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Exam 6: Accounting for Merchandising Businesses

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Question 91

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Which of the following accounts will only be found in the chart of accounts of a merchandising company?

A) Sales
B) Accounts Receivable
C) Merchandise Inventory
D) Accounts Payable

E) C) and D)
F) B) and C)

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Question 92

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

A) True
B) False

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Question 93

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During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the merchandise sold is $322,325. What is the amount of the gross profit?

A sales discount encourages customers to pay accounts more quickly than if a discount were not available.

Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

When the perpetual inventory system is used, the inventory sold is debited to

$\text { Match each of the following items } ( a - h ) \text { with the appropriate definition below. }$ -Early payment discount offered to customers by the seller. a. $\quad$ Freight b. $\quad$ Delivery Expense c. $\quad$ Merchandise Inventory d. $\quad$ Sales discount e. $\quad$ Purchases Returns and Allowances f. $\quad$ Debit memo g. $\quad$ Purchase discount h. $\quad$ Trade discount

Merchandise inventory is classified on the balance sheet as a

The primary difference between a periodic and perpetual inventory system is that a

Which account will be included in closing entries of both service and merchandising companies?

Using the following data taken from Hsu's Imports Inc. which uses a periodic inventory system, prepare the cost of merchandise sold section of the income statement for the year ended March 31.​ $\begin{array}{|l|r|}\hline \text { Merchandise inventory, April 1 } & \$ 193,250 \\\hline \text { Merchandise inventory, March 31 } & 180,100 \\\hline \text { Purchases } & 1,079,600 \\\hline \text { Purchases returns and allowances } & 51,200 \\\hline \text { Purchases discounts } & 18,500 \\\hline \text { Sales } & 1,860,000 \\\hline \text { Freight in } & 19,250 \\\hline\end{array}$

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.

Sampson Co. sold merchandise to Batson Co. on account, $46,000, terms 2/15, net 45. The cost of the merchandise sold is $38,500. Batson Co. paid the invoice within the discount period. Prepare the entries that both Sampson and Batson would record for the above. Assume both Sampson and Batson use a perpetual inventory system.

Under the perpetual inventory system, all purchases of merchandise are debited to the account

Freight is considered a cost of inventory under FOB shipping point.

If merchandise costing $3,500, terms FOB destination, 2/10, n/30, with prepaid freight costs of $125, is paid within 10 days, the amount of the purchases discount is $70.

When a merchandising business is compared to a service business, the financial statement that is not affected by that change is the statement of owner's equity.

Describe the major differences in preparing the financial statements for a service business and a merchandising business. $\begin{array}{|l|l|l|}\hline \textbf { Service Business } && \textbf { Merchandising Business } \\\hline \text { Income Statement: } && \text { Income Statement: } \\\hline\\\hline \text { Balance Sheet: } &&\text { Balance Sheet: } \\\hline\\\hline\end{array}$

$\text { Match each of the following terms } ( a - h ) \text { with the correct definition below. }$ -Statement that includes subtotals for net sales, gross profit, and net operating income in determining net income. a. Credit terms b. FOB destination c. FOB shipping point d. Periodic inventory system e. Perpetual inventory system f. Inventory shrinkage g. Single-step income statement h. Multiple-step income statement

$\text { Match each of the following terms } ( a - h ) \text { with the correct definition below. }$ -Payment arrangements determined by the seller as to when invoices are due and whether early payment discount is offered. a. Credit terms b. FOB destination c. FOB shipping point d. Periodic inventory system e. Perpetual inventory system f. Inventory shrinkage g. Single-step income statement h. Multiple-step income statement