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Exam 6: Accounting for Merchandising Businesses

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Question 31

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Match each of the following terms (a-h) with the correct definition below. -Losses of inventory due to theft,damage,spoilage,etc.,that cause the actual inventory on hand to be less than that on record.

A) Credit terms
B) FOB destination
C) FOB shipping point
D) Periodic inventory system
E) Perpetual inventory system
F) Inventory shrinkage
G) Single-step income statement
H) Multiple-step income statement

I) B) and D)
J) A) and B)

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Question 32

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Most companies will not take a purchase discount,because 1% or 2% discounts are insignificant.

A) True
B) False

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Question 33

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Merchandise inventory is classified on the balance sheet as a

Under the perpetual inventory system,when a sale is made,both the sale and cost of merchandise sold are recorded.

When merchandise purchased on account is returned under the perpetual inventory system,the buyer would debit

Purchased goods in transit,shipped FOB destination,should be excluded from ending inventory of the buyer.

When the perpetual inventory system is used,the inventory sold is debited to

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

The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements.

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

If the perpetual inventory system is used,an account entitled Cost of Merchandise Sold is included in the general ledger.

The ratio of sales to assets measures how effectively a business is using its assets to generate sales.

Pierce Company sold merchandise to Stanton Company on account FOB shipping point,2/10,net 30,for $20,000.Pierce prepaid the $500 shipping charge.Which of the following entries does Pierce make to record this sale?

Using the following data taken from Connor Inc.,determine the gross profit to be reported on the income statement for the year ended May 31.​

Multiple-step income statements show

Based upon the following data for a business with a periodic inventory system,determine the cost of merchandise sold for August.

The seller may prepay the freight costs even though the terms are FOB shipping point.

Income that cannot be associated definitely with operations,such as a gain from the sale of a fixed asset,is listed as Other Income on the multiple-step income statement.

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

On March 29,customers who owe $10,500 on account to Sonic Sales Company submit payments of $4,250.Journalize this event.