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Exam 5: Accounting for Merchandising Businesses

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Question 21

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Cumberland Co. sells $1,200 of inventory to Hancock Co. for cash. Cumberland paid $850 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?

A) Cash $1,200 Dr., Merchandise Inventory $850 Cr.
B) Cash $1,200 Dr, Sales $1,200 Cr., Cost of Merchandise Sold $850 Dr., Merchandise Inventory $850 Cr.
C) Cash $1,200 Dr., Sales $1,200 Cr.
D) Accounts Receivable $1,200 Dr., Sales $1,200 Cr., Cost of Merchandise Sold $850 Dr., Merchandise Inventory $850 Cr.

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

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Question 22

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Which of the following accounts would be included in the chart of accounts of a merchandising company using the: (a) periodic inventory system, (b) perpetual inventory system, or (c) both systems? (1) Sales Discounts (2) Merchandise Inventory (3) Sales (4) Purchases Discounts (5) Cost of Merchandise Sold

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(1) c (2) ...

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Question 23

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Bargain Wholesalers sells pet supplies to retailers, including Pet World Supplies. Bargain Wholesalers uses perpetual inventory. Journalize the following transactions for Bargain Wholesalers:

Who pays the freight costs when the terms are FOB shipping point?

One of the most important differences between a service business and a retail business is in what is sold.

Using the following information, what is the amount of merchandise available for sale?

Which of the following accounts will only be found in the chart of accounts of a merchandising company?

Using the following data taken from Martinez Inc., determine the gross profit to be reported on the income statement for the year ended May 31, 2012.

Net sales is equal to sales minus cost of merchandise sold.

Sales Discounts is a revenue account with a credit balance.

Which of the following accounts has a normal debit balance?

A retailer purchases merchandise with a catalog list price of $15,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account?

Under the periodic inventory system, the journal entry to record the purchase of merchandise inventory will include a debit to

Discuss the following statement: "Operating cycles for all merchandising businesses are the same, with similar profit margins." Include an example(s) to illustrate your explanation.

Net income plus operating expenses is equal to

In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.

On March 25, 2010, Patton Company sold merchandise on account,$4,500.00. The applicable sales tax percentage is 7.25%. Record the transaction.

Details of a purchase invoice and related credit memo are summarized as follows: Assume that the credit memo was received prior to payment and that the invoice is paid within the discount period. Determine the following:

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

In many retail businesses, inventory is the largest current asset.