Chapter 5 Flashcards
A company has net sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:
417,000
Gross Profit = Net Sales − Cost of Goods Sold
Gross Profit = $695,000 − $278,000 = $417,000
A company has net sales of $375,000 and its gross profit is $157,500. Its cost of goods sold is:
217,500
Gross Profit = Net Sales − Cost of Goods Sold
Cost of Goods Sold = $375,000 − $157,500 = $217,500
Merchandise inventory:
a) Is a long-term asset.
b) Is a current asset.
c) Includes supplies the company will use in future periods.
d) Is classified with investments on the balance sheet.
e) Must be sold within one month.
b) Is a current asset.
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.
a) The next period’s beginning inventory.
The acid-test ratio:
a) Is also called the quick ratio.
b) Measures profitability.
c) Measures inventory turnover.
d) Is generally greater than the current ratio.
e) Measures return on assets.
a) Is also called the quick ratio.
Liquidity problems are likely to exist when a company’s acid-test ratio:
a) Is less than the current ratio.
b) Equals 1.
c) Is higher than 1.
d) Is substantially lower than 1.
e) Is higher than the current ratio.
d) Is substantially lower than 1.
In calculating the acid-test ratio, which of the following is not considered a quick asset?
a) Prepaid expenses.
b) cash
c) Cash equivalents.
d) Accounts receivable.
e) Short-term investments.
a) Prepaid expenses.
Using the following year-end information for WorkFit calculate the acid-test ratio:
Cash $ 51,900
Short-term investments 12,000
Accounts receivable (all current) 54,000
Inventory 325,000
Supplies 17,500
Accounts payable 106,500
Wages payable 24,500
0.90
Quick Assets = $117,900 = $51,900 + 12,000 + 54,000
Acid-Test Ratio = Quick Assets/Current Liabilities
Acid-Test Ratio = $117,900/$131,000 = 0.90
A company’s gross profit (or gross margin) was $84,000 and its net sales were $350,000. Its gross margin ratio is:
24%.
Gross Margin Ratio = Gross Profit/Net Sales
Gross Margin Ratio = $84,000/$350,000 = 24.0%
The credit terms 2/10, n/30 are interpreted as:
2% cash discount if the amount is paid within 10 days, or the full balance due in 30 days.
Jasper Company is a wholesaler that buys merchandise in large quantities. Its supplier’s catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase, and offers a 30% trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit. Jasper’s total purchase price per unit will be:
$357.
Trade discount = $500 * 30% = $150
Total purchase price per unit = $500 − $150 + $7 = $357
A company uses the perpetual inventory system and recorded the following entry:
Accounts Payable 2,500
Merchandise Inventory 50
Cash 2,450
This entry reflects a:
a) Purchase of merchandise on credit.
b) Return of merchandise.
c ) Sale of merchandise on credit.
d) Payment of the account payable less a 2% cash discount taken.
e) Payment of the account payable less a 1% cash discount taken.
d) Payment of the account payable less a 2% cash discount taken.
A company purchased $4,000 worth of merchandise. Transportation costs for the buyer were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:
$4,000.50.
Cash Paid = [($4,000 − $275) × 0.98] + $350 = $4,000.50
No discount may be taken on the transportation costs.
Sales less sales discounts, less sales returns and allowances equals:
Net sales.
On May 1, Shilling Company sold merchandise in the amount of $5,800 to Anders, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method. The journal entry or entries that Shilling will make on May 1 is (are):
Accounts Receivable 5,800
Sales 5,800
Cost of Goods sold 4,000
Merchandise Inventory 4,000
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 correct journal entry to record the merchandise return on August 11 is:
Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500.
Prentice Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice’s net sales for this period equal:
$172,550.
Net Sales = $94,275 + $83,450 − $1,700 − $3,475 = $172,550
Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system?
a) merchandise inventory
b) sales
c) Sales Returns and Allowances
d) Accounts Payable
e) Purchases
e) Purchases
On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Jepson uses the periodic inventory system and the gross method of accounting for purchases. The journal entry that Jepson will make on September 12 is:
Purchases 5,800
Accounts Payable 5,800
A company’s current assets are $23,420, its quick assets are $14,030 and its current liabilities are $12,200. Its acid-test ratio equals:
1.15.
Acid-Test Ratio = Quick Assets/Current Liabilities
Acid-Test Ratio = $14,030/$12,200 = 1.15
Using the following year-end information for Blackstone, LLC, calculate the acid-test ratio:
Cash $ 48,000
Short-term investments 12,000
Accounts receivable 42,600
Inventory 225,000
Prepaid expenses 12,500
Accounts payable 86,000
Salaries payable 22,000
0.95
Acid-Test Ratio = Quick Assets/Current Liabilities
Acid-Test Ratio = $102,600/$108,000 = 0.95
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:
Cost of Goods Sold 1,370
Merchandise Inventory 1,370
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:
Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600.
Purchase, net of discount = $1,800 × 0.98 = $1,764
Purchase return, net of discount = $200 × 0.98 = $196
Debit to Accounts Payable = $1,764 − 196 = $1,568
No discount may be taken because the payment is made after the discount period.
The net method refers to recording:
An invoice at its net amount (net of any cash discount).
On September 12, Ryan Company sold merchandise of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the perpetual inventory system and the net method of accounting for sales. On September 14, Johnson returns some of the merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ryan must make on September 14 is (are):
Sales Returns and Allowances 490
Accounts Receivable 490
Merchandise Inventory 350
Cost of Goods Sold 350
