University of Wisconsin - ACCT I S 300

Quiz 4

1)Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.

1. The acid-test ratio is defined as current assets divided by current liabilities.

2. A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.

3. Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.

4. Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

5. The amount recorded for merchandise inventory includes all of the following except: Freight costs paid by the buyer.

Purchase discounts. Returns and allowances.

Trade discounts.

6. Liquidity problems are likely to exist when a company's acid-test ratio: Is higher than 1.

Is less than the current ratio.

7. The gross margin ratio:

Is a measure of liquidity and should exceed 2.0 to be acceptable. Should be greater than 1 for merchandising companies.

Is also called the profit margin. Is also called the net profit ratio.

9. February 3, Smart Company sold merchandise in the amount of $2,700 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $1,865. Smart uses the perpetual inventory system. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Cash

1,785

Accounts receivable

1,785

10. Using the following year-end information for Calvin’s Clothing, Inc., calculate the current ratio and acid-test ratio for the business:

11. A company's gross profit was $123,960 and its net sales were $484,600. Its gross margin ratio equals: (Round your answer to one decimal place.)

25.6%.

3.9%.

74.4%.

$123,960.

$484,600.

KLM Corporation's quick assets are $6,064,000, its current assets are $13,050,000 and its current liabilities are $8,110 ratio equals:

0.46.

2.36.

1.34.

0.75.

0.62.

13. A company records the following journal entry: debit Cash $1,470, debit Sales Discounts

$30, and credit Accounts Receivable $1,500. This means that a customer has taken what percentage cash discount for early payment?

10%

5%

1%

2%    

15%

Garza Company had sales of $152,200, sales discounts of $2,300, and sales returns of $3,655. Garza Company's net sales equals:

$149,900.

$146,245.

$152,200.

$158,155.

$5,955.