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Exam 4: Accounting for Merchandising Businesses

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Question 1

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A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

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Question 2

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Which of the following would be considered as primarily a merchandising business?

A) West Consulting
B) Martin's Supermarket
C) Sandridge and Associates Law Offices
D) KPM Accounting and Tax Service

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Question 3

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What is (are) the term(s) used to describe a discount given to encourage prompt payment?

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 financial statements?

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

What is the effect of recording the purchase of inventory on account under the perpetual inventory system?

With a periodic inventory system,the cost of goods sold is recorded at the time of a sale of merchandise.

Sales discounts do not affect a company's gross margin percentage.

Sales discounts affect net sales,but purchase discounts do not.

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

In a perpetual inventory system,a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

Exeter Company sold merchandise for $10,000 cash.The merchandise had cost the company $4,500.What is the effect of the sale on the balance sheet?

If a company uses the periodic inventory system,it records inventory purchases in the Purchases account at the time of purchase.

Ballard Company uses the perpetual inventory system.The company purchased $16,000 of merchandise from Andes Company under the terms 2/10,net/30.Ballard paid for the merchandise within 10 days and also paid $500 freight to obtain the goods under terms FOB shipping point.All of the merchandise purchased was sold for $30,000 cash.What is the amount of gross margin that resulted from these business events?

JCS Incorporated experienced the following transactions during its first year of business.The company purchased $16,000 of merchandise from Kent Company.The company paid $2,000 for selling and administrative expenses and purchased land for $5,000.All of the merchandise purchased was sold for $30,000 cash.What is the company's gross margin?

The beginning inventory plus cost of goods sold equals the cost of goods available for sale during the period.

When are product costs matched directly with sales revenue?

A multistep income statement shows sales revenue,cost of goods sold,and gross margin.

With a perpetual inventory system,assets and stockholders' equity increase by the amount of the gross margin when inventory is sold.(Consider the effects of both parts of this event.)

Garrett Company uses the perpetual inventory system.The company's records showed a book balance of $18,000 in the Merchandise Inventory account,and a physical count finds only $16,250 of inventory.Which of the following represents the financial statement effect of writing-down the inventory?