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Exam 5: Accounting for Retail Businesses

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Question 41

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

A) True
B) False

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Question 42

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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. ​

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Gross Profit = Sales...

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Question 43

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If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination.

The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.

Match each of the following terms (a-h) with the correct definition below. -Shipping terms where the ownership of merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier.

During the current year, merchandise is sold for $117,500 cash and $241,750 on account. The cost of the goods sold is $157,400. What is the amount of the gross profit?

Prepare a multiple-step income statement for Armstrong Co. from the following data for the year ended December 31. ​ Sales, $755,000; cost of goods sold, $330,000; administrative expenses, $35,000; interest expense, $30,000; rent revenue, $25,000; selling expenses, $50,000.

The statement of stockholders' equity shows

The seller may prepay the freight costs even though the terms are FOB shipping point.

Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.

Merchandise is sold for $3,600, terms FOB destination, 2/10, n/30, with prepaid freight costs of $150. The sales amount recorded is $3,528.

Assume that the total inventory on hand at the end of the year as determined by taking a physical inventory is $62,000. Of the $62,000, $8,000 has been sold FOB destination and is awaiting pickup by the carrier. What is the cost of inventory reported on the balance sheet?

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

A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the sales discount.

The chart of accounts for a merchandising business would include an account called Delivery Expense.

Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the goods sold is $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

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

Cost of goods sold is the amount that the merchandising company pays for the merchandise it intends to sell.

Net income plus operating expenses is equal to

A sale of $750 on account subject to a sales tax of 6% would be recorded as an account receivable of $750.