Exam 3: Accounting for Merchandising Businesses

Assume Beta Company uses the perpetual inventory method and engaged in the following transactions: 1) Purchased $5,000 of merchandise on account under terms 2/10, n/30. 2) Returned $600 (list price) of merchandise to the supplier before payment was made. 3) Paid the account payable within the discount period. 4) Sold the merchandise for $6,500 cash. The net cash flow from operating activities as a result of the four transactions is:

The chief advantage of the periodic inventory system, compared to a perpetual system, is

Give an example of a period cost for a merchandising business.

What annual interest rate is implied by the credit terms, 1/10, n/30?

Explain the difference in "transportation-in" and "transportation-out". Also indicate whether each is a product cost or period cost.

Assume Beta Company uses the perpetual inventory method and engaged in the following transactions: 1) Purchased $5,000 of merchandise on account under terms 2/10, n/30. 2) Returned $600 (list price) of merchandise to the supplier before payment was made. 3) Paid the account payable within the discount period. 4) Sold the merchandise for $6,500 cash. The amount of gross margin from the four transactions is

Indicate how accounting for lost and stolen merchandise differs between firms using a perpetual inventory system and those using a periodic inventory system. Which system provides the best way to identify and account for such losses, and why?

Kehoe Co. uses a periodic inventory system. The company had beginning inventory of $400 and ending inventory of $200. Kehoe's cost of goods sold was $1,600. Based on this information, Kehoe must have purchased inventory amounting to:

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 balance in the Merchandise Inventory account at December 31, 2014 is:

A discount given to encourage prompt payment on a credit purchase of merchandise is called:

Rowdy Company's first year in operation was 2014. The following events occurred in 2014: 1. Acquired $5,000 stock from issuing common stock. 2. Purchased inventory for $3,000 cash. 3. Sold inventory that had cost $2,100 for $3,600 cash. Required: a) Record the events in the statements model, below. Show amounts of increases and decreases. Indicate whether each cash flow is an operating activity, investing activity, or financing activity. b) Determine the total for each column after you have recorded the events. c) What was the amount of total assets at the end of the period?

A loss results from a transaction that is likely to recur whereas an expense results from a transaction that is unlikely to recur.

The credit terms, 2/10, n/30 indicate that a:

On which financial statement(s) does the Cost of Goods Sold account appear?

A single step income statement separates routine operating results from peripheral or non-operating items.

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?

During the month of March, Wang Company incurred selling and administrative expenses on account in the amount of $1,800. Which of the following represents the effects of this transaction on Wang's financial statements?

The cash inflow from the sale of a business asset other than inventory is reported in the operating activities section of the statement of cash flows.

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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Houston Co. paid a supplier the amount owed on account for a purchase of merchandise. The terms on the purchase had been n/30. Show how the transaction would affect Houston's financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash

a) What is the effect on the accounting equation of the seller granting an "allowance" to a customer who was not pleased with the quality of merchandise received? b) What is the effect of the above situation on the accounting equation of the purchaser?