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Exam 7: Merchandising Companies: Purchases Perpetual

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Question 41

True/False

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Under a perpetual inventory system, when a buyer pays within the discount period, the amount of the discount decreases the cost of its inventory.

A) True
B) False

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Question 42

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When goods are shipped FOB Shipping Point, this cost reduces the seller's net income but not gross profit.

A) True
B) False

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Question 43

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Under a perpetual inventory system, the entry to record a credit purchase of inventory is

Grey Enterprises had inventory on March 1 with a cost of $6,000. During March, the company purchased additional inventory at a cost of $22,000. A physical count of the inventory at March showed goods at a cost of $4,000 on hand. What was Grey Enterprises' cost of goods sold for March?

Ayala Company sells merchandise on account for $9,000 to Verde Company with credit terms of 2/10, n/30. Verde Company returns $1,500 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?

Most purchases are for cash.

FOB _______________________ indicates that the seller pays the freight.

The following information is available for Sheldon Leonard Company: Instructions Compute each of the following: (a) Gross profit (b) Net income

The operating cycle of a merchandiser is

Armando Martinez believes revenues from credit sales may be recognized before they are collected in cash. Do you agree? Explain.

Karns Company purchased merchandise on account from Bailey Office Suppliers for $174,000, with terms of 2/10, n/30 Karns paid freight costs of $5,000. During the discount period, Karns returned some merchandise and paid $156,800 as payment in full. Karns uses a perpetual inventory system. Prepare the journal entries that Karns Company made to record: (1) the purchase of merchandise. (2) the payment of freight. (3) the return of merchandise. (4) the payment on account.

Which of the following would not be considered a merchandising company?

The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

After discovering slight damage to an InstaPot purchased, Trudy's Kitchen Goods is granted a $20 allowance by JB Distributors. Prepare the entry for Trudy's.

In a periodic inventory system, cost of goods sold is determined by subtracting the cost of the ending inventory from the cost of goods available for sale.

Company P sells $3,000 of merchandise on account to Company Q with credit terms of 2/10, n/30. If Company Q remits a check taking advantage of the discount offered, what is the amount of Company Q's check?

When goods are shipped FOB Destination, the buyer debits the Freight-Out account.

Companies can choose to use which inventory system?

Gross profit represents the merchandising profit of a company.

Prepare the necessary journal entries on the books of Magic Carpet Company to record the following transactions, assuming a perpetual inventory system (you may omit explanations): (a) Magic purchased $49,000 of merchandise on account, terms 2/10, n/30. (b) Returned $4,000 of damaged merchandise for credit. (c) Paid for the merchandise purchased within 10 days.