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Exam 5: Accounting for Merchandising Businesses

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Question 71

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Service businesses provide services for income, while a merchandising business sells merchandise.

A) True
B) False

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Question 72

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The following data were extracted from the accounting records of Meridian Designs for the year ended March 31, 2014. Prepare the cost of merchandise sold section of the income statement for the year ended March 31, 2014, using the periodic method. Also determine gross profit.

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Question 73

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During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the merchandise sold is $76,240. What is the amount of the gross profit?

The chart of accounts for a merchandise business would include an account called Delivery Expense.

Sales Discounts is a revenue account with a credit balance.

Journalize the following merchandise transactions:

Under the periodic inventory system, the cost of merchandise sold is equal to the beginning merchandise inventory plus the cost of merchandise purchased plus the ending merchandise inventory.

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a

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

If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination.

Sales Returns and Allowances is a contra-revenue account.

What is the major difference between a periodic and perpetual inventory system?

Who pays the freight cost when the terms are FOB destination?

Construct a chart of accounts, assigning account numbers and arranging the accounts in balance sheet and income statement order ("1" for assets, and so on). Each account number is three digits. Contra accounts should designated with a decimal of the account (100.1 for contra of account 100). Assets and liabilities should be in order of liquidity, expenses should be in alphabetical order.

Freight-in is considered a cost of purchasing inventory.

Determine the amount to be paid in full settlement of each invoice, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

Selected data from the ledger of Morrison Co. after adjustment at September 30, 2011 the end of the fiscal year, are listed as follows: Prepare an income statement, using the single-step form, and a statement of owner's equity.

Merchandise is sold for cash. The selling price of the merchandise is $5,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include

The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include

The Corbit Corp. sold merchandise $10,000 for cash. The cost of the merchandise sold was $7,590. The journal entry(s) to record this transaction would be