Exam 3: Accounting for Merchandising Businesses

The following information for the year 2014 is taken from the accounts of Thornwood Company. The company uses the periodic inventory method. Inventory, January 1, 2014 \ 2,000 Purchases 10,000 Purchase Returns and Allowances 200 Purchase Discounts 100 Freight on goods purchased under Terms FOB shipping point 400 Cost of Goods Sold 7,100 Based on this information, the inventory at December 31, 2014 is

Product costs are also referred to as

Discuss the major differences between a perpetual inventory system and a periodic inventory system.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Assume use of a perpetual inventory system. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Ransom Co. purchased $10,000 of merchandise inventory on account from a supplier. Show how the transaction would affect Ransom's financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Assume use of a perpetual inventory system. $\text { Increase }=\mathrm{I} \quad \text { Decrease }=\mathrm{D} \quad \text { No Effect }=\mathrm{N}$ After having shipped merchandise to a customer, Lowe Co. received a complaint about some minor defects. Lowe agreed to allow a price reduction of $500. The merchandise had been sold to the customer on account, and the account had not been collected yet. Show how the transaction would affect Lowe's financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash

During the month of March, Wang Company purchased merchandise inventory for cash in the amount of $6,200. Which of the following represents the effects of this transaction on Wang's financial statements?

Gruver Company maintains perpetual inventory records. The company's inventory account had a $5,500 balance as of December 31, 2014. On that date, a physical count of inventory showed only $5,300 of merchandise in stock. The write-down to recognize the missing inventory will

Longoria Company purchased merchandise inventory on account with a list price of $5,000 and credit terms of 1/10, n/30. What was the net or cash cost for the merchandise?

During the month of March, Wang Company collected $8,000 of accounts receivable. Which of the following represents the effects of the collection of the receivables on Wang's financial statements?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Assume use of a perpetual inventory system. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Youkilis Co. paid $800 cash for freight charges to obtain merchandise inventory from a supplier. Show how the transaction would affect Youkilis's financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash

The term "FOB shipping point" means

Common size financial statements are prepared by converting dollar amounts to percentages.

Barney Company uses the perpetual inventory system. The company purchased $4,000 of merchandise from Bittiker Company under the terms n/30. Barney also paid $150 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $9,000 cash. The amount of gross margin for this merchandise is:

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Assume use of a perpetual inventory system. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ On May 1, Houston Co. sold goods to a customer on account. On May 9, before payment had been received from the customer, the customer returned some of the goods. The returned goods cost Houston $1,000, and the customer had been charged $1,500. Show the effects of the return of goods on Houston's financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash

Royal Company uses the periodic inventory method. The following balances were drawn from the accounts of Royal Company prior to the closing process: Sales Revenue \ 3,000 Beginning Inventory Balance \ 800 Purchases \ 2,000 Transportation-in \ 100 Purchases Discounts \ 50 Ending Inventorv Balance \ 900 The amount of gross margin appearing on the income statement should be:

If goods are shipped FOB destination, who is responsible for the shipping costs - the buyer or the seller?

The following events apply to Bob's Hobby Shop. 1. Sold merchandise to a customer. The goods were shipped FOB destination, and the amount of freight was $75. 2. Purchased merchandise with freight cost of $125, shipped with the terms FOB destination. 3. Sold merchandise to a customer with freight cost of $90, shipped FOB shipping point. Required: Based on the above events, what is the total amount of freight that will be paid by Bob's Hobby Shop?

The Operating Income line appears on a multistep income statement but not on a single-step income statement.

Schumacher Company uses the perpetual inventory system, and it engaged in the following transactions during 2014: 1) Started the business by issuing common stock for $7,500 cash 2) Paid cash to purchase $5,000 of inventory 3) Sold inventory that cost $3,000 for $7,250 cash 4) Incurred and paid operating expenses, $250 Schumacher Company engaged in the following transactions during 2015: 1) Paid cash to purchase $5,800 of inventory 2) Sold inventory that cost $7,000 for $15,150 cash 3) Incurred and paid operating expenses, $500 The gross margin for the year 2014 is:

When Tiffany & Co. sells inventory for more than its cost, the difference between the sales revenue and the cost of goods sold is called the gross margin.