allowances 600\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowances } & & 600 \\\hline\end{array}
D)  Accounts receivable 600 Sales returns and allowances 600 Cost of goods sold 350 Merchandise inventory 350\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowances } & & 600 \\\hline \text { Cost of goods sold } & 350 & \\\hline \text { Merchandise inventory } & & 350 \\\hline\end{array}
E)  Sales retums and allowances 350 Accounts receivable 350\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}

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

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