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Exam 5: Accounting for Merchandising Businesses

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Question 71

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Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entryies) would be recorded?

A) debit Cash, $2,000; credit Merchandise Inventory, $1,250
B) debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit Merchandise Inventory, $1,250
C) debit Cash, $1,250; credit Sales, $1,250
D) debit Accounts Receivable, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit Merchandise Inventory, $1,250

E) A) and B)
F) All of the above

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Question 72

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Gross profit is equal to

A) sales plus cost of merchandise sold
B) sales plus selling expenses
C) sales less selling expenses
D) sales less cost of merchandise sold

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

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Question 73

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Match each of the following terms a-h) with the correct definition below. -Payment arrangements determined by the seller as to when invoices are due and whether early payment discount is offered.

On March 3, Bluebird Sales makes $4,350 in cash sales of general merchandise that has a cost of $1,512. Bluebird uses a perpetual inventory system. a) Journalize the sale. b) Journal the cost of merchandise sold.

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to

The account form of the balance sheet is presented in a downward sequence in three sections.

Journalize the following transactions for both Abbott Co. seller) and Dalton Co. buyer). Assume both of the companies use the perpetual inventory system. July 3 Abbott Co. sold merchandise on account to Dalton Co., $7,500, terms FOB shipping point, net/eom. The cost of the merchandise sold was $4,400. 5 Dalton Co. paid $275 freight charges on purchase from Abbott Co. 9 Abbott Co. issued Dalton Co. a credit memo for merchandise returned, $2,250. The cost of the merchandise returned was $1,325. 11 Abbott Co. received payment from Dalton Co. for purchase of July 3.

Sales are equal to the cost of merchandise sold less the gross profit.

When merchandise that was sold is returned, a credit to sales returns and allowances is made.

A seller may grant a buyer a reduction in selling price and this is called a customer discount.

Which of the following accounts has a normal credit balance?

Match each of the following items a-h) with the appropriate definition below. -Account where returned merchandise or price adjustments are recorded by the buyer under the periodic inventory system.

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to

Record the following transactions for Sparky's Pet Shop using the general journal form provided below. Assume Sparky's uses a perpetual inventory system. Omit transaction descriptions from entries:

Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?

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

Under a perpetual inventory system

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

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a