Exam 5: Accounting for Merchandising Operations

Howard Company purchased merchandise inventory with an invoice price of $7000 and credit terms of 2/10 n/30. What is the net cost of the goods if Howard Company pays within the discount period?

The operating expense section of an income statement for a wholesaler would not include

A credit sale of $4000 is made on April 25 terms 3/10 n/30 on which a return of $300 is granted on April 28. What amount is received as payment in full on May 4?

The journal entry to record a return of merchandise purchased on account under a periodic inventory system would be

Financial information is presented below for two different companies. $\begin{array}{lrr}&\text { Gower } & \text { Martini Food } \\&\text { Drugs } & \text { and Liquor }\\\text { Sales revenue } & \$ 90,000 & \$(\mathrm{e}) \\\text { Sales returns and allowances } & (\mathrm{a}) & 3,000 \\\text { Net sales } & 86,000 & 95,000 \\\text { Cost of goods sold } & 56,000 & (\mathrm{f}) \\\text { Gross profit } & (\mathrm{b}) & 36,000 \\\text { Operating expenses } & 22,000 & (\mathrm{~g}) \\\text { Income from operations } & (\mathrm{c}) & (\mathrm{h}) \\\text { Other expenses and losses } & 4,000 & 7,000 \\\text { Net income } & \text { (d) } & 11,000\end{array}$ Instructions Determine the missing amounts.

A merchandising company using a perpetual system may record an adjusting entry by

Sales Returns and Allowances is increased when

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

A single-step income statement reports all revenues both operating and other revenues and gains at the top of the statement.

Financial information is presented below: Operating Expenses \ 92,800 Sales Returns and Allowances 18,000 Sales Discounts 12,000 Sales Revenue 350,000 Cost of Goods Sold 176,000 The gross profit rate would be

If a company is given credit terms of 2/10 n/30 it should

Scale Company sells merchandise on account for $2500 to Reata Company with credit terms of 3/10 n/60. Reata Company returns $200 of merchandise that was damaged along with a check to settle the account within the discount period. What entry does Scale Company make upon receipt of the check and the damaged merchandise?

The collection of a $1200 account after the 2 percent discount period will result in a

Three items are missing in each of the following columns and are identified by letter. Instructions Calculate the missing amounts and identify them by letter.

Maggie's Market recorded the following events involving a recent purchase of merchandise: Received goods for $50000 terms 2/10 n/30. Returned $1500 of the shipment for credit. Paid $400 freight on the shipment. Paid the invoice within the discount period. As a result of these events the company's inventory increased by

Income from operations is determined by subtracting total operating expenses from ________________.

Peter O'Toole is a new accountant with First Step Company. First Step purchased merchandise on account for $18000. The credit terms are 2/10 n/30. Peter has talked with the company's banker and knows that he could earn 5% on any money invested in the company's savings account. Instructions (a) Should Peter pay the invoice within the discount period or should he keep the $18000 in the money market account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best. (b) If Peter forgoes the discount it may be viewed as paying an interest rate of 2% for the use of $18000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

Under a periodic inventory system the acquisition of inventory is charged to the Purchases account.

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

For a merchandising company all accounts that affect the determination of income are closed to the Income Summary account.