Exam 5: Accounting for Merchandising Operations

Holmes Corporation manufactures electronic components for use in many consumer products. Their raw materials are purchased literally from all over the world. Depending on the country involved, purchase terms vary widely. Some suppliers, for example, require full prepayment, while others are content to receive payment within six months of receipt of the goods. Because of this situation, Holmes never closes its books until at least ten days after month end. In this way, it can sort out ownership of goods in transit, and document which goods were received by month end, and which were not. Manya Andre, a new accountant, was asked to record about $70,000 in inventory as having been received before month end. She argued that the shipping documents clearly showed that the goods were actually received on the 8th of the current month. Her boss, busy with month-end reports, curtly tells Ann to check the shipping terms. She did so, and found the notation "FOB shipper's dock" on the document. She hadn't seen that particular notation before, but she reasoned that if the selling company considered it shipped when it reached their dock, Holmes should consider it received when it reached Holmes's dock. She did not record the purchase until after month end. Required: 1. Why are accountants concerned with the timing in the recording of purchases? 2. Was there a violation of ethical standards here? Explain.

McIntyre Company made a purchase of merchandise on credit from Marvin Company on August 8, for $9,000, terms 3/10, n/30. On August 17, McIntyre makes the appropriate payment to Marvin. The entry on August 17 for McIntyre Company is:

Jake's Market recorded the following events involving a recent purchase of merchandise: Received goods for $60,000, terms 2/10, n/30. Returned $1,200 of the shipment for credit. Paid $300 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's inventory increased by

Cost of goods sold is determined only at the end of the accounting period in

Net sales appears on both the multiple-step and single-step forms of an income statement.

Prepare the necessary journal entries on the books of Kelly Carpet Company to record the following transactions, assuming a perpetual inventory system (you may omit explanations): (a) Kelly purchased $45,000 of merchandise on account, terms 2/10, n/30. (b) Returned $3,000 of damaged merchandise for credit. (c) Paid for the merchandise purchased within 10 days.

Cobb Company's accounting records show the following at the year ending on December 31, 2018: Purchase Discounts \ 11,200 Freight - In 15,600 Purchases 402,000 Beginning Inventory 47,000 Ending Inventory 57,600 Purchase Returns 12,800 Using the periodic system, the cost of goods sold is

A ________________ buys and sells goods rather than performing services to earn a profit.

The adjusted trial balance of Nick Company contained the following information: Instructions 1. Use the above information to prepare a multiple-step income statement for the year ended December 31, 2018. 2. Prepare a single-step income statement for the year ended December 31, 2018.

Financial information is presented below: Operating Expenses \ 90,000 Sales Returns and Allowances 18,000 Sales Discounts 12,000 Sales Revenue 320,000 Cost of Goods Sold 174,000 The amount of net sales on the income statement would be

Purchase Returns and Allowances and Purchase Discounts are subtracted from Purchases to produce net purchases.

The Freight-In account

In terms of liquidity, inventory is

Kennedy Company had the following account balances at year-end: cost of goods sold $85,000; inventory $15,000; operating expenses $39,000; sales revenue $144,000; sales discounts $1,600; and sales returns and allowances $2,300. A physical count of inventory determines that inventory on hand is $14,400. Instructions (a) Prepare the adjusting entry necessary as a result of the physical count. (b) Prepare closing entries.

Gross profit for a merchandiser is net sales minus

In a single-step income statement, all data are classified under two categories: (1) Revenues, or (2) Expenses. If the income statement is recast in a multiple-step format, what additional information or intermediate components of income would be presented?

If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the

For the income statement, IFRS requires

Gross profit rate is computed by dividing cost of goods sold by net sales.

Assume that Swann Company uses a periodic inventory system and has these account balances: Purchases $525,000; Purchase Returns and Allowances $14,000; Purchase Discounts $9,000; and Freight-In $15,000. Determine net purchases and cost of goods purchased.