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Exam 4: Accounting for Merchandising Businesses

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Question 41

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Indicate whether each of the following statements is true or false. _____ a)A cash discount is extended to reward the buyer for purchasing large quantities of goods. _____ b)A purchase discount refers to a cash discount as seen from the seller's viewpoint. _____ c)A sales discount refers to a cash discount as seen from the buyer's view. _____ d)In a perpetual inventory system,a sales discount is recorded as a reduction of sales revenue. _____ e)In a perpetual inventory system,a purchase discount is recorded as a reduction of merchandise inventory.

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a)False b)...

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Question 42

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On April 1,Snell Company made a $50,000 sale giving the customer terms of 3/10/n30.The receivable was collected from the customer on April 8.Considering the collection of cash from the receivable,what effect will the transaction have on the company's statements?

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Question 43

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Patty's Pet Shop had the following transactions for 2016,the first year of operations: 1)Borrowed $50,000 from the bank. 2)Purchased merchandise on account,$44,000,terms 1/10,n/30. 3)Sold merchandise on account for $51,000.The inventory sold had a cost of $28,000. 4)Paid for the merchandise purchased within the discount period. 5)Collected $41,500 on the merchandise sold on account. 6)Paid operating expense of $17,000. 7)Recognized accrued interest expense of $2,000. Required: a)What are total assets at the end of 2016? b)What is the balance of the cash account at the end of 2016? c)What is gross margin for 2016? d)What is operating income for 2016? e)What is net income for 2016? f)What are total liabilities at the end of 2016? g)What is total retained earnings at the end of 2016?

At the beginning of the year,Superior Sales had $7,500 of merchandise inventory.During the year,the company purchased $72,000 of inventory.At the end of the year,a count of the inventory revealed that the business had $11,640 of inventory on hand.Superior 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?

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?

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?

When using a perpetual inventory system,which of the following events is an asset use transaction?

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 that Frank Company uses a perpetual inventory system. -Whetzel Company recorded a cash discount on goods recently purchased on account.

What event and inventory method may have produced the following journal entry?

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 that Frank Company uses a perpetual inventory system. -Whetzel Co.paid $40 of freight cost to have merchandise shipped to one of its customers under terms FOB destination.

Indicate whether each of the following statements is true or false. _____ a)A common size income statement facilitates comparison between two or more companies of different size and in the same industry. _____ b)A common size income statement is prepared by dividing the various amounts reported on the income statement by the amount of total assets. _____ c)A common size income statement is helpful in comparing the results of operations in different time periods. _____ d)The gross margin percentage is computed by dividing gross margin by net income. _____ e)Return on sales is computed by dividing net income by net sales.

Use the following to answer questions Assume the perpetual inventory method is used. 1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10,n/30 and FOB shipping point. 2) The company paid freight cost of $2,400 to have the merchandise delivered. 3) Payment was made to the supplier within 10 days. 4) All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB shipping point with freight cost amounting to $1,600. -As a result of the above transactions of Green Company,the net cash flow from operating activities was

Indicate whether each of the following statements is true or false.(Assume a periodic inventory system) _____ a)If the balance in ending inventory is overstated,net income will be understated. _____ b)If the balance in ending inventory is understated,retained earnings will be understated. _____ c)If the balance in ending inventory is overstated,selling and administrative expenses will not be affected. _____ d)If the balance in ending inventory is overstated,cost of goods sold will be overstated. _____ e)If the balance in ending inventory is overstated,assets will be overstated.

Which of the following statements is true about period costs?

On June 1,2016,merchandise subject to terms 2/10,n/30 was sold on account to a customer for $26,500.On June 3,the seller issued a credit memorandum for $5,800,accepting merchandise returned by the customer.This was prior to payment by the customer. a)What is the amount of cash collected by the seller if the payment is made by the customer on June 8,2016? b)What is the amount of cash collected by the seller if payment is made by the customer on June 21,2016?

Use the following for questions -Based on common-sized income statements,which of the companies spent,relative to sales,the least on operating expenses?

Gross margin percentage: Company A: $32,000/$80,000 = 40% Company B: $45,000/$180,000 = 25% Company C: $48,000/$120,000 = 40% Company D: $40,000/$100,000= 40% The discount retailer would have a lower gross margin percentage. -The following information for the year 2016 is taken from the accounts of Tuttle Company.The company uses the periodic inventory method. Based on this information,the inventory at December 31,2016 is

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

Operating expenses as a percentage of sales: Company A: $9,600/$80,000 = 12.0% Company B: $12,600/$180,000 = 7.0% Company C: $10,800/$120,000 = 9.0% Company D: $10,000/$100,000 = 10.0% -Three of the companies are high-end department stores such as Saks Fifth Avenue.One company is a discount retailer similar to WalMart.Which company is most likely to be the discount store?

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