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Exam 5: Accounting for Merchandising Businesses

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Question 51

Multiple Choice

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Who is responsible for the freight costs when the terms are FOB shipping point?

A) the ultimate customer
B) the buyer
C) the seller
D) either the seller or the buyer

E) None of the above
F) A) and B)

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Question 52

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When comparing a retail business to a service business, the financial statement that changes the least is the

A) balance sheet
B) income statement
C) retained earnings statement
D) statement of cash flows

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

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Question 53

Multiple Choice

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Inventory shrinkage is recorded when

Using the following information, what is the amount of income from operations?

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

Which account will be included in the closing entries for both service and merchandising companies?

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

Emma Co. sold to 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?

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

Madison Company's perpetual inventory records indicate that $875,300 of merchandise should be on hand on October 31. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Madison Company for the year ended October 31.

Multiple-step income statements show

A sale of $750 on account, subject to a sales tax of 6%, would be recorded as an account receivable of $750.

Generally, the revenue account for a merchandising business is entitled

Calculate income from operations for Jonas Company based on the following data: $\begin{array} { | l | r | } \hline \text { Sales } & \$ 764,000 \\\hline \text { Operating Expenses } & 52,500 \\\hline \text { Cost of Merchandise Sold } & 538,000 \\\hline\end{array}$

The abbreviation FOB stands for "free on board."

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

Under the perpetual inventory system, all purchases of merchandise are debited to the account

Merchandise Inventory normally has a debit balance.

Merchandise is sold for $3,600, terms FOB destination, 2/10, n/30, with prepaid freight costs of $150. The sales amount recorded is $3,528.

Journalize the following transactions assuming the perpetual inventory system: July 3 Sold merchandise on account for $3,750 including terms. The cost of the merchandise sold was $2,000. 5 Issued credit memo for $1,050 for merchandise returned from sale on July 3. The cost of the merchandise returned was $610. 12 Received check for the amount due for sale on July 3 less return on July 5. 17 Sold merchandise for $7,000 plus 6% sales tax to cash customers. The cost of the merchandise sold was $3,830. $\begin{array} { | l | l | l | l | } \hline \text { Date } & \text { Description } & \text { Debit } & \text { Credit } \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline\end{array}$