Chapter 4 SB Recharge

• Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of ?,  that a company acquires to resell to ?

  • Field 1: products, goods, items, inventory, or assets
  • Field 2: customers, consumers, or buyers
• Cost of goods sold is characterized by which of the following statements?

  • Cost of goods sold is an expense reported on the income statement.
  • Cost of goods sold is used to figure gross profit.
  • Cost of goods sold includes the expenses of buying and preparing an item for sale.
  • Cost of goods sold is also called cost of sales.
• Which statement below correctly describes merchandise inventory?

  Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.
• Complete the following statement. Merchandise inventory that is still available for sale is considered a ______ (asset/expense/revenue) and is reported on the ______ (balance sheet/income statement) and merchandise that is sold during the period is considered a______ (asset/expense/liability) and reported on the______ (balance sheet/income statement).

  • Asset
  • Balance sheet
  • Expense
  • Income Statement
• X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

  Debit Merchandise Inventory $300; credit Cash $300.
• Determine which of the following statements below regarding a merchandiser are correct.

  • Merchandisers are often identified as retailers.
  • A merchandiser earns net income by buying and selling merchandise.
  • Merchandisers are also identified as wholesalers.
• Which of the statements below are correct regarding cost of goods sold? Cost of goods sold is the expense of buying and preparing merchandise.
• Merchandise inventory can be described as:

  • products that a company owns and intends to sell.
  • an account increased with a debit.
  • an account appearing on a balance sheet of a merchandiser.
  • an asset account.
• 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
• X-Mart purchased $300 of merchandise on credit. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used. Debit Merchandise Inventory $300; credit Accounts Payable $300.
• Identify the statements below which summarize what cash discounts are.

  • Cash discounts are described in the 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.
  • A buyer views a cash discount as a purchase discount.
• 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.
• 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
• Explain what the credit terms of 2/10,n/30 mean.

  • The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.
  • The full payment is due within a 30-day credit period.
• What is a purchase return?

  A purchase return refers to merchandise a buyer acquires, but then returns to the seller.
• What must the buyer and seller of merchandise agree on regarding freight terms?

  Who is responsible for paying freight terms
• What does the term FOB shipping point signify?

  The buyer accepts ownership when the goods depart the seller's place of business
• When is revenue for the sale recorded if the goods are shipped FOB destination?


  After the goods reach their destination
• What does the term FOB destination imply about shipping costs?

  The seller is responsible for shipping costs
• What happens to the Merchandise Inventory account when the shipping costs are the responsibility of the buyer?

  The Merchandise Inventory account is debited for the freight charges
• The buyer and seller of merchandise must agree on who is responsible for paying freight terms.

  • When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.
  • Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business.
  • Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.
  • Terms FOB destination means that the seller is responsible for shipping costs.
• Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system.

  • Sales Returns and Allowances is closed with the expense accounts.
  • The Dividends account is closed to Retained Earnings
  • Sales Discounts is closed with the expense accounts.
  • Sales is closed as a revenue account.
  • Cost of goods sold is closed with the expense accounts.
• Merchandise inventory is generally converted to cash more quickly than accounts receivable.

  false
• Which of the following equations correctly identify the cost flow of a merchandising company?

  Net purchases plus beginning inventory equals merchandise available for sale
• Summarize a periodic inventory system by selecting all of the correct statements below.

  • The Purchase Returns and Allowances account is used during the period.
  • Cost of goods sold is computed at the end of the period.
  • The Merchandise Inventory account is updated only at the end of the period.
  • The Purchases account is used during the period.
  • The Purchase Discounts account is used during the period.
  • The balance in the Merchandise Inventory account remains the beginning balance until the end of the period.
• If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

  FOB destination
• Name the temporary accounts used to record the costs of merchandise purchased in a periodic inventory system.

  • Purchase discounts
  • Purchases
  • Transportation-in
  • Purchase returns and allowances
• A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below.

  • Close revenue accounts.
  • Close the income summary account.
  • Close expense accounts.
  • Close the dividends account.
• The Merchandise Inventory account on a classified balance sheet is reported in the:

  The Merchandise Inventory account on a classified balance sheet is reported in the:
• J-Lo Company purchased $550 of merchandise on account. Demonstrate the journal entry to record this transaction under the periodic inventory system.

  Debit Purchases $550 and credit Accounts Payable $550.
• LOL Music Store uses the periodic 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 November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below.

  • Credit Cash $980.
  • Credit Purchase Discounts $20.
  • Debit Accounts Payable $1,000.
• Under a periodic inventory system when a sale is made:

  the revenue but not the cost of goods sold is recorded
• Under a periodic inventory system, purchases are

  recorded in a separate temporary account which is closed at period end
• Juice Drinks returned $25 of defective merchandise to its supplier. Demonstrate the required journal entry that Juice Drinks will record for the return, assuming the purchase was made on account and that Juice Store uses the periodic inventory system.

  Debit Accounts Payable $25 and credit Purchases Returns and Allowances $25.
• ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges, assuming the periodic inventory system is used.

  Debit Transportation-In $20 and credit Cash $20.
• Juice Drinks received a $50 freight bill for merchandise it purchased with freight terms of FOB shipping point. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges, assuming the periodic inventory system is used.

  Debit Transportation-In $50 and credit Cash $50.
• Under a periodic inventory system when a sale is made:

  the revenue but not the cost of goods sold is recorded
• Under the periodic inventory system, a sale on account will result in the following journal entry:

  debit to Accounts Receivable and a credit to Sales
• • Cash would be credited for $980 on August 14.matchesChoiceBoth methods
  • Discounts lost would be debited for $20 on August 14.matchesChoiceNeither method
  • Merchandise inventory would be debited for $980 on August 5.matchesChoiceNet method
  • Merchandise inventory would be credited for $20 on August 14.matchesChoiceGross method