Exam 4: Accounting for Merchandising Businesses

Frank Co. paid a supplier, Jansen Company, the amount owed on account related to a purchase of inventory on account with terms of net 30.

The 2013 income statements for the Alpha Company and the Omega Company appear below: Required: 1. Prepare common size income statements for the Alpha Company and the Omega Company. 2. What is the gross margin percentage for each company? 3. What is the net income percentage for each company? 4. Briefly comment on the pricing policies of each company as well as the ability to control expenses. Disregarding the difference in size, which company appears to be doing a better job?

The following events pertain to the Bonnie's Beach Shop for February 2013, its first month of operation. The company uses the periodic inventory system. 1) Feb. 2 Issued $29,000 of common stock for cash. 2) Feb. 3 Purchased $7,500 of merchandise on account with terms 2/10, n/30, FOB shipping point. 3) Feb. 3 Paid $300 cash for shipping charges on the previous purchase. 4) Feb. 4 Returned $1,500 of the merchandise purchased on Feb. 3. 5) Feb. 5 Sold merchandise that cost $2,000 for $3,500 cash. 6) Feb. 10 Recorded the discount and paid the amount due from the purchase of merchandise on Feb. 3. 7) Feb. 14 Purchased additional merchandise for $4,600 on account with terms 2/10, n/30, FOB destination. Required: Record the above transactions in general journal form.

Explain the difference in "transportation in" and "transportation out". Also indicate whether each is a product cost or period cost, and in which account costs are recorded.

A customer returned goods to Frank Co. that had been purchased for $50 on account. The goods had originally cost Frank $35. Frank credited the customer's account for the return.

A discount given to encourage prompt payment is called:

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

Three of the companies are high-end department stores such as Neiman Marcus. One company is a discount retailer similar to Wal-Mart. Which company sells merchandise at comparatively lower prices?

The following events apply to Dana's Dance Wholesalers. 1) Sold merchandise to a customer. The goods were shipped FOB destination, $65. 2) Purchased merchandise with freight cost of $125, shipped with the terms FOB shipping point. 3) Sold merchandise to a customer with freight cost of $90, shipped FOB shipping point. Required: a) Based on the above events, what is the total amount of freight that will be paid by Dana's Dance Wholesalers? b) How much of the freight cost will be recorded as an expense when incurred?

Victoria Garden Supply sold a piece of land for $38,000 that had originally cost $32,500. This event would

Frank Company recorded a cash discount on goods recently purchased on account.

At the beginning of the year, Manhattan Sales had $2,500 of merchandise inventory. During the year, the company purchased $24,000 of inventory. At the end of the year, a count of the inventory revealed that the business had $3,880 of inventory on hand. Manhattan uses the periodic inventory system. a) What is cost of goods sold for the year? b) What is the amount of goods available for sale? c) What amount of inventory will be shown on the year-end balance sheet?

Merchandising businesses include retail companies and wholesale companies.

Frank Co. paid $200 cash to a freight company for delivering inventory that Frank had purchased from Jansen Company with freight terms FOB shipping point.

Analyze the following T-account in the ledger of Goldstein Company. If $5,000 in the Inventory account represents merchandise purchased from a supplier, we can assume the company uses the

Net income percentage is equal to:

Which of the following retailers would be expected to have the highest gross margin percentage?

The Cost of Goods Sold account is classified as:

Selling costs are recognized as expenses in the period when goods are sold.

What is a common size income statement? Explain how a common size income statement is useful to financial statement users.