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Exam 4: Accounting for Merchandising Businesses

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Question 51

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What happens when merchandise is delivered FOB shipping point?

A) The buyer pays the freight cost.
B) The seller pays the freight cost.
C) The buyer records transportation cost as an expense.
D) The seller records transportation-out expense.

E) A) and B)
F) A) and C)

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Question 52

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A company's chart of accounts includes, in part, the following account numbers and corresponding account titles: Which accounts would affect operating income?

A) Account numbers 2, 4, and 9
B) Account numbers 3, 5, 7, and 9
C) Account numbers 3, 4, 7, and 9
D) Account numbers 3, 4, 7, 8, and 9

E) B) and C)
F) All of the above

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Question 53

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Gross margin is equal to the amount of change (increase or decrease)in Merchandise Inventory during a period.

Net sales is calculated by subtracting cost of goods sold from sales revenue.

If a company uses the perpetual inventory system, when would it normally discover that merchandise inventory has been lost or stolen?

Assume a company uses the periodic inventory system. Which of the following accounts would not be affected when recording purchases and related transactions?

A multistep income statement separates routine operating results from peripheral or nonoperating items.

Assume the perpetual inventory system is used.1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point.2) Green Company paid freight cost of $2,400 to have the merchandise delivered.3) Payment was made to the supplier on the inventory within 10 days.4) All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB destination with freight cost amounting to $1,600.What is the net cash flow from operating activities that results from these transactions?

At the end of its Year 1 accounting period, Voss Company had a $35,000 balance in its inventory account. Even so, when the company took a physical count of the inventory, it found only $34,300 of inventory on hand. Which of the following shows how recognizing the inventory shrinkage will affect the Company's financial statements?

Under a periodic system, the account that is increased for freight costs on goods received from the vendor is called:

How are the elements of the financial statements affected when merchandise inventory is purchased on account? (Assume a perpetual inventory system is in use.)

On June 1, merchandise subject to terms 2/10, n/30 was sold on account to a customer for $26,500. On June 3, the customer returns $5,800 of that merchandise.a)What is the amount of cash collected by the seller if the payment is made by the customer on June 8?b)What is the amount of cash collected by the seller if payment is made by the customer on June 21?

Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system.1) The company purchased $13,300 of merchandise on account under terms 2/10, n/30.2) The company returned $2,800 of merchandise to the supplier before payment was made.3) The liability was paid within the discount period.4) All of the merchandise purchased was sold for $20,600 cash.What effect will the return of merchandise to the supplier in event (2) have on Darlington's financial statements?

A company's chart of accounts includes, in part, the following account numbers and corresponding account titles: Which accounts would appear on the balance sheet?

When a merchandising company pays cash to purchase inventory

James Company experienced the following events during its first accounting period:(1) Purchased $10,000 of inventory on account under terms 1/10 n/30.(2) Returned $2,000 of the inventory purchased in Event 1.(3) Paid the remaining balance in account payable for the inventory purchased in Event 1.Based on this information, which of the following shows how the recognition of the cash discount (Event 1) will affect the Company's financial statements?

James Company experienced the following events during its accounting period: (1) Purchased $10,000 of inventory on account.(2) Returned $2,000 of inventory purchased in Event 1.(3) Paid the remaining balance in account payable for the inventory purchased in Event 1.(4) Sold inventory purchased in Event 1 for $10,000 to customers on account. At the end of the first accounting period what would be reported on the Income Statement for net income?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. If an event increases one account and decreases another account equally within the same element (such as an asset exchange event), record I/D. If an event has no impact on the element, record NA.Increase = I Decrease = D Not Affected = NAWetzel Company recorded a cash discount on goods recently purchased on account.

The following information for Year 2 is taken from the accounts of Tuttle Company. The company uses the periodic inventory system. Based on this information, what is the inventory at December 31, Year 2?

Melbourne Company purchased merchandise with a list price of $3,300. The credit terms were 2/10, n/30. Assuming that Melbourne paid for the merchandise during the discount period, the cost of goods sold for this transaction would be $2,970.