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Exam 5: Accounting for Merchandising Businesses

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Question 101

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Merchandise with a list price of $4,200 and costing $2,300 is sold on account,subject to the following terms: FOB destination,2/10,n/30.The seller prepays the freight costs of $85 debit Delivery Expense for the freight costs.Prior to payment for the goods,the seller issues a credit memo for $750 to the customer for merchandise costing $425 that is returned.Payment is received within the discount period.The company uses a perpetual inventory system. Record the foregoing transactions of the seller in the sequence indicated below. a Sold the merchandise,recognizing the sale and cost of merchandise sold. b Paid the freight charges. c Issued the credit memo. d Received payment from the customer.

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Question 102

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Details of a purchase invoice and related credit memo are summarized as follows: $\begin{array}{llcc} \text { Invoice: } & \text { Cost of merchandise listed on purchase invoice } &\$ 6,500 \\& \text { Prepaid freight charge added to invoice } & 150 \\& \text { Terms, FOB shipping point, 1 / 10, n/ eom } & \\\\ \text { Credit memo: } & \text {Cost of merchandise returned } &\$ 1,500 \\\end{array}$ Assume that the credit memo was received prior to payment and that the invoice is paid within the discount period.Determine the following: a Amount of the cash discount allowed. b Amount to be paid by the purchaser if the discount is taken. c Cost of the merchandise to the purchaser if the discount is not taken.

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Question 103

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Describe the major differences in preparing the financial statements for a service business and a merchandising business.

Under a periodic inventory system,the accounts Purchases,Purchases Returns and Allowances,Purchases Discounts,and Freight-In are found on the balance sheet.

Under the periodic inventory system,the cost of merchandise sold is recorded when sales are made.

Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.

Cumberland Co.sells $2,000 of inventory to Hancock Co.for cash.Cumberland paid $1,250 for the merchandise.Under a perpetual inventory system,which of the following journal entryies would be recorded?

A sale of $750 on account,subject to a sales tax of 6%,would be recorded as an account receivable of $750.

On March 3,Bluebird Sales makes $4,350 in cash sales of general merchandise that has a cost of $1,512.Bluebird uses a perpetual inventory system. a Journalize the sale. b Journal the cost of merchandise sold.

A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.

Selected accounts and amounts appear below.Journalize the closing entry,assuming a perpetual inventory system.

Record the following transactions for Sparky's Pet Shop using the general journal form provided below.Assume Sparky's uses a perpetual inventory system.Omit transaction descriptions from entries: $\begin{array}{|r|l|}\hline \text { Date }&\text { Transaction } \\\hline \text {August 1 }&\text { Purchased \$ 6,000 of merchandise on account, terms 2/10, n/ 30 . }\\\hline 3&\text { Returned \$ 1,500 of merchandise purchased on August 1 due to defects. }\\\hline 7&\text { Recorded cash sales for the first week of August, \$ 9,750 ; cost of the }\\&\text { merchandise was \$ 4,000 . }\\\hline 10&\text { Made sale on account to a local breeder for \$ 500 , terms 1 / 10 net 30 ; cost of the }\\&\text { merchandise was \$ 200 }\\\hline 11&\text { Paid for the merchandise purchased on August 1, less return }\\\hline 20 &\text { Received payment from sale of August 10. }\\\hline \end{array}$

On March 4,Micro Sales makes $4,850 in sales on bank credit cards which charge a 2.5% service charge and deposits the funds into Micro Sales' bank accounts at the end of the business day.Journalize the sales and recognition of expense.

A sales invoice included the following information: merchandise price,$12,000; terms 1/10,n/eom; FOB shipping point with prepaid freight of $900 added to the invoice.Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period,what is the amount of cash that should be received by the seller?

When purchases of merchandise are made on account with a perpetual inventory system,the transaction is recorded with which entry?

Merchandise is sold for $3,600,terms FOB destination,2/10,n/30,with prepaid freight costs of $150.The sales amount recorded is $3,528.

Net income plus operating expenses is equal to

Which account will be included in the closing entries for both service and merchandising companies?

Jacob Co.sells merchandise on credit to Isaiah Co.in the amount of $9,700.The invoice is dated on May 1 with terms of 1/15,net 45.What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?

When merchandise that was sold is returned,a credit to sales returns and allowances is made.