four - six

A merchandiser

• Earns net income by buying and selling merchandise.

• Receives fees only in exchange for services (sells time)

• Earns profit from fares only.

• Buys products from customers.

Cost of Goods Sold

• Is another term for merchandise sales.

• Is the term used for the expense of buying and preparing merchandise for sale.

• Is another term for revenue.

• Is also called gross margin.

• Is a term only used by service firms.

A company has net sales of $756,200 and cost of goods sold of $303,200. Its gross profit equals:

• 273000

• 756200

• 303200

• 453000

• 1059400

Which of the following statements regarding gross profit is false?

• Gross profit is also called gross margin.

• Gross profit less other operating expenses equals income from operations.

• Gross profit is calculated on the single step income statement not the multistep income statement.

• Gross profit must cover all operating expenses to yield a return for the owner of the business.

• Gross profit equals net sales less cost of goods sold.

Which of the following statements regarding merchandise inventory is false?

• Merchandise inventory is reported on the balance sheet as a current asset.

• Merchandise inventory refers to products a company owns and intends to sell.

• Merchandise inventory cost includes the cost to buy the goods, ship them to the store, and make them ready for sale.

• Merchandise inventory appears on the balance sheet of a service company.

• Purchasing merchandise inventory is part of the operating cycle for a business.

Which of the following statements regarding the operating cycle f a merchandising company is false?

• The operating cycle begins with the purchase of merchandise.

• The operating cycle is shortened by credit sales.

• The operating cycle ends with the collection of cash from the sale of merchandise.

• The operating cycle can vary in length among different merchandising companies.

• The operating cycle sometimes involves accounts receivable.

Merchandise Inventory:

• Is a long term asset.

• Is a current asset.

• Includes supplies the company will use in future periods.

• Is classified with investments on the balance sheet.

• Must be sold within one month.

Beginning Inventory plus net purchases is:

• COGS

• Merchandise available for sale

• Ending Inventory

• Sales

• Shown on the balance sheet.

The acid test ratio:

• Is also called the quick ratio

• measures profitability

• measures inventory turnover

• Is generally greater than the current ratio

• Measures return on assets

Quick assets are defined as:

• Cash, short-term investments, and accounts payable

• Cash, short-term investments, and current receivables

• Cash, inventory, and current receivables.

• Cash, noncurrent receivables, and prepaid expenses.

• Accounts receivable, inventory, and prepaid expenses.