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Exam 4: Accounting for Merchandising Businesses

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Question 71

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The following is a list of selected events for Outdoor World for 2016.Outdoor World uses a perpetual inventory system and had a zero inventory balance prior to these transactions. 1)Purchased merchandise on account for $170,000. 2)Sold inventory costing $124,000 for $208,000 on account. 3)Paid transportation-out cost of $7,000 on goods sold. 4)Paid operating expense of $55,200. 5)Sold land for $45,400 that had cost $50,000. 6)A count of the inventory revealed that there was $45,800 of inventory on hand at the end of 2016. Required: Answer the following questions based on the above information. a)What was Outdoor World's net income for 2016? b)Compute gross margin and the gross margin percent for 2016. c)What amount of inventory will appear on the balance sheet for December 31,2016? d)Based on the above information,prepare a multistep income statement for 2016.

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a)Net income:
$208,000 - $124,000 - $7,0...

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Question 72

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Which of the following retailers would be expected to have the highest gross margin percentage?

A) Kmart
B) Neiman Marcus
C) WalMart
D) A supermarket chain such as Safeway

E) C) and D)
F) None of the above

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Question 73

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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 amounts.Assume that Frank Company uses a perpetual inventory system. -Whetzel Co.sold merchandise to a customer for $950 on account.Whetzel's cost of the merchandise was $600.

The following general journal entry is taken from the journal of Becker's Bookstore: Which of the following choices reflects how the entry will affect the company's financial statements?

The credit terms,2/15,n/30,indicate that a:

Foote Company recorded a purchase discount of $200 on merchandise the company had purchased a few days ago.Foote uses the perpetual inventory system.Which of the following answers reflects the effects of this event on the financial statements?

Wholesale companies sell goods primarily to other businesses.

Explain the difference between "transportation in" and "transportation out".Also indicate whether each is a product cost or period cost,and in which account the costs are recorded.

Gross margin percentage: Company A: $32,000/$80,000 = 40% Company B: $45,000/$180,000 = 25% Company C: $48,000/$120,000 = 40% Company D: $40,000/$100,000= 40% The discount retailer would have a lower gross margin percentage. -Sullivan Company uses the periodic inventory method.The following balances were drawn from the accounts of Sullivan Company prior to the closing process: The amount of gross margin appearing on the income statement should be:

The following are the income statements for Ace and Diamond Companies. What are the net income percentages for the above companies?

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 amounts.Assume that Frank Company uses a perpetual inventory system. -Whetzel Co.sold merchandise to a customer for $1,400 cash.The merchandise had originally cost Whetzel $850.

Ramirez Company returns merchandise previously purchased on account.It had not yet been paid for.Ramirez uses the perpetual inventory system.Which of the following answers reflects the effects on the financial statements of only the purchase return?

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 amounts.Assume that Frank Company uses a perpetual inventory system. -Whetzel Company granted a $70 allowance to a customer who was not totally satisfied with the quality of goods received.The customer did not return the goods and had not yet paid for them.

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account.Due to an error,this sale was never recorded in the accounting records.What effect will the failure to make the necessary entries have on the company's accounting equation?

Mattress Warehouse,which uses the perpetual inventory system,experienced the following events during December 2016: 1.Issued common stock for cash. 2.Borrowed money from the Star City Bank issuing a note payable. 3.Purchased inventory on account,terms 2/10,n/30,FOB shipping point. 4.Returned part of the merchandise purchased in event #3. 5.Paid shipping costs on merchandise purchased in event #3. 6.Sold merchandise for cash.Label the revenue recognition 6(a)and the expense recognition 6(b). 7.Paid shipping costs to deliver goods sold in event #6. 8.Recorded the discount allowed in event #3. 9.Recorded the payment for goods purchased in event #3. 10.Accrued interest on the note payable issued in event #2 (note is not due for several months). Required: Identify each event as asset source (AS),asset use (AU),asset exchange (AE),or claims exchange (CE).Also explain how each event affects the financial statements by placing a + for increase,- for decrease,NA for not affected under each of the components of the following statements model.If an element both increases and decreases,mark with "+-".Also,indicate in the cash flow column if the event would be recorded as an operating activity (OA),an investing activity (IA)or a financing activity (FA).The first event is recorded as an example.

With a perpetual inventory system,assets and equity increase by the amount of the gross margin when inventory is sold.

The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.

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 amounts.Assume that Frank Company uses a perpetual inventory system. -Whetzel Co.discovered that a recent shipment of merchandise it had purchased was not of the same quality it had expected.The seller agreed to grant Whetzel an allowance of $250.Whetzel had not yet paid the amount owed on the shipment.

The term "FOB Destination" means

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 amounts.Assume that Frank Company uses a perpetual inventory system. -Whetzel Co.paid $100 cash to a freight company for delivering inventory that Whetzel had purchased from Jacobs Company with freight terms FOB shipping point.