Merchandising
6. Match each definition with a related term chosen from the list of terms. Write the number of the term
in the space beside the definition.
Definitions
4
_______
15
_______
3
_______
9
_______
5
_______
Account debited when a sale is made under the perpetual inventory system
Process of counting, itemizing, and recording the value of goods on hand
Beginning inventory plus purchases
Sales minus sales returns and allowances and sales discounts
Negative sales invoice
A business that buys goods from manufacturers and sells to other
businesses that sell to the public
G. Defective merchandise returned by a customer
H. Excess of net sales over cost of goods sold
A.
B.
C.
D.
E.
F.
List of Terms
1. adjusting entry
2. cash refund
3. cost of goods available for sale
4. Cost of Goods Sold
5. credit invoice
6. gross profit
7. manufacturer
8. Merchandise Inventory
16
_______
14
_______
6
_______
9. net sales
10. prepaid inventory
11. Purchases Returns and Allowances
12. retailer
13. sales invoice
14. sales return
15. taking inventory
16. wholesaler
7. Determine the missing figure for each situation.
A.
B.
C.
D.
Beginning
Inventory
$22 000
$17 000
$30 000
$27 000
Ending
Inventory
$12 000
$15 000
$25 000
$25 000
Purchases
$40 000
$41 000
$70 000
$36 000
Cost of Goods
Sold
$50 000
$43 000
$75 000
$38 000
8.Use data from the accounts of Edgewood Company to prepare a partial income statement for the year
ended December 31, 20–. Your figures should start with revenue and end with gross profit.
Sales Returns & Allowances
Discounts Allowed
Selling Expenses
Sales
Beginning Inventory
Purchases
Discounts Earned
$ 7 200
18 100
98 800
372 400
42 400
184 200
17 300
Ending Inventory
Interest Expense
Purchases Returns & Allowances
Beginning Equity
Ending Equity
Freight-in
$ 50 700
10 300
8 200
105 300
124 100
10 100
EDGEWOOD COMPANY
INCOME STATEMENT
YEAR ENDED DECEMBER 31, 20–
Revenue
Sales
Less: Sales Returns and Allowances
Discounts Allowed
Net Sales
Cost of Merchandise Sold
Inventory, January 1
Purchases
Less: Returns and Allowances
Discounts Earned
Net Purchases
Freight-in
Merchandise Available for Sale
Less: Inventory, December 31
Gross Profit
$7 2 0 0
18 1 0 0
–
–
$372 4 0 0
–
25 3 0 0
–
$42 4 0 0
$8 2 0 0
17 3 0 0
–
–
$184 2 0 0
–
25 5 0 0
–
158
10
$211
50
7
1
2
7
0
0
0
0
0
0
0
0
$347 1 0 0
–
160 5 0 0
$186 6 0 0
–
–
–
–
–
–
–
9. Complete the following schedule by calculating the amount of the payment in each case. When
credit notes are involved, assume that the discount period is adjusted to start from the date on the
credit note.
Invoice
Date
A. Mar. 16
B. Nov. 4
C. Aug. 27
Invoice
Amount
$ 65.50
$300.00
$600.00
Terms of
Sale
2/10,n/30
1/15,n/30
2/10,n/30
Credit
Note Date
–
–
Sep. 4
Credit
Note
Amount
–
–
$200.00
Date
Payment
Made
Mar. 30
Nov. 17
Sep. 10
Amount of
Payment
Required
$ 65.50
$297.00
$392.00
10. Five Journals
a. Cash Payments
b. Purchases
c. Cash Receipts
d. Cash Receipts
e. Sales
f. Cash Payments
g. Cash Payments
h. Sales
i. General
j. Cash Payments
k. Cash Payments
l. Cash Payments
m. Cash Payments
n. Cash Payments
o. Cash Receipts
p. Cash Payments
q. General
r. Cash Payments
11. A. The subsidiary ledger figure before balancing is $24 280. Determine the correct total for the
subsidiary ledger and the control account.
Subsidiary ledger balance before corrections
Error #2
Error #3
Error #5
Error #6
Error #7
Corrected subsidiary ledger total
$24 280
–400
–80
+450
+750
–1 000
$24 000
B. The control account figure before balancing is $20 950. List the errors that affect the control
account and determine its correct balance.
Control account figure before corrections
Error #1
Error #4
Error #6
Error #8
Error #
Corrected control account balance
$20 950
+800
+1 800
+750
–300
$24 000
Partnership
12. Martin, Pappin, and Hull are partners who share income and loss in the ratio of 4:4:3 respectively.
Hull is the only one who receives a salary; he gets $10 000 per year. All partners earn 10% interest
on their capital account balances. These balances are as shown.
Martin
$20 000
Pappin
$40 000
Hull
$10 000
The net income for the year was $83 000.
A. Prepare a statement of distribution of net income for the year ended December 31, 20–.
MARTIN, PAPPIN, AND HULL
STATEMENT OF DISTRIBUTION OF NET INCOME
DECEMBER 31, 20–
Net Income available for distribution
Martin
Pappin
Salaries
Interest on Capital account balances
Balance of net income divided 4:4:3
$ 2 000
24 000
$ 4 000
24 000
Hull
$10 000
1 000
18 000
Total
$26 000
$28 000
$29 000
$83 000
Total
$10 000
7 000
66 000
$83 000
B. Prepare a statement of partners’ capital. Each partner withdrew $5000 during the year.
MARTIN, PAPPIN, AND HULL
STATEMENT OR PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 20–
Martin
Capital January 1
Add: Net Income
Deduct: Drawings
Capital December 31
Pappin
Hull
Total
$20 000
$40 000
$10 000
$ 70 000
26 000
28 000
29 000
83 000
$46 000
$68 000
$39 000
$153 000
5 000
5 000
5 000
15 000
$41 000
$63 000
$34 000
$138 000
13. Ratio Analysis
CURRENT RATIO
= Current Assets
= 75,000
= 3.00 (Working Capital: CA – CL)
Current Liabilities
25,000
For every $1 of current liabilities, there are $3 of current assets. This is excellent because
anything over 2.0 is generally considered good.
RATE OF RETURN ON SALES
= Net Income x100
= 5,000 x100
= 1.00%
Sales (Revenue)
500,000
For every dollar of sales, this company earns just one cent, which is a poor rate of return.
DEBT RATIO
= Total Liabilities x100
= 125,000
=21.74%
Total Assets
575,000
This result shows that only a small portion of total assets are financed by creditors.
EQUITY RATIO
= Total Owner’s Equity x100 = 450,000 x100
= 78.26%
Total Assets
575,000
This is the complement of debt ratio. Creditors would like to see this percentage as high as
possible. Increase % of assets are equity financed
RATE OF RETURN ON OWNER’S EQUITY
= Net Income
Average Owner’s Equity  ((Beginning + ending capital)/2)
=
5,000
= 1.12%
(445,000+450,000)/2
Ending – NI (450,000- 5,000)