Exam 5: Accounting for Retail Businesses

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

As we compare a merchandising business to a service business, the financial statement that changes the most is the balance sheet.

Match each of the following items (a-h) with the appropriate definition below. -Discount taken by the buyer for early payment of invoice. A)Freight B)Delivery Expense C)Inventory D)Sales discount E)Purchases Returns and Allowances F)Debit memo G)Purchases discount H)Trade discount

Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. The entry to record the purchase will include a debit to Cash and a credit to Sales.

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 title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

Using the perpetual inventory system, journalize the entries for the following selected transactions: (a)Sold merchandise on account for $12,000, terms n/30. The cost of the goods sold was $6,500.(b)Sold merchandise to customers who used MasterCard and VISA, $9,500. The cost of the goods sold was $5,300.(c)Sold merchandise to customers who used American Express, $2,900. The cost of the goods sold was $1,700.(d)Paid an invoice from First National Bank for $385, representing a service fee for processing MasterCard and VISA sales.(e)Paid an invoice from American Express for $75 fee.

Inventory shrinkage is recorded when

Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the buyer.

When goods are shipped FOB destination and the seller pays the freight charges, the buyer

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.

Calculate the gross profit for Jonas Company based on the following data:

Assume that the total inventory on hand at the end of the year as determined by taking a physical inventory is $63,000. Excluded from the count were purchases of $6,000 in transit under FOB shipping point terms. What is the cost of inventory reported on the balance sheet?

Match each of the following terms (a-h) with the correct definition below. -Losses of inventory due to theft, damage, spoilage, etc. that cause the actual inventory on hand to be less than that on record. 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

Under the periodic inventory system, the cost of goods sold is equal to the beginning inventory plus the cost of merchandise purchased plus the ending inventory.

Freight-in is considered a cost of purchasing inventory.

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 buyer receives the merchandise. 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

The adjusting entry to account for normal inventory shrinkage involves

Marshall Supplies is a janitorial supply store that uses a perpetual inventory system. Journalize the following transactions: On July 4, Marshall purchases inventory for sale from Tidy Wholesalers for $8,500.00 with terms 1/10, n/30.On July 5, Marshall pays Express Transfer $45.00 for freight in on the July 4 order.On July 7, Marshall buys an additional $11,985.00 in inventory from Tidy Wholesalers with terms 1/10, n/30.On July 13, Marshall pays Tidy Wholesalers the balance due on both invoices Journal

The records of Penny Co. indicated that $415,000 of merchandise should be on hand on December 31. The physical inventory indicates that $370,000 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for the year ended December 31.