ACCT 201 Principles of Financial Accounting
Practice Exam - Chapter 4
Reporting & Analyzing Merchandising Activities
Dr. Fred Barbee
Part I: Multiple-Choice Questions
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1. A merchandising company:
a.  Earns net income by buying and selling merchandise.
b.  Receives fees in exchange for services.
c.  Earns profit from commissions only.
d.  Earns profit from fares only.
2. A company had sales of $695,000 and cost of goods sold of $278,000. Its gross margin equals:
a.  ($417,000).
b.  $695,000
c.  $278,000
d.  $417,000.
3. Merchandise inventory:
a.  Is a long-term asset.
b.  Is a current asset.
c.  Includes supplies.
d.  Is an investment asset.
4. A periodic inventory system:
a.  Requires updating inventory-related accounts only at the end of each period.
b.  Uses a purchases account for the cost of new inventory
c.  Is based on taking a physical count of inventory.
d.  All of the above
5. A perpetual inventory system:
a.  Provides more timely information.
b.  Is increasing in frequency in practice.
c.  Allows a company to determine inventory and cost of goods sold at any time.
d.  All of the above.
6. The quick assets are defined as:
a.  Cash, short-term investments, inventory.
b.  Cash, short-term investments, current receivables.
c.  Cash, inventory, current receivables.
d.  Cash, noncurrent receivables, prepaid expenses.
7. The credit terms 2/10, n/30 are interpreted as:
a.  2% cash discount if the amount is paid within 10 days, with the balance due in 30 days.
b.  10% cash discount if the amount is paid within 2 days, with balance due in 30 days.
c.  30% discount if paid within 2 days.
d.  30% discount if paid within 10 days.
8. Sales returns:
a.  Refer to merchandise that customers return to the seller after the sale.
b.  Refer to reductions in the selling price of merchandise sold to customers.
c.  Represent cash discounts.
d.  Represent trade discounts
9. Sales Returns and Allowances:
a.  Can provide useful information about dissatisfied customers and the possibility of lost future sales.
b.  Are recorded in separate contra-revenue accounts.
c.  Are usually not reported in published financial statements.
d.  All of the above.
10. A closing entry would close any debit balance in:
a.  Sales discounts
b.  Sales Returns and Allowances
c.  Cost of Goods Sold
d.  All of the above

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Part II: Short Problems

Short Problem #1

Following is the year-end adjusted trial balance for XYZ, Inc. for the current year.

XYZ, Inc.
Adjusted Trial Balance
December 31, 2002
Cash
$47,500
 
Accounts Receivable
46,000
 
Merchandise Inventory
50,000
 
Office Supplies
800
 
Accounts Payable
 
$16,000
Salaries Payable
 
850
Common Stock
 
89,000
Retained Earnings
 
11,630
Sales
 
500,000
Sales Returns andAllowances
4,500
 
Sales Discounts
4,250
 
Cost of Goods Sold
382,450
 
Sales Salaries Expense
44,000
 
Advertising Expense
8,150
 
Office Salaries Expense
24,325
 
OfficeSupplies Expense
450
 
InterestExpense
5,055
 
Totals
$617,480
$617,480

Required:

Prepare the closing entries at December 31 for the current year.

Short Problem #2

The following information is available for PDQ-Mart and its two main competitors in the industry (XYZ-Mart and ABC-Mart).

 
PDQ-Mart
XYZ-Mart
ABC-Mart
Cash
$9,800
$10,500
$26,500
Accounts Receivable
12,500
8,500
14,350
Merchandise Inventory
30,150
40,000
40,150
Prepaid Expense
900
6,750
2,450
Accounts Payable
19,400
13,750
26,800
Salaries Payable
1,200
3,500
6,250
Other Current Payables
600
1,200
2,150

The industry standard for the current ratio is 1.8 to 1 and the industry standard for the acid-test ratio is 1 to 1.

Required:

  1. Calculate the current ratio and acid-test ratio for each firm.
  2. Rank the firms in decreasing order of liquidity.

Part III: Problems

A company had the following transactions during December:

a. Sold merchandise on credit for $5,000, terms 3/10, n/30. The items sold had a cost of $3,500.
b. Purchased merchandise for cash, $720.
c. Purchased merchandise on credit for $2,600, terms 1/20, n/30.
d. Issued a credit memorandum for $300 to a customer who returned merchandise purchased November 29. The returned items had a cost of $210.
e. Received payment for merchandise sold December 1.
f. Received a credit memorandum for the return of faulty merchandise purchased on December 4 for $600.
g. Paid freight charges of $200 for merchandise ordered last month. (FOB shipping point).
h. Paid for the merchandise purchased December 4 less the portion that was returned.
i. Sold merchandise on credit for $7,000, terms 2/10, n/30. The items had a cost of $4,900.
j. Received payment for merchandise sold on December 24.

Required:

Prepare the general journal entries to record these transactions using a perpetual inventory system. (Record all purchases initially at the gross invoice amount.)

         

Last Modified September 19, 2002