Exam 4: Accounting for Merchandising Businesses

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory but not for returns of inventory.

Omega Company sold merchandise that it had purchased with a list price of $6,600 and subject to terms of 2/10, n/30. Assuming that Omega paid for the merchandise during the discount period, the cost of goods sold for this transaction would be $6,468.

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

Apex Company uses the periodic inventory cost flow method. If Apex's ending inventory is overstated due to an accounting error, what is the effect on net income and retained earnings?

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 Merchandise Inventory. _____ c) Retail companies are firms that sell goods to other businesses. _____ d) Product costs include all costs associated with the sale of products. _____ e) JC Penney is an example of a wholesale company.

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Explain the computation and the meaning of each of the following: a. Gross margin percentage b. Return on sales

The chief advantage of the periodic system is:

The following is a partial list of account balances for the Grove Park Office Supply at December 31, 2013:

The amount of gross margin from the four transactions is:

Leonard Company paid freight costs to have goods shipped to one of its customers. What effect will these freight-out costs have on the company's financial statements?

Morton Company uses the perpetual inventory method. The company purchased an item of inventory for $65 and sold the item to a customer for $100. What effect will the sale have on the company's inventory account?

Which of the following statements is true about period costs?

The following events pertain to Happy Acres Garden Shop for October 2013. The company uses the perpetual inventory method. Record the following transactions in general journal form. 1) Oct. 1 Issued $30,000 of common stock to investors. 2) Oct. 2 Purchased $25,000 of merchandise on account with the terms 2/10, n/30. 3) Oct. 3 Sold merchandise that cost $18,000 for $34,000 on account with the terms 1/10, n/30. 4) Oct. 4 Returned $2,500 of defective merchandise from the Oct. 2 purchase. 5) Oct. 5 Paid freight of $200 on goods sold to customers shipped FOB destination. 6) Oct.10 Paid the amount due on the merchandise purchased on Oct. 2. 7) Oct.12 Received cash from customers in settlement of the Oct. 3 sale.

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

A company that purchases merchandise treats a cash discount as a reduction to the cost of merchandise inventory.

When merchandise inventory is purchased on account, how is the accounting equation affected? (Assume a perpetual inventory system is in use.)

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

Indicate whether each of the following statements is true or false. (Assume a perpetual inventory system) _____ a) The purchase of merchandise inventory is recorded as an expense. _____ b) Merchandise inventory is expensed in the period it is sold. _____ c) Merchandise Inventory is an account appearing on the balance sheet. _____ d) Cost of goods available for sale is allotted between cost of goods sold and ending merchandise inventory. _____ e) Cost of goods sold is a part of administrative and selling expenses.

What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory method?