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Exam 3: Accounting for Merchandising Businesses

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Question 21

True/False

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The term "shrinkage" reflects decreases in inventory for reasons other than sales to customers.

A) True
B) False

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Question 22

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During the month of March,Wang Company sold merchandise on account for $9,100.The merchandise had cost Wang $4,900.Which of the following represents the effects of this transaction on Wang's financial statements?

A) Choice A
B) Choice B
C) Choice C
D) Choice D

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

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Question 23

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Rowdy Company's first year in operation was 2012.The following events occurred in 2012: 1.Acquired $5,000 stock from issuing common stock. 2.Purchased inventory for $3,000 cash. 3.Sold inventory that had cost $2,100 for $3,600 cash. Required: a)Record the events in the statements model,below.Show amounts of increases and decreases.Indicate whether each cash flow is an operating activity,investing activity,or financing activity. b)Determine the total for each column after you have recorded the events. c)What was the amount of total assets at the end of the period?

Gross margin percentage is a measure of how high a markup a company is charging on the products it sells.

After a physical count of its inventory,Rand Co.discovered that $5,000 of inventory was missing.Show how the required write-down of inventory would affect Rand's financial statements.

The following events pertain to Burlington Supply Company for January,2012.The company uses the perpetual inventory method.Indicate how each of the events affects the company's financial statements,using the financial statement model provided. 1)Jan 3.Purchased $4,000 of merchandise inventory from supplier,Kelly Distributors,Inc.The terms of the purchase: 2/10,n/30 and FOB shipping point. 2)Jan 5.Paid $90 cash for freight to trucking company to have goods shipped from Kelly Distributors,Inc. 3)Jan 7.(a)Sold merchandise for $800 to a customer on account.(b)The merchandise sold had cost $560. 4)Jan 10.Returned $500 (list price)of defective merchandise to Kelly Distributors,Inc. 5)Jan.11.Paid amount due to Kelly Distributors for merchandise purchased on Jan.3. 6)Jan.12.a)Accepted a return of $150 of the goods sold on Jan.7.b)The cost of these goods was $110.

Fain Company returned merchandise previously purchased on account,which it had not yet paid for.Fain uses the perpetual inventory system.Which of the following answers reflects the effects of the purchase return on the financial statements?

Howard Company's first year in operation was 2012.The following events occurred in 2012: 1.Acquired $400 stock from issuing common stock. 2.Purchased inventory on account for $300,terms 2/10,n/30. 3.Sold inventory that had cost $210 for $360 cash. 4.Paid for the goods referred to in item 2 within the discount period. Required: a)Record the events in the statements model,below.Show amounts of increases and decreases.Indicate whether each cash flow is an operating activity,investing activity,or financing activity.Calculate the total for each account at the end of the period. b)What was the amount of total assets at the end of the period? c)What was the amount of retained earnings at the end of the period?

Kehoe Co.uses a periodic inventory system.The company had beginning inventory of $400 and ending inventory of $200.Kehoe's cost of goods sold was $1,600.Based on this information,Kehoe must have purchased inventory amounting to:

When merchandise inventory is purchased on account,how is the accounting equation affected? Assume a perpetual inventory system is in use.

Interest expense is reported as a non-operating item on a multistep income statement,but it is reported in the operating activities section of the statement of cash flows.

The term "shrinkage" reflects decreases in inventory for reasons other than theft.

After having shipped merchandise to a customer,Lowe Co.received a complaint about some minor defects.Lowe agreed to allow a price reduction of $500.The merchandise had been sold to the customer on account,and the account had not been collected yet.Show how the transaction would affect Lowe's financial statements.

A company using the perpetual inventory method paid cash to purchase inventory.Which of the following answers reflects the effects of this event on the financial statements?

The cash inflow from the sale of a business asset other than inventory is reported in the investing activities section of the statement of cash flows.

The Red Valley Company maintains perpetual inventory records.Although its inventory records indicated $18,000 in the inventory,a physical count showed only $16,250.Which of the following answers indicates the effect of the necessary write-down?

Statement of Financial Accounting Standards (SFAS)95 requires interest expense to be reported in the operating activities section of the statement of cash flows.

Why are cash discounts given,and who benefits by these discounts?

During the month of March,Wang Company purchased merchandise inventory for cash in the amount of $6,200.Which of the following represents the effects of this transaction on Wang's financial statements?

Which factor has removed most of the practical limitations associated with use of the perpetual inventory system?