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Exam 6: Accounting for Merchandising Businesses

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Question 31

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Based upon the following data for a business with a periodic inventory system, determine the cost of merchandise sold for August. $\begin{array}{lr}\text { Merchandise inventory, August } 1 & \$ 75,560 \\\text { Merchandise inventory, August } 31 & 96,330 \\\text { Purchases } & 373,880 \\\text { Purchases returns and allowances } & 14,760 \\\text { Purchases discounts } & 10,900 \\\text { Freight in } & 4,135\end{array}$

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Question 32

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Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped FOB shipping point.

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Question 33

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

Using the following information, what is the amount of income from operations??? $\begin{array} { | l | r | l | l | r | } \hline \text { Purchases } & \$ 32,000 && \text { Selling expenses } & \$ 960 \\\hline \begin{array} { l } \text { Merchandise inventory, } \\\text { September 1 }\end{array} & 5,700 & & \begin{array} { l } \text { Merchandise inventory, } \\\text { September 30 }\end{array} & 6,370 \\\hline \text { Administrative expenses } & 910 & & \text { Sales } & 63,000 \\\hline \text { Rent revenue } & 1,200 & & \text { Interest expense } & 1,040 \\\hline\end{array}$

Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is listed as Other Income on the multiple-step income statement.

$\text { Match each of the following items } ( a - h ) \text { with the appropriate definition below. }$ -Informs the seller of the reasons for the return of merchandise or the request for a price allowance. a. $\quad$ Freight b. $\quad$ Delivery Expense c. $\quad$ Merchandise Inventory d. $\quad$ Sales discount e. $\quad$ Purchases Returns and Allowances f. $\quad$ Debit memo g. $\quad$ Purchase discount h. $\quad$ Trade discount

When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the

When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry?

Journalize the following transactions for Armour Inc. using both the periodic inventory system and the perpetual inventory system, presented in the side-by-side format of the form provided below.Oct. 7 Sold merchandise on credit to Rondo Distributors, terms n/30. The cost of the merchandise was $720.8 Purchased merchandise, $10,000, terms FOB shipping point, 2/15, n/30, with prepaid freight charges of $525 added to the invoice.? $~~~~~~~~~~~~~\textbf{PERIODIC INVENTORY}~~~~\textbf{PERPETUAL INVENTORY}\\~~~~~~~~~~~~~\textbf{SYSTEM}~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\textbf{SYSTEM}$ $\begin{array} { | c | c | c | c | c | c | c | c | } \hline Date & Description~~~~ & Dr. & Cr. & \mid & Description~~~~~ & Dr. & Cr. \\\hline & & & & \mid & & & \\\hline & & & & \mid & & & \\\hline & & & & \mid & & & \\\hline & & & & \mid & & & \\\hline & & & & \mid & & & \\\hline & & & & \mid & & & \\\hline & & & & \mid & & & \\\hline\end{array}$

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.??

Selected data from the ledger of Burt Co., after adjustments, on September 30, the end of the fiscal year, are listed as follows:​ $\begin{array}{lrlr}\text { Accounts Receivable } & \$ 39,120 & \text { Office Equipment } & \$ 82,700 \\\text { Accumulated Depreciation } & 60,540 & \text { Prepaid Insurance } & 4,680 \\\text { Administrative Expenses } & 90,000 & \text { Note Payable } & 77,750\\\text { Bob B urt, Capital } & 85,000 & \text { Salaries Payable } & 3,060 \\\text { Bob B urt, Drawing } & 65,000 & \text { Sales } & 950,000 \\\text { Cost of Merchandise Sold } & 550,000 & \text { Selling Expenses } & 102,000 \\\text { Interest Revenue } & 10,000 & \text { Supplies } & 3,125\end{array}$ Prepare a single-step income statement and a statement of owner's equity.​

Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is the amount of the sales discount allowable?

The journal entry to record the receipt of inventory purchased for cash in a perpetual inventory system would be

If the buyer bears the freight costs related to a purchase, the terms are said to be FOB destination.

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

Journalize the following transactions for both Abbott Co. (seller) and Dalton Co. (buyer). Assume both the companies use the perpetual inventory system.July 3Abbott Co. sold merchandise on account to Dalton Co., $7,500, terms FOB shipping point, n/eom. The cost of the merchandise sold was $4,400.5Dalton Co. paid $275 freight charges on purchase from Abbott Co.9Abbott Co. issued Dalton Co. a credit memo for merchandise returned, $2,250.The cost of the merchandise returned was $1,325.11Abbott Co. received payment from Dalton Co. for purchase of July 3.?? $\quad\quad\quad\quad\quad\quad\quad\quad\textbf { Abbott Co. } \quad \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\textbf { Dalton Co. }\\\begin{array}{|l|l|l|l|l|l|l|}\hline \textbf { Date } & \textbf { Description } & \textbf { Debit } & \textbf { Credit } & \textbf { Description } & \textbf { Debit } & \textbf { Credit } \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline & & & & & & \\\hline\end{array}$

$\text { Match each of the following terms } ( a - h ) \text { with the correct definition below. }$ -Inventory system that updates the merchandise inventory account only at the end of the accounting period based on a physical count of merchandise on hand. a. Credit terms b. FOB destination c. FOB shipping point d. Periodic inventory system e. Perpetual inventory system f. Inventory shrinkage g. Single-step income statement h. Multiple-step income statement

In the merchandising income statement, sales will be reduced by administrative expenses to arrive at operating income.

In retail businesses, inventory is reported as a current asset.

Prepare a multiple-step income statement for Armstrong Co. from the following data for the year ended December 31.​Sales, $755,000; cost of merchandise sold, $330,000; administrative expenses, $35,000; interest expense, $30,000; rent revenue, $25,000; selling expenses, $50,000.