Exam 3: Accounting for Merchandising Businesses

A company purchased inventory on account. If the perpetual inventory method is used, which of the following choices accurately reflects how the purchase affects the company's financial statements?

Costs charged to the Merchandise Inventory account are product costs.

Vargas Company sold a piece of land for $39,000 that had originally cost $32,500. This event would:

Assume the perpetual inventory method is used. 1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point. 2) The company paid freight cost of $2,400 to have the merchandise delivered. 3) Payment was made to the supplier within 10 days. "4) All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB shipping point with freight cost amounting to $1,600 paid by Green company. As a result of the above transactions of Green Company, the net cash flow from operating activities was:"

Indicate whether each of the following statements is true or false. _____ a) A merchandising company generates revenue primarily by selling goods to customers. _____ b) The supply of goods accumulated to deliver when sales are made is called Supplies. _____ c) Retail companies are firms that sell goods to other businesses. _____ d) Product costs include all costs associated with the sale of products. _____ e) WalMart is an example of a wholesale company.

Gross margin is equal to the amount of change (increase or decrease) in Merchandise Inventory during a period.

Gomez Co. had beginning inventory of $2,400 and ending inventory of $1,200. The cost of goods sold was $9,600. Based on this information, Gomez Co. must have purchased inventory amounting to:

Llewelyn Company paid the amount due on a purchase of merchandise on account. Llewelyn uses the perpetual inventory system. Which of the following answers reflects the effect of the payment on the financial statements?

Yowell Company granted a sales discount of $360 to a customer when it collected the amount due on account. Yowell uses the perpetual inventory system. Which of the following answers reflects the effects on the financial statements of only the discount?

The term "FOB shipping point" indicates that the seller is responsible for transportation costs.

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 balance in the inventory account shown at December 31, Year 2 is:"

Which factor has removed most of the practical limitations associated with use of the perpetual inventory system?

Assume the perpetual inventory method is used. 1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30. 2) The company returned $1,200 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. "4) All of the merchandise purchased was sold for $18,800 cash. The amount of gross margin from the four transactions is:"

Ashton Company uses the perpetual method. The company's inventory account had a $6,600 balance as of December 31, Year 1. A physical count of inventory shows only $5,900 of merchandise in stock at December 31, Year 1. How does the related adjusting entry affect the financial statements?

With a perpetual inventory system, assets and equity increase by the amount of the gross margin when inventory is sold.

The beginning merchandise inventory plus cost of goods sold equals the cost of goods available for sale during the period.

Use the following account numbers and corresponding account titles to answer the following question. Which accounts would appear on the balance sheet?

Hill Company uses the periodic inventory system. It records a transaction that increases the balances in its purchases and accounts payable accounts. Which of the following is true about Hill Company?

Product costs are matched against sales revenue:

A discount given to encourage prompt payment is called: