Question 1

The last step in the operating cycle is the

Accepted Answer

The last step in the operating cycle is the collection of cash from credit sales, as this completes the cycle of purchasing inventory, selling it, and finally collecting the proceeds from sales.

Question 2

Joan and Pat Clair are sisters who each own and operate shops selling the latest electronics in neighboring towns.They decide to have a contest to see whose shop can be more profitable for the year.At year-end,Joan's records show sales of $210,000,cost of goods sold of $110,000,and operating expenses of $42,000.The records of Pat's shop reveal sales of $216,000,cost of goods sold of $124,000,and operating expenses of $38,000.Pat's shop also had other revenue of $6,000 received for allowing the shop to be used in taping a television show.Each sister claims to have won the contest.Provide explanations as to why each would think so,and then name the winner

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Question 3

Distinguish between cost of goods sold and operating expenses,describing the nature of these two items and their placement on a multistep income statement.

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Question 4

If it takes Diamondback Enterprises 90 days to sell inventory,46 days to collect from the sale,and creditors' payment terms are 60 days,the financing period is

Accepted Answer

The financing period is the time it takes for Diamondback Enterprises to receive payment from its customers after it has paid its suppliers. It can be calculated by adding the collection period (46 days) and the inventory period (90 days) and then subtracting the payment period (60 days). 
Financing period = Collection period + Inventory period - Payment period 
= 46 + 90 - 60 
= 76 days 
Therefore, the financing period is 76 days, which is option D.

Question 5

An American company makes a credit sale of goods to a company in London for 20,000 British pounds.On the date of sale,the exchange rate was $1.60 per pound.However,on the date payment was received,the exchange rate had risen to $1.70 per pound.As a result,the American company would record

Accepted Answer

The American company would record an exchange gain of $2,000 because on the date of sale, the value of the sale in USD was 20,000 pounds * $1.60/pound = $32,000. When the payment was received, the value in USD was 20,000 pounds * $1.70/pound = $34,000. The difference ($34,000 - $32,000) is a gain of $2,000.

Question 6

Copper,Inc.purchased merchandise worth $1,800 on credit,terms n/30 and returned merchandise worth $200 on next day.What is the required journal entry to record the merchandise returns under the periodic inventory system?

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Question 7

Feathertouch Company sold merchandise worth $1,600 on credit,terms n/15.The merchandise sold had cost $1,100.What is the required journal entry to record the transaction and to transfer the cost of merchandise inventory to cost of goods sold under the periodic inventory system?

Accepted Answer

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Question 8

On June 3,Addison Company purchased merchandise worth $1,600 on credit,terms 2/10,n/30.The amount paid on June 15.What is the required journal entry to record the payment under the periodic inventory system?

Accepted Answer

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Question 9

An American company makes a credit purchase of goods from a company in London for $1,000.On the date of purchase,the exchange rate was $1.50 per pound.However,on the date of payment,the rate had risen to $1.55 per pound.As a result,the American company would record

Accepted Answer

The answer of An American company makes a credit purchase...

Question 10

If creditors' payment terms are 60 days,financing period is 20 days,and it takes 30 days to collect the amount from customers.What time does it take to sell the inventory?

Accepted Answer

To sell the inventory, we need to consider the longest time period involved in the process, which is the time it takes to collect payment from customers (30 days) added to the payment terms (60 days) from creditors. Therefore, the total time it takes to sell the inventory would be 30 days + 60 days = 90 days. However, as we have a financing period of 20 days, we can subtract it from the total time to get the best choice. Therefore, the time it takes to sell the inventory would be 90 days - 20 days = 70 days. As option D is the closest to 70, it is the correct choice.

Question 11

Compare and contrast the following terms:
a.Trade discount and sales discount.
b.FOB shipping point and FOB destination

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a.Trade discount...

Question 12

Under a perpetual inventory system,is it necessary to take a physical inventory at the end of the period? Why or why not?

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Question 13

On June 3,Lakeland Company sold merchandise worth $1,600 on credit,terms 2/10,n/30.The merchandise sold had cost $1,100.The customer paid the amount on June 15. What is the required journal entry to record the payment received under the periodic inventory system?

Accepted Answer

The answer of On June 3,Lakeland Company sold merchandise worth...

Question 14

An American company makes a credit purchase of goods from a company in London for 1,000 British pounds.On the date of purchase,the exchange rate was $1.65 per pound.However,on the date of payment,the rate had declined to $1.60 per pound.As a result,the American company would record

Accepted Answer

The American company would record an exchange gain of $50 because on the date of purchase, the cost was 1,000 pounds * $1.65/pound = $1,650. On the date of payment, with the rate at $1.60/pound, the cost would be 1,000 pounds * $1.60/pound = $1,600. The difference ($1,650 - $1,600) is a $50 gain.

Question 15

On June 3,Lakeland Company sold merchandise worth $1,600 on credit,terms 2/10,n/30.The merchandise sold had cost $1,100.The customer paid the amount on June 10. What is the required journal entry to record the payment received under the periodic inventory system?

Accepted Answer

The answer of On June 3,Lakeland Company sold merchandise worth...

Question 16

Which of the following activities is not a component of the operating cycle?

Accepted Answer

Payment of employees' wages is a part of the administrative cycle, not the operating cycle. The operating cycle involves the purchase of inventory, sale of that inventory, and collection of the resulting cash.

Question 17

Copper,Inc.purchased merchandise worth $1,800 on credit,terms n/30.What is the required journal entry to record the transaction under the periodic inventory system?

Accepted Answer

The journal entry to record the purchase on credit would be:

Debit Merchandise Inventory $1,800
Credit Accounts Payable $1,800

Option A is incorrect as there is no such account as "Merchandise Purchases". Option C is incorrect as "Cost of Goods Sold" is not recorded at the time of purchase. Option D is incorrect as "Sales Revenue" is not involved in this transaction.

Question 18

On June 3,Addison Company purchased merchandise worth $1,600 on credit,terms 2/10,n/30.The account was paid on June 10.What is the required journal entry to record the payment under the periodic inventory system?

Accepted Answer

To record the payment under the periodic inventory system, we need to make the following journal entry:

Debit Accounts Payable: $1,600 (to reduce the liability)
Credit Cash: $1,568 (computed as $1,600 - (($1,600 * 2%) = $32))

Option A is incorrect as it records the purchase transaction rather than the payment transaction.

Option C is incorrect as it records the purchase return transaction.

Option D is incorrect as it records the purchase discount transaction which is not applicable in this case as the company did not take advantage of the discount offer.

Question 19

Assuming the use of the periodic inventory system,use the data below to calculate the net cost of purchases and the cost of goods available for sale for the year ended December 31,20x5.

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Question 20

Given the following information,prepare in good form the cost of goods sold section of an income statement for 20x5.

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Quiz 6: Accounting for Merchandising Operations