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Exam 5: Accounting for Merchandising Businesses

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Question 71

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When comparing a retail business to a service business,the financial statement that changes the least is the

A) balance sheet
B) income statement
C) retained earnings statement
D) statement of cash flows

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

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Question 72

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Which of the following accounts should be closed to Income Summary at the end of the fiscal year?

A) Merchandise Inventory
B) Accumulated Depreciation
C) Dividends
D) Cost of Merchandise Sold

E) A) and D)
F) C) and D)

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Question 73

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When a large quantity of merchandise is purchased,a reduction allowed on the sale price is called a trade discount.

Sampson Co.sold merchandise to Batson Co.on account,$46,000,terms 2/15,net 45.The cost of the merchandise sold is $38,500.The Batson Co.paid the invoice within the discount period.Prepare the entries that both Sampson and Batson Companies would record for the above.Assume both Sampson and Batson use a perpetual inventory system.

The seller may prepay the freight costs even though the terms are FOB shipping point.

If merchandise sold on account is returned to the seller,the seller acknowledges the return by issuing a

The seller records the sales tax as part of the sales amount.

When merchandise purchased on account is returned under the perpetual inventory system,the buyer would debit

Complete the following data taken from the condensed income statements for merchandising Companies X,Y,and Z. $\begin{array}{|l|r|r|r|}\hline & \text { Company } \mathrm{X} & \text { Company } \mathrm{Y} & \text { Company Z } \\\hline \text { Net income or net loss } & \$ 220 & \$ & ? 70 \\\hline \text { Sales } & ? & 1,315 & 890 \\\hline \text { Gross profit } & 435 & ? & 465 \\\hline \text { Operating expenses } & ? & 565 & ? \\\hline \text { Cost of merchandise sold } & 330 & 775 & ? \\\hline\end{array}$

Purchased goods in transit,shipped FOB destination,should be excluded from ending inventory of the buyer.

Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.

Under the perpetual inventory system,a company purchases merchandise on terms 2/10,n/30.The entry to record the purchase will include a debit to Cash and a credit to Sales.

Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as

Emma Co.sold to Isabella Co.merchandise on account FOB shipping point,2/10,net 30,for $15,000.Emma Co.prepaid the $750 shipping charge.Using the perpetual inventory method,which of the following entries will Isabella Co.make to record payment of the merchandise if Isabella Co.pays within the discount period?

As we compare a merchandising business to a service business,the financial statement that changes the most is the balance sheet.

President's salaries,depreciation of office furniture,and office supplies are

Merchandise Inventory normally has a debit balance.

Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business.

Under the periodic inventory system,the journal entry to record the cost of merchandise sold at the point of sale will include which of the following?

Which of the following accounts will only be found in the chart of accounts of a merchandising company?