Exam 3: Accounting for Merchandising Businesses

Ballard Company uses the perpetual inventory system. The company purchased $16,000 of merchandise from Andes Company under the terms 2/10, net/30. Ballard paid for the merchandise within 10 days and also paid $500 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $30,000 cash. The amount of gross margin for this merchandise is:

Costs of selling inventory are product costs.

Which of the following would be considered as primarily a merchandising business?

With a perpetual inventory system, the cost of merchandise inventory is recognized at the time of purchase.

Foote Company recorded a purchase discount of $200 on merchandise the company had purchased on account a few days ago. Foote uses the perpetual inventory system. Which of the following answers reflects the effects of this event on the financial statements?

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account. Due to an error, this sale was never recorded in the accounting records. What effects will the failure to make the necessary entries have on the company's accounting equation?

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory, as well as returns of inventory to suppliers.

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Galaxy Company sold merchandise costing $1,700 for $2,600 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

Net income percentage is equal to:

Faust Company uses the perpetual inventory method. Faust sold goods that cost $2,300 for $3,600. If the sale was made on account, the net effect of the sale will:

Which of the following is considered a period cost?

Indicate whether each of the following statements is true or false. _____ a) A cash discount is extended to reward the buyer for purchasing large quantities of goods. _____ b) A purchase discount refers to a cash discount as seen from the seller's viewpoint. _____ c) A sales discount refers to a cash discount as seen from the buyer's view. _____ d) In a perpetual inventory system, a sales discount is recorded as a reduction of sales revenue. _____ e) In a perpetual inventory system, a purchase discount is recorded as a reduction of merchandise inventory.

In a perpetual inventory system, a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

How does the purchase of inventory on account under the perpetual inventory method affect the financial statements?

A common size income statement is prepared by dividing all amounts on the statement by net income.

Which of the following account titles is normally used in a periodic inventory system?

The Wilson Company purchased $44,000 of merchandise from the Poole Wholesale Company. Wilson also paid $3,000 for freight costs to have the goods shipped to its location. Which of the following statements regarding the necessary entries for the transactions is true? Wilson uses the perpetual inventory system.

With a periodic inventory system, inventory purchases are recorded in the purchases account at the time of purchase.

Leonard Company paid freight costs to have goods shipped to one of its customers. What effect will these freight-out costs have on the company's financial statements?