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The correct option of this multiple choice (mcq) is (b), as explained below: We are given the following: Credit Sale = $1,400 Terms = 2/10, n/30 which means that a discount of 2% is given to customers if the payment is made within 10 days of the date of credit sale made to customer while the full or net amount is due within 30 days. Required: Amount of the Payment Received in full on July 24 = ? As, the customer returned the goods of $100 (sale return), may be due to defective or damaged goods, whatever the case may be, so we deduct sale return from the total goods sold to customer on account in order to calculate net credit sale as shown below: Net Credit Sale = Total Credit Sale - Sale Return = $1,400 - $100 = $1,300 Calculation of Discount Here, we need to calculate discounted amount as the payment is received within 10 days, i.e., counting from July 15 to July 24 equals to 10 days which is within discount period of 10 days. Any payment received after July 24,...

The correct option of this multiple choice question (mcq) is (b), as under Perpetual Inventory System, assets or goods or merchandises purchased from suppliers for cash or on account are considered as the parts of inventory account unlike under periodic inventory system these are recorded separately in the books of accounts (as purchases account) of company’s business. For example, if the company purchased assets of $5,000 from suppliers for cash and decided not to use in the business but to resale these in the market for the purpose of earning revenues for the business. The journal entry to record under perpetual inventory system is shown below:                                                    Inventory a/c  $5,000                                       ...

The correct option of this multiple choice question (mcq) is (c), as a moving company deals in services and provides services to clients against the fees received from clients during the accounting period. Examples of moving companies include consulting firm, law firms, rental companies, etc. In service company’s business, inventory valuation is not required as the service business is not dealt with inventory or goods held for sale purposes during the working hours of the business. So, in merchandising or trading business, finished goods inventory (both beginning and ending) are considered. How Is The Income Statement Of A Merchandising Company Different From That Of A Service Company? As the Merchandising Company (MC) deals with buying and selling of goods, so cost of goods sold is calculated which is calculated as shown below: Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory In MC, the Income Statement includes the following items as shown below: (i...

The correct option of this multiple choice (mcq) is a, as under retail method of inventory, we multiply the ending inventory at retail price by the cost-to-retail ratio in order to calculate the estimated cost of Ending Inventory (EI) without going into inventory details for physical counting. This method is suitable for businesses which have large volume of inventory. The formula used for the calculation of ending inventory at cost under Retail Inventory Method (RIM) is divided into two parts which are shown below: Ending Inventory At Retail = Retail Value of Goods Available For Sale - Net Sales Now, multiply EI at retail price by cost-to-retail ratio as shown below: Ending Inventory At Cost = Ending Inventory At Retail X Cost-To-Retail Ratio Examples: We have the following data to calculate EI at cost Beginning Inventory (BI) = $5,000 Purchases at cost = $15,000 BI at Retail = $10,000 Purchases at retail = $30,000 Net Sales = $35,000 Here Cost price of goods available for sale =...

The correct option of this multiple choice question (mcq) is (a), as this ratio shows how many days or time taken by a company to acquire, sell and replace inventory. The average of merchandise and the number of days of sales in current inventory will decide this ratio. If this ratio is small, then it shows that the company’s management is effective in selling merchandise to customers in less days. On the other hand, if this ratio is large, then it means that the company takes more days in selling its current stock of merchandise to customers due to poor inventory management and overstock problems. The formula to calculate this ratio is shown below: Number Of Days’ Sales In Inventory (DSI) = Average Inventory / Average Daily Cost Of Goods Sold The above formula can also be written as shown below: DSI = Average Inventory / Cost of Goods Sold X 365 Here AI is equal to OI plus CI divided by two (OI + CI / 2) Example: If AI is $4,000 and cost of goods sold is $60,000 during the accoun...

The correct option of this multiple choice question (mcq) is (C), as Inventory Turnover Ratio (ITR) tells us how efficiently the management manages the inventory / stock of the business between opening inventory and ending inventory which are affected by inventory purchases and sales of the business. The formula to show is given below: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Here Average Inventory (AI) is calculated as shown below: AI = Beginning Inventory + Ending Inventory / 2 For example, if cost of goods sold is $60,000 and AI is $20,000, then the ratio is 3, which means that the company sells and replaces its stock 3 times during the current accounting cycle. If this ratio will increase in the next accounting cycle, then the company’s management is effectively managing the stock in the upcoming accounting cycle. On the other hand, if this ratio will be below 3, then the management of the company needs to improve its performance in managing inventory ...

The correct answer of this multiple choice (mcq) is (B), as under Monetary Unit Assumption, only those business events are recorded in the books of accounts and then transferred to financial statements which can be expressed in terms of money. All the events which can’t be related with monetary transactions or business transactions are not accounted for in business’ records. For example, “We will sell the goods to customers”, it’s just a statement, which shows the willingness of the seller to sell products or goods to customers in future, but it is not considered as a monetary transaction as no money is involved in it, but when we say that “We sold goods worth $5,000 to customers for cash”, then this statement shows a business transaction in which money ($5,000) is involved between seller and buyers. The unit of money is “Dollar”. So, a transaction of worth $5,000 takes place between seller and buyers and this monetary transaction is recorded in the books of accounts of seller’s busi...