Exam 4: Accounting for Merchandising Businesses

A company using the perpetual inventory method paid $250 cash to have goods delivered from one of its suppliers. The payment of $250 for transportation-in is considered:

Southland Company uses the periodic inventory method. The following balances were drawn from the accounts of Southland Company prior to the closing process: The amount of gross margin appearing on the income statement should be:

Sanford's gross margin for the year 2014 is:

Which of the following account titles is normally used in a periodic inventory system?

Below are the income statements of two competitive companies, Green Company and Black Company, for 2013. Required: Based on the above statements, determine: 1) The gross margin percentage for each company 2) The net income percentage for each company 3) Which company is selling their products for lower prices (at a lower markup)?

On October 1, Snow Company made a $50,000 sale giving the customer terms of 3/10/net 30. The receivable was collected from the customer on Oct. 8. Considering the collection of cash from the receivable, what effect will the transaction have on the company's statements?

With a periodic inventory system, the cost of goods sold is recorded at the time of a sale of merchandise.

A common size income statement is prepared by dividing all amounts on the statement by net income.

Indicate whether each of the following statements is true or false. (Assume a perpetual inventory system) _____ a) Transportation-in cost is a part of selling and administrative costs. _____ b) When transportation-out cost is incurred, the balance in the inventory account increases. _____ c) When transportation-in cost is incurred, the balance in the inventory account increases. _____ d) When the transportation-out cost is incurred, the balance in the cost of goods account increases. _____ e. Transportation-out cost is a part of selling and administrative costs.

Which of the following would not be considered as primarily a merchandising business?

Indicate whether each of the following statements is true or false. _____ a) The perpetual inventory method recognizes inventory events as they occur. _____ b) The periodic inventory method recognizes sales revenue at the end of the accounting period. _____ c) A physical count of inventory at the end of each accounting period is necessary for the periodic inventory system, as well as for the perpetual inventory system. _____ d) A periodic inventory system requires more detailed record keeping than a perpetual inventory system. _____ e) With a periodic inventory system, cost of goods sold is not determined until the end of the accounting period.

If goods are shipped FOB destination, who is responsible for the shipping costs?

The ending Merchandise Inventory plus Cost of Goods Sold equals the Cost of Goods Available for Sale during the period.

The following events pertain to Pro Flight Golf Distributors for January 2013. The company uses the perpetual inventory method. Record the following events in the general journal. 1) Jan 3. Purchased $24,000 of merchandise from a supplier, Straight Shot Golf Clubs. The terms of the purchase: 2/10, n/30 and FOB shipping point. 2) Jan 5. Paid $550 cash for freight to trucking company to have goods shipped from Straight Shot. 3) Jan 7. (a) Sold merchandise for $3,000 to a customer on account. (b) The merchandise had cost Pro Flight $1,800. 4) Jan 10. Returned $2,200 of defective golf clubs to Straight Shot. 5) Jan. 11. Paid amount due on account to Straight Shot for merchandise purchased on Jan. 3. 6) Jan. 12. a) Accepted a return of $750 of the goods sold on Jan. 7. b) The cost of these goods was $450.

The purpose of common size financial statements is to:

Give three examples of a period cost. At what time are period costs recognized as expenses?

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

The following entry is taken from the journal of a merchandising company: What is the effect of this entry on the accounting equation?

Indicate whether each of the following statements is true or false. _____ a) In a perpetual inventory system, an employee theft is discovered immediately. _____ b) An adjusting entry is required for inventory losses under a perpetual inventory system. _____ c) Inventory shrinkage is calculated as the difference between the beginning and ending balances in the merchandise inventory account. _____ d) In a perpetual inventory system, adjustments for lost, damaged or stolen merchandise are recorded as expenses. _____ e) The entry to record inventory losses due to employee theft or shoplifting has a negative effect on the statement of cash flows.

Indicate whether each of the following statements is true or false. _____ a) A multistep income statement separates product from period costs. _____ b) A single-step income statement shows the computation of gross margin. _____ c) Interest is normally shown as a separate item on the multistep income statement. _____ d) The treatment of interest on the multistep income statement is consistent with the treatment of interest on the statement of cash flows. _____ e) Gains and losses are not included in operating income on a multistep income statement.