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    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2

Merchandise inventory can be described as: (Check all that apply.)
 
Products that a company owns and intends to sell.
An asset account.
An account appearing on a balance sheet of a merchandiser.
An account increased with a debit.
   
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
   
Merchandise inventory that is available for sale is a(n) __________(asset/expense/revenue) and reported on the
_________(balance sheet/income statement). Merchandise that is sold during the period is a(n) ___________
(asset/expense/liability) and reported on the ____________(balance sheet/income statement).
 
asset
balance sheet
expense
income statement
   
A cash discount can be summarized as a discount given to______(buyers/creditors/sellers) to encourage them to pay __________(earlier/later/less/more).
 
buyers
earlier
   
Which of the statements below explain why perpetual inventory systems are becoming more popular? (Check all that apply.)
Managers have immediate access to detailed information on sales and inventory levels.
Technological advances have made it easier to use.
   
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.
   
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/Accounts Payable/Cash) account and credit the _____________(Cash/Merchandise
Inventory/Accounts Payable) account.
 
Merchandise Inventory
Cash
   
Credit terms of n/60 were printed on an invoice. Explain what this means.
The credit terms stand for net 60 days.
   
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.
   
Which of the following costs are included in merchandise inventory? (Check all that apply.)
 
Purchase costs
Costs necessary to ready the merchandise for sale
Taxes assessed on the merchandise
Shipping fees charged by the vendor
   
Identify the statements below which summarize what cash discounts are. (Check all that apply.)
 
A buyer views a cash discount as a purchase discount.
Cash discounts are described in credit terms.
Sellers can grant a cash discount to encourage buyers to pay earlier.
A seller views a cash discount as a sales discount.
A reduced payment applies to the discount period.
   
On June 5, X-Mart purchased $400 of merchandise with terms of 2/10, n/30. If payment is made on June 11,
calculate the purchase discount that may be taken by X-Mart.
 
$8
   
The discount period is the time between the invoice date and a specified date on which the payment amount owed can
be ___________(increased/reduced) because of early payment.
 
reduced
   
On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 16,
demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.
 
Debit Accounts Payable $1,000
Credit Cash $980
Credit Merchandise Inventory $20.
   
Which of the statements below summarize why a buyer would desire a purchase allowance? (Check all that apply.)
 
Purchased merchandise was defective or unacceptable.
In order to keep defective, but still marketable merchandise, the buyer would need a reduction in the purchase price.
   
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/Accounts Payable/Cash) account and credit the_____________
(Cash/Merchandise Inventory/Accounts Payable) account.
 
Merchandise Inventory
Cash
   
Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of
merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required
journal entry to record the return by selecting all of the correct actions below. (Check all that apply.)
 
Debit Accounts Payable $50.
Credit Merchandise Inventory $50.
   
X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it purchased $400 of merchandise
on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the
purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment
by selecting all of the correct actions below. (Check all that apply.)
 
Credit Merchandise Inventory $7.
Credit Cash $343.
Debit Accounts Payable $350.
   
On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 30,
demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.
 
Debit Accounts Payable $1,000
credit Cash $1,000.
   
A purchase return refers to merchandise a ___________(buyer/seller/creditor) purchased, but then returns to
the _________________(buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.
 
buyer
seller
   
If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:
 
FOB destination
   
A purchase allowance can be described as: a reduction in the cost of defective or unacceptable merchandise that a
 
buyer acquires
   
ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. ABC Mart
uses a perpetual inventory system. Assuming it paid the bill immediately, demonstrate the journal entry required
to record the freight charges.
 
Debit Merchandise Inventory $20
credit Cash $20.
   
On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the
month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming
the perpetual inventory method.
 
Debit Accounts Payable $100
credit Merchandise Inventory $100.
   
Jerry's Flowers had the following cost information related to its purchases of merchandise. Calculate the total cost of
merchandise purchased using the information below:
$91,100
   
Jello's Market purchased $1,000 of goods on account with terms of 2/10,n/30. They returned $200 of the goods
due to defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory
system, the required journal entry to record the payment would:
 
debit Accounts Payable $800
credit Merchandise Inventory $16
credit Cash $784
   
Gross profit is computed as net _____________minus cost of goods sold.
 
sales
   
Sales is a(n)__________ (expense/revenue/asset) account and is reported on the ___________(income/balance)
_______________(statement/sheet).
 
revenue
income
statement
   
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.)
 
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.
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.
   
X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash.
The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the
cost of the sale by selecting all of the correct actions below. (Check all that apply.)
 
Credit Sales $7,000.
Credit Merchandise Inventory $500.
Debit Cash $7,000.
Debit Cost of Goods Sold $500.
   
Jerry's Flowers sold and shipped merchandise across the country to a buyer. The terms were FOB destination.
Assuming it paid the bill immediately, demonstrate the journal entry required by Jerry's Flowers under the perpetual
inventory system to record the freight charges.
 
debit Delivery Expense
credit Cash.
   
X-Mart uses the perpetual 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 and the
cost of the sale by selecting all of the correct actions below. (Check all that apply.)
 
Credit Sales $1,400.
Debit Accounts Receivable $1,400.
Debit Cost of Goods Sold $500.
Credit Merchandise Inventory $500.
   
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.
   
Sales is a(n) ______ account.
 
Revenue
   
X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise for cash.
The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the cost of the sale by selecting all
of the correct actions below. (Check all that apply.)
 
Debit Cost of Goods Sold $500.
Credit Merchandise Inventory $500.
   
A_______(periodic/perpetual) inventory system can be described as an inventory system that updates the inventory account
only at the end of  the__________(purchase/period).
 
periodic
period
   
Gross profit is calculated by taking the net __________(sales/costs) of a product and __________(adding/subtracting) the cost of the goods sold.
 
sales
subtracting
   
X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.
 
Debit Merchandise Inventory $300
credit Accounts Payable $300.
   
Click and drag on elements in order.
The components of a merchandiser's income statement are shown below. In which order would they appear on the statement?
 
1) Net sales
2) Costs of goods sold
3) Gross profit
4) Expenses
5) Net income
   
Credit terms of 1/10, n/30 means.
 
The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.
   
What does the SEC do?
 
oversees financial reporting by US public companies
oversees the US stock exchange
   
A classified balance sheet shows subtotals for current________ and current _______
 
Assets / liabilities
   
Who are the external users of accounting information?
 
The current and potential creditors
Private investors
Institutional investors
   
What is the purpose of the audit report?
 
to add credibility to the financial statements
   
What do independent auditors provide for companies who hire them?
 
Assurance that the financial statements follow GAAP
   
What does an unqualified audit opinion do?
 
It indicates that the financial statements are presented in accordance with GAAP
   
When using the indirect method to prepare the operating activities section of the statements of cash flows,
the first amount listed is the _________.
 
Net Income
   
The quality of financial reporting for publicly traded companies is improved through:
 
evaluating and reporting the effectiveness of internal controls obtaining an external audit
   
Gross Profit Percentage equation:
 
Gross Profit / Net Sales
   
Who has primary responsibility for making sure that a company's financial statements follow GAAP?
 
CEO
CFO
   
Who has the responsibility to apply accounting standards when communicating with investors and creditors?
 
Management
   
What are the acceptable methods that may be used to prepare the statement of cash flow?
 
Direct of Indirect
   
Public companies issuing securities in the United States are required to file a number of detailed financial reports with the:
 
SEC
   
An amount is considered ________ if it is not large enough to influence the decision of financial statement users
 
immaterial
   
The trade-off between profit margin and asset turnover plays out in a number of different business strategies.
For example, a low-cost strategy _________ the asset turnover, but ___________ the profit margin.
 
increases; decreases
   
The SEC requires that publicly traded companies must:
 
have their internal control systems audited by an independent CPA
have their financial statements audited by an independent registered public accountant
   
Earnings per share (EPS) appears on:
 
The Income Statement
   
What does the gross profit percentage tell us?
 
A higher ratio means that more is available to cover operating expenses
   
What does the Board of Directors do?
 
They are elected by the stockholders and is responsible for ensuring that processes are in place for maintaining the
integrity of the company's accounting records
   
US GAAP are:
 
the accounting rules developed by the FASB for use in the United States
   
Nonoperating items are found __________ on a classified income statement
 
below Operating Income
   
What is Corporate Governance?
 
the procedures designed to ensure that the company is managed in the interests of the shareholders
   
What are the fraud triangle's three conditions that are necessary for fraud to occur?
 
Rationalization
Opportunity
Incentive
   
Return on assets (ROA) equals:
 
Net Income / Average Total Assets
   
Financial statement formats and disclosures:
 
differ slightly among companies
   
Time-series analysis examines trends:
 
over time
   
Accumulated Armortization is
 
similar to depreciation except it is netted against intangible assets instead of tangible assets
a contra-asset account similar to accumulated depreciation
   
The notes to financial statements may include information
about__________that are not included in the financial statements.
 
possible legal obligations
purchase commitments
   
Describe good cash management practices involving inventory purchases. (Check all that apply.)
 
Invoices should be paid on the last day of the discount period.
Buyers should take advantage of early payment discounts.
   
X-Mart purchased $300 of merchandise on account. Demonstrate the journal entry to record this transaction,
assuming the perpetual inventory system is used.
 
Debit Merchandise Inventory $300
credit Accounts Payable $300.
   
An invoice is referred to as a ____________invoice for a buyer and as a ___________invoice for the seller.
 
purchase
sales
   
LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased
$1,000 of merchandise with terms of 2/5,n/60. If payment is made on December 21, demonstrate the required journal
entry to record the payment by selecting all of the correct actions below. (Check all that apply.)
 
Credit Cash $1,000.
Debit Accounts Payable $1,000.
   
On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payment is made on May 28, calculate the
purchase discount that may be taken by X-Mart.
 
$15.00                 (500 x 0.3 = 15)
   
What is a purchase return?
 
A purchase return refers to merchandise a buyer purchases, but then returns to the seller.
   
Comprehensive Income may be shown on:
 
the income statement by adding or subtracting special items, such as changes in foreign currency exchange
rates and certain investments
   
Deferred Revenue is a
 
liability resulting from the collection of revenue in advance
   
What is Goodwill?
 
an intangible asset that is created when a company buys another company at a price higher than the value of
its net identifiable assets
   
CFO stands for:
 
Chief Financial Officer and oversees the accounting and financing side of the business
   
The asset turnover ratio:
 
tells you how well assets are used to generate sales
means greater efficiency when the ratio increases
   
The return on assets:
 
is improved if the returns increase over time
measures how much the firm earned for each dollar of investment
increases if a company's assets decrease and net income increases during the period
   
The net profit margin ratio:
 
means improved performance if it increases
indicates how well expenses are controlled
   
What do financial analysts do?
 
they make earnings forecasts to assist in investment decisions
   
X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise for cash.
The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the
cost of the sale by selecting all of the correct actions below. (Check all that apply.)
 
Credit Sales $1,400.
Credit Merchandise Inventory $500.
Debit Cost of Goods Sold $500.
Debit Cash $1,400.
   
A journal entry for a sale of merchandise on account will result in all of the following: (Check all that apply).
 
Debit to Accounts Receivable
Credit to Sales
Credit to Merchandise Inventory
Debit to Cost of Goods Sold
   
Jerry's Flowers had the following cost information related to its purchases of merchandise.
Calculate the total cost of merchandise purchased using the information below:
 
$91,100
   
Review the statements below and select the one that explains the purpose of a sales discount.
They decrease the time that the seller has to wait for payment.
   
Gross profit is computed as net_______minus cost of goods sold.
sales
   
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
credit Merchandise Inventory $400
   
X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash.
The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the cost of the sale
 by selecting all of the correct actions below. (Check all that apply.)
 
Debit Cost of Goods Sold $500.
Credit Merchandise Inventory $500.
   
Sales Discounts is a ______ account.
contra revenue
   
X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise
for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the
sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)
 
Credit Merchandise Inventory $500.
Credit Sales $7,000.
Debit Cash $7,000.
Debit Cost of Goods Sold $500.
   
X-Mart uses the perpetual 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 and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)
 
Debit Cost of Goods Sold $500.
Credit Sales $1,400.
Debit Accounts Receivable $1,400.
Credit Merchandise Inventory $500.
   
A__________discount benefits a seller through earlier cash receipts and reduced collection efforts.
 
sales or cash
   
Sally Beauty Warehouse uses the perpetual inventory system to account for its merchandise. On Nov 2, it sold $700
of merchandise on credit with terms of 2/15,n/30. Demonstrate the required journal entry to record the receipt of
payment from the customer on Nov 13, by selecting all of the correct actions below. (Check all that apply.)
 
Debit Sales Discounts $14.
Credit Accounts Receivable $700.
Debit Cash $686.
   
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
credit Merchandise Inventory $200
   
On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10, n/30. The required journal entry to record Jo's
Market customer's payment on July 6 would be:
 
debit Cash $1,000
credit Accounts Receivable $1,000
   
Sales Discounts is a contra__________ (expense/revenue/asset) account and is increased with a __________(debit/credit).
 
revenue
debit
   
X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit with
terms of 1/10, n/40. Demonstrate the required journal entry to record the receipt of payment on May 25 by selecting all of the
correct actions below. (Check all that apply.)
 
Credit Accounts Receivable $1,400.
Debit Cash $1,400.
   
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
credit Cost of Goods Sold $150
   
Which of the statements below summarize why a seller would give a sales allowance? (Check all that apply.)
In order to entice a customer to keep damaged or defective merchandise, the seller is willing to decrease the selling price.
 
The seller wants to keep a customer happy.
Sold merchandise was defective or unacceptable.

    Homework   1.1  1.2   2.1  2.2  3.1  3.2   4.1  4.2  5.1  5.2   6.1   6.2  7.1  7.2  8.1  8.2  9.1  9.2  10.1   10.2  11.1   11.2  12.1  12.2   13.1  13.2