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Exam 5: Accounting for Merchandising Businesses

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Question 81

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Journalize the following transactions for both Abbott Co. (seller) and Dalton Co. (buyer). Assume both the companies use the perpetual inventory system.

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Question 82

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Because many companies use computerized accounting systems, periodic inventory is widely used.

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Question 83

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A seller may grant a buyer a reduction in selling price and this is called a sales allowance.

The ending merchandise inventory for 2010 is the same as the beginning merchandise inventory for 2011.

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

Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. The seller paid freight costs of $2,000 and issued a credit memo for $10,000 prior to payment. What is the amount of the cash discount allowable?

A sales invoice included the following information: merchandise price, $10,000; freight, $900; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

Under a perpetual inventory system

In many retail businesses, inventory is the largest current asset.

The seller records the sales tax as part of the sales amount.

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.

If the physical count of the inventory revealed $158,000 of merchandise on hand and the inventory records reported $163,000, what would be the necessary adjusting entry to record inventory shortage?

When the terms of sale are FOB shipping point, the buyer should pay the freight charges.

Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.

Details of invoices for purchases of merchandise are as follows: Determine the amount to be paid in full settlement of each of the invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

Maxi Company's perpetual inventory records indicate that $820,300 of merchandise should be on hand on October 31, 2014. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Maxi Company for the year ended October 31, 2014.

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.

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) Sales Discounts (f)Interest Expense (g)Income Summary (h)Misc. Adinin. Expense (i)Freight Out (j)Sales Returns and Allowances

Merchandise with a sales price of $6,000 is sold on account with term 2/10, n/30. The journal entry to record the sale would include a