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Exam 5: Accounting for Merchandising Businesses

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Question 101

Multiple Choice

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Multiple-step income statements show

A) gross profit but not income from operations
B) neither gross profit nor income from operations
C) both gross profit and income from operations
D) income from operations but not gross profit

E) B) and C)
F) B) and D)

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Question 102

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The term "inventory" can indicate

A) merchandise held for sale in the normal course of business
B) equipment used to manufacture products
C) supplies
D) any asset

E) B) and D)
F) A) and B)

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Question 103

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Anthony Company sold Madison Company merchandise on account FOB shipping point, 2/10, net 30, for $10,000. Anthony prepaid the $300 shipping charge. Which of the following entries does Anthony make to record this sale?

Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a physical count of the inventory.

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to

The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.

Under a periodic inventory system, closing entries will include

In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.

What is the normal balance of the following accounts?

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

Net sales is equal to sales minus cost of merchandise sold.

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a

Travis Company purchased merchandise on account from a supplier for $5,700, terms 2/10, net 30. Travis returned $1,100 of the merchandise and received full credit. Travis Company paid for the merchandise within the discount period. Under a perpetual inventory system, record all of the journal entries required for the above transactions.

Where are selling and administrative expenses found on the multiple-step income statement?

Using the perpetual inventory system, journalize the entries for the following selected transactions:

Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold is $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a

Which of the following accounts will not be found on the Cost of Merchandise Sold section on the Income Statement?

Complete the following data taken from the condensed income statements for merchandising Companies X, Y, & Z.

Gadget Palace is a retailer selling unique hardware. Gadget Palace uses perpetual inventory. Use a General Journal to journalize the following four transactions during the month of August: