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Exam 4: Accounting for Merchandising Businesses

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Question 51

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Which of the following account titles is normally used in a periodic inventory system?

A) Transportation-in.
B) Purchases.
C) Purchase Returns and Allowances.
D) All of these answer choices are normally used.

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Question 52

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The Cost of Goods Sold account is classified as:

A) a liability.
B) an asset.
C) a contra asset.
D) an expense.

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Question 53

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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.paid a supplier,Jacobs Company,the amount owed on account related to a purchase of inventory on account with terms of net 30.

Which of the following is considered a product cost?

Use the following for questions Assume the perpetual inventory method is used. 1) The company purchased $12,500 of merchandise on account under terms 2/10,n/30. 2) The company returned $1,200 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 $18,800 cash. -The amount of gross margin from the four transactions is:

Discuss the major differences between a perpetual inventory system and a periodic inventory system.

Indicate whether each of the following statements is true or false.(Assume a perpetual inventory system. ) _____ a)The freight terms FOB shipping point increase the cost of inventory to the buyer. _____ b)The term FOB means that goods are shipped free of charge to buyer and seller. _____ c)FOB shipping point means that purchaser's responsibility ends at shipping point. _____ d)FOB destination means that seller's responsibility ends at destination. _____ e)When the seller of merchandise records freight under the terms FOB shipping point,the seller records an expense.

The income statement is not affected by a purchase of merchandise.

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

Llewelyn Company paid the amount due on a purchase of merchandise on account.Llewelyn uses the perpetual inventory system.Which of the following answers reflects the effect of the payment on the financial statements?

The following events apply to Deb's Dance Wholesalers. 1)Sold merchandise to a customer.The goods were shipped FOB destination,with a freight cost of $50. 2)Purchased merchandise with freight cost of $75,shipped with the terms FOB shipping point. 3)Sold merchandise to a customer with freight cost of $40,shipped FOB shipping point. Required: a)Based on the above events,what is the total amount of freight that will be paid by Deb's Dance Wholesalers? b)How much of the freight cost will be recorded as an expense when incurred?

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

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.The amount of gross margin for this merchandise is:

The following entry is taken from the journal of a merchandising company: This entry results in

Kenyon Company experienced a transaction that had the following effect on the financial statements: Which transaction would have this effect?

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

Product costs are matched against sales revenue

If the buyer is to pay the transportation cost of delivering merchandise,the freight or shipping terms would be stated as:

A multistep income statement shows Sales,Cost of Goods Sold,and Gross Margin.

Indicate whether each of the following statements is true or false.(Assume a perpetual inventory system. ) _____ a)Transportation-out cost is a part of selling and administrative costs. _____ b)When transportation-out cost is incurred,the balance in the inventory account increases. _____ c)When transportation-in cost is incurred,the balance in the inventory account increases. _____ d)When the transportation-out cost is incurred,the balance in the cost of goods sold account increases. _____ e.Transportation-in cost is a part of selling and administrative costs.