Exam 3: Accounting for Merchandising Businesses

Which of the following would not be considered as primarily a merchandising business?

A company using the perpetual inventory method paid cash for freight costs to purchase merchandise. Which of the following answers reflects the effects of this event on the financial statements?

The cost of goods sold account is classified as:

Kenyon Company experienced a transaction that had the following effect on the financial statements: Which transaction would have this effect?

Selling costs are recognized as expenses in the period when goods are sold.

Ramirez Company returns merchandise previously purchased on account. It had not yet been paid for. Ramirez uses the perpetual inventory system. Which of the following answers reflects the effects on the financial statements of only the purchase return?

Flagler Company purchased $4,000 of merchandise on account. Flagler sold the merchandise to a customer for $7,000 cash. What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions?

A company using a perpetual inventory system treats transportation-out as a selling and administrative expense.

Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $42,000 of common stock for cash. 2) The company paid cash to purchase $26,400 of inventory. 3) The company sold inventory that cost $16,000 for $30,600 cash. "4) Operating expenses incurred and paid during the year, $14,000. Sanchez Company engaged in the following transactions during Year 2:" 1) The company paid cash to purchase $35,200 of inventory. 2) The company sold inventory that cost $32,800 for $57,000 cash. "3) Operating expenses incurred and paid during the year, $18,000. Note: Sanchez uses the perpetual inventory system. The amount of retained earnings at December 31, Year 2 is:"

When using a perpetual inventory system, which of the following events is an asset use transaction?

Indicate whether each of the following statements is true or false. (Assume a periodic inventory system) _____ a) If the balance in ending inventory is overstated, net income will be understated. _____ b) If the balance in ending inventory is understated, retained earnings will be understated. _____ c) If the balance in ending inventory is overstated, selling and administrative expenses will not be affected. _____ d) If the balance in ending inventory is overstated, cost of goods sold will be overstated. _____ e) If the balance in ending inventory is overstated, assets will be overstated.

A company using the perpetual inventory method paid cash for a transportation-in cost. Which of the following choices reflects the effects of this event on the financial statements?

With a periodic inventory system, the cost of goods sold is recorded at the time of a sale of merchandise.

The term "FOB Shipping Point" means:

Use the following account numbers and corresponding account titles to answer the following question. Which accounts would affect operating income?

Gains and losses are recorded for increases and decreases in the market value of assets such as land.

On April 1, Snell Company made a $50,000 sale giving the customer terms of 3/10/n30. The receivable was collected from the customer on April 8. Considering the collection of cash from the receivable, what effect will the transaction have on the company's statements?

Melbourne Company sold merchandise that it had purchased with a list price of $3,300 and subject to terms of 2/10, n/30. Assuming that Melbourne paid for the merchandise during the discount period, the cost of goods sold for this transaction would be $2,970.

The term "FOB Destination" means:

Indicate whether each of the following statements is true or false. _____ a) The perpetual inventory method recognizes inventory transactions as they occur. _____ b) The periodic inventory method recognizes sales revenue at the end of the accounting period. _____ c) A physical count of inventory at the end of each accounting period is necessary for the periodic inventory system, as well as for the perpetual inventory system. _____ d) A periodic inventory system requires more detailed record keeping than a perpetual inventory system. _____ e) With a periodic inventory system, cost of goods sold is not determined until the end of the accounting period.