Q: Which formula is used to calculate the acid-test ratio?

$\text{Acid-test ratio} = \frac{\text{Cash} + \text{Short-term investments} + \text{Receivables}}{\text{Current liabilities}}$

Q: Which formula is used to compute the gross margin ratio?

$\text{Gross margin ratio} = \frac{\text{Net sales} - \text{Cost of goods sold}}{\text{Net sales}}$

Question 1

Which of the following best describes the operating cycle for a merchandising company?

Accepted Answer

It begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise.

Question 2

A company purchased $10,000 of merchandise inventory on account with terms 2/10, n/30. If the company pays within the discount period, what is the amount paid?

Accepted Answer

$9,800

Question 3

Which journal entry correctly records the payment of freight costs of $500 on merchandise purchased under FOB shipping point?

Accepted Answer

Debit Merchandise Inventory $500; Credit Cash $500

Question 4

Which formula is used to calculate the acid-test ratio?

Accepted Answer

$	ext{Acid-test ratio} = \frac{	ext{Cash} + 	ext{Short-term investments} + 	ext{Receivables}}{	ext{Current liabilities}}$

Question 5

A company estimates future sales refunds to be $1,200 and has an unadjusted balance in Sales Refund Payable of $300 (credit). What is the required adjusting entry?

Accepted Answer

Debit Sales Returns and Allowances $900; Credit Sales Refund Payable $900

Question 6

Which of the following is NOT a characteristic of a perpetual inventory system?

Accepted Answer

Inventory records are updated only at the end of the accounting period.

Question 7

A company sold $5,000 of merchandise on account with terms 3/10, n/30. The customer returns $1,000 of goods before payment. If the customer pays within the discount period, what is the amount received?

Accepted Answer

$3,880

Question 8

Which entry is required when a buyer receives a purchase allowance for defective merchandise under a perpetual inventory system?

Accepted Answer

Debit Accounts Payable; Credit Merchandise Inventory

Question 9

Which formula is used to compute the gross margin ratio?

Accepted Answer

$	ext{Gross margin ratio} = \frac{	ext{Net sales} - 	ext{Cost of goods sold}}{	ext{Net sales}}$

Question 10

Under the periodic inventory system, when are inventory records updated?

Accepted Answer

Only at the end of the accounting period.

Question 11

A company has beginning inventory of $20,000, net purchases of $50,000, and ending inventory of $15,000. What is the cost of goods sold?

Accepted Answer

$55,000

Question 12

Which of the following is true about sales discounts?

Accepted Answer

They are offered to buyers to encourage early payment.

Question 13

A company uses the gross method to record purchases. It buys $2,000 of inventory with terms 2/10, n/30. What is the journal entry at the time of purchase?

Accepted Answer

Debit Merchandise Inventory $2,000; Credit Accounts Payable $2,000

Question 14

Which account is credited when a customer returns merchandise that is not defective under a perpetual inventory system?

Accepted Answer

Cost of Goods Sold

Question 15

Which of the following is a current liability created by estimating future sales returns?

Accepted Answer

Sales Refund Payable

Question 16

A company has cash of $5,000, short-term investments of $2,000, receivables of $3,000, and current liabilities of $8,000. What is the acid-test ratio?

Accepted Answer

$\frac{5,000 + 2,000 + 3,000}{8,000} = 1.25$

Question 17

Which of the following is NOT included in the calculation of net cost of merchandise purchases?

Accepted Answer

Sales discounts given to customers

Question 18

Which statement best describes the difference between a single-step and a multiple-step income statement?

Accepted Answer

A multiple-step income statement shows gross profit and operating income separately.

Question 19

If a company estimates future inventory returns to be $500 and the unadjusted balance in Inventory Returns Estimated is $200 (debit), what is the required adjusting entry?

Accepted Answer

Debit Inventory Returns Estimated $300; Credit Cost of Goods Sold $300

Question 20

Which of the following is true regarding the net method of recording purchases?

Accepted Answer

Purchases are recorded at the invoice amount net of any discounts.

Accounting for Merchandising Operations: Chapter 5 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards