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Exam 5: Merchandising Operations and the Multiple-Step Income Statement

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Question 61

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Farwell Company purchased merchandise with an invoice price of $2,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

A) 2%
B) 12%
C) 18%
D) 36%

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Question 62

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Haverty Industries increased its gross profit rate from 18.4% in 2013 to 23.7% in 2014. Which of the following would be a possible explanation for this change?

A) Haverty's global sourcing efforts at the beginning of 2014 resulted in a lower cost of merchandise sold.
B) Haverty's new profit lines with lower margins in 2014 became a larger component of their sales.
C) Haverty increased its product markdowns in 2014.
D) Haverty's average margin between the selling price and the inventory cost decreased over this two-year period.

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Question 63

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The terms 2/10, n/30 mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.

Sampson Company's accounting records show the following for the year ending on December 31, 2014. $\begin{array} { l r } \text { Purchase Discounts } & \$ , 600 \\\text { Freight-In } & 7,800 \\\text { Purchases } & 350,010 \\\text { Beginning Inventory } & 23,500 \\\text { Ending Inventory } & 28,800 \\\text { Purchase Returns and Allowances } & 6,400\end{array}$ Using the periodic system, the cost of goods purchased is

Prepare the journal entries to record the following transactions on Markowitz Company's books using a perpetual inventory system. On February 6, Markowitz Company sold $105,000 of merchandise to the Lyman Company, terms 2/10, net /30. The cost of the merchandise sold was $70,000. On February 8, the Lyman Company returned $14,000 of the merchandise purchased on February 6. The cost of the merchandise returned was $7,000. On February 16 Markowitz Company received the balance due from the Lyman Company.

An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.

Net income will result if gross profit exceeds

The purchase of inventory and its eventual sale lengthen the operating cycle of a merchandising company.

The operating expenses section of an income statement for a merchandising company would not include

Petersen Book Store entered into the transactions listed below. In the journal provided, prepare Petersen's necessary entries, assuming use of the perpetual inventory system. July 6 Purchased $1,600 of merchandise on credit, terms n/30. 8 Returned $100 of the items purchased on July 6. 9 Paid freight charges of $90 on the items purchased July 6. 19 Sold merchandise on credit for $4,400, terms 1/10, n/30. The merchandise had an inventory cost of $2,700. 22 Of the merchandise sold on July 19, $300 of it was returned. The items had cost the store $150. 28 Received payment in full from the customer of July 19. 31 Paid for the merchandise purchased on July 6.

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Under GAAP, income statement items are generally described as

A useful measure of profitability is the ratio of net income to _____________.

When an invoice is paid within the discount period, the amount of the discount decreases Inventory.

At the beginning of the year, Wildcat Athletic had an inventory of $200,000. During the year, the company purchased goods costing $800,000. If Wildcat Athletic reported ending inventory of $300,000 and sales of $1,000,000, their cost of goods sold and gross profit rate would be

If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%.

A merchandiser will earn an operating income of exactly $0 when

A company shows the following balances: $\begin{array} { l r } \text { Sales Revenue } & \$ 1,000,000 \\\text { Sales Returns and Allowances } & 175,000 \\\text { Sales Discounts } & 25,000 \\\text { Cost of Goods Sold } & 560,000\end{array}$ What is the gross profit rate?

Income from operations is gross profit less 1) operating expenses and other expenses and losses. 2) operating expenses plus other revenues and gains. 3) operating expenses.

Assume that Mitchell Company uses a periodic inventory system and has these account balances: Purchases $570,000; Purchase Returns and Allowances $14,000; Purchases Discounts $9,000; and Freight-In $15,000. Determine net purchases and cost of goods purchased.