Exam 3: Accounting for Merchandising Businesses

On June 1, 2014, merchandise subject to terms 2/10, n/30 was sold on account to a customer for $23,500. On June 3, the customer returned merchandise with a purchase price of $5,100. a) What is the amount of cash collected by the seller if payment is made by the customer on June 8, 2014? b) What is the amount of cash collected by the seller if payment is made by the customer on June 30, 2014?

The net income percentage indicates the amount of each sales dollar that is left over after covering the cost of goods sold.

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

Which of the following would be primarily a merchandising business?

Statement of Financial Accounting Standards (SFAS) 95 requires interest expense to be reported in the operating activities section of the statement of cash flows.

What costs should be included in the Merchandise Inventory account of a merchandising firm?

If the buyer is to pay the transportation cost for receiving merchandise, how would the delivery terms be stated?

Merchandising businesses

When Tiffany & Co. discontinued Iridesse, a chain of stores dedicated to pearl-only jewelry, due to losses sustained since its founding, Tiffany & Co. recorded an expense equal to the amount of the cumulative operating losses.

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

Rice Company sold merchandise costing $1,600 for $2,500 cash. All of the merchandise was later returned by the customer. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

The Red Valley Company maintains perpetual inventory records. Although its inventory records indicated $18,000 in the inventory, a physical count showed only $16,250. Which of the following answers indicates the effect of the necessary write-down?

Items that are not expected to recur on a regular basis are subtracted from gross margin to determine the amount of net income.

When using the perpetual inventory method, when and how would a company normally discover that merchandise inventory has been lost or stolen?

Why are cash discounts given, and who benefits by these discounts?

What type of financial statement matches sales revenue items with related expense items and distinguishes between recurring operating activities and nonoperating items such as gains and losses?

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 amount of Retained Earnings at December 31, 2014 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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Ransom Co. sold merchandise to a customer for $1,000 on account. Ransom's cost of the merchandise was $800. 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. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Youkilis Company paid $2,000 of selling expenses with cash. Show how the transaction would affect Youkilis's financial statements. Assets Liabilities Equity Revenues Expenses Net Income Cash

Kotsay Co. sold goods with the terms 1/10, n/30. What do the terms mean?