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Exam 6: Accounting for Merchandising Businesses

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Question 101

True/False

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The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.

A) True
B) False

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Question 102

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

A) supplies expense
B) cost of merchandise sold
C) merchandise inventory
D) sales

E) A) and B)
F) A) and C)

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Question 103

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In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.

Merchandise Inventory normally has a debit balance.

Which one of the following is not a difference between a retail business and a service business?

What type of company would normally offer trade discounts to its customers?

Maxi Company's perpetual inventory records indicate that $820,300 of merchandise should be on hand on October 31, 2014. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Maxi Company for the year ended October 31, 2014.

Isaac Co. sells merchandise on credit to Sonar Co in the amount of $9,600. The invoice is dated on April 15 with terms of 1/15, net 45. If Sonar Co. chooses not to take the discount, by when should the payment be made?

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?

On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.

The cost of merchandise inventory is limited to the purchase price less any purchase discounts.

Generally, the revenue account for a merchandising business is entitled

If the merchandise costs $3,500, insurance in transit costs $250, tariff costs $75, processing the purchase order by the purchasing department costs $50, and the company receiving dock personnel cost $25, what is the total cost charged to the merchandise?

On March 15th Monroe Sales sells $9,525.00 on account to Garrison Brewer with terms of 2/10, n/30. The cost of merchandise sold was $6,905.00. (a) Journalize the sale and the recognition of the cost of the sale. (b) On March 20th a $125.00 credit memo is given to Garrison Brewer due to merchandise that was the wrong color. Journalize this event. The cost of the returned merchandise was $65. (c) On March 25th Garrison Brewer submits payment in full. Journalize this event.

In a perpetual inventory system, when merchandise is returned to the seller, Cost of Merchandise Sold is debited as part of the transaction.

Journalize the following merchandise transactions:

Most companies will take a purchases discount, because 1% or 2% discounts are insignificant.

Under a periodic inventory system, closing entries will include

Multiple-step income statements show

Emma Co. sold Isabella Co. merchandise on account FOB shipping point,, 2/10, net 30, for $15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the discount period?