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Exam 5: Accounting for Merchandising Businesses

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Question 21

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If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.

A) True
B) False

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Question 22

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When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period.

A) True
B) False

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Question 23

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The ratio of sales to assets measures how effectively a business is using its assets to generate sales.

There is no difference between the recording of cash sales and the recording of MasterCard or VISA sales.

On March 29, customers who owe $10,500 on account to Sonic Sales Company submit payments of $4,250. Journalize this event.

Using the following data taken from Hsu's Imports Inc. which uses a periodic inventory system, determine the gross profit to be reported on the income statement for the year ended March 31. $\begin{array} { | l | l | } \hline \text { Merchandise inventory, April } 1 & \$ 193,250 \\\hline \text { Merchandise inventory, March } 31 & 180,100 \\\hline \text { Purchases } & 1,079,600 \\\hline \text { Purchases returns and allowances } & 51,200 \\\hline \text { Purchases discounts } & 18,500 \\\hline \text { Sales } & 1,860,000 \\\hline \text { Freight-in } & 19,250 \\\hline\end{array}$

Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a

Bountiful Company had sales of $650,000 and cost of merchandise sold of $200,000 during the year. The total assets balance at the beginning of the year was $175,000 and at the end of the year was $167,000. Calculate the ratio of sales to total assets.

Journalize the entries to record the following selected transactions: a) Sold $900 of merchandise on account, subject to 7% sales tax. The cost of the merchandise sold was $510. b) Paid $436 to the state sales tax department for taxes collected.

?Journalize the following transactions for Armour Inc. using both the periodic inventory system and the perpetual inventory system, presented in the side-by-side format of the form provided below. Oct.7 Sold $1,200 of merchandise on credit to Rondo Distributors, terms n/30; the cost of the merchandise was $720. Oct. 8 Purchased merchandise, $10,000; terms FOB shipping point and 2/15, n/30; with prepaid freight charges of $525 added to the invoice.

Which of the following costs would be included in merchandise inventory? a) Purchase price b) Insurance in transit FOB shipping point c) Freight for delivery FOB shipping point d) Repair due to negligence of receiving clerk e) Receiving department employee salary f) Cost of processing purchase orders

Based on the information below, journalize the entries for the seller and the buyer. Both use a perpetual inventory system. a) Seller sold merchandise on account to the buyer, $4,750, terms 2/10, net 30, FOB shipping point. The cost of the merchandise is $2,850. The seller prepays the freight of $75. b) Buyer returns $700 of merchandise as defective. The cost of the merchandise is $420. c) Buyer pays within the discount period.

In a merchandising business, sales minus operating expenses equals net income.

Under a periodic inventory system, the cost of merchandise on hand at the end of the year is determined by a physical count of the inventory.

A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take a physical inventory.

Merchandise with an invoice price of $6,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the required payment if paid on September 12?

Merchandise with a list price of $4,200 and costing $2,300 is sold on account, subject to the following terms: FOB destination, 2/10, n/30. The seller prepays the freight costs of $85 debit Delivery Expense for the freight costs). Prior to payment for the goods, the seller issues a credit memo for $750 to the customer for merchandise costing $425 that is returned. Payment is received within the discount period. The company uses a perpetual inventory system. Record the foregoing transactions of the seller in the sequence indicated below. a) Sold the merchandise, recognizing the sale and cost of merchandise sold. b) Paid the freight charges. c) Issued the credit memo. d) Received payment from the customer.

Using the letter preceding each account, arrange the following selected accounts in the order they would normally appear in a chart of accounts of a company that uses a multiple-step income statement. a) Accounts Payable b) Accounts Receivable c) Merchandise Inventory d) Miscellaneous Selling Expense e) Interest Expense f) Income Summary g) Misc. Admin. Expense h) Freight Out

Under a periodic inventory system, closing entries will include

During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the merchandise sold is $76,240. What is the amount of the gross profit?