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Exam 4: Accounting for Merchandising Businesses

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Question 1

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With a periodic inventory system,inventory purchases are recorded in the Purchases account at the time of purchase.

A) True
B) False

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True

Question 2

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With a perpetual inventory system,the cost of merchandise inventory is recognized at the time of purchase.

A) True
B) False

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Question 3

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Gross margin is equal to the amount of change (increase or decrease)in Merchandise Inventory during a period.

Use the following for questions Assume the perpetual inventory method is used. 1) The company purchased $12,500 of merchandise on account under terms 2/10,n/30. 2) The company returned $1,200 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $18,800 cash. -The net cash flow from operating activities as a result of the four transactions is:

The following events pertain to the Bloom Garden Supply Company for April 2016.The company uses the periodic inventory system. 1)April 4 Purchased $10,000 of merchandise on account,terms 1/10,n/30,FOB shipping point. 2)April 5 Paid shipping cost of $1,100 on the Jan.4 purchase. 3)April 6 Returned $1,200 of the merchandise purchased on Jan.4. 4)April 7 Sold merchandise for $5,800 on account,terms 2/10,n/30,FOB Destination. 5)April 7 Paid the shipping cost of $350 on the previous sale. 6)April 10 Recorded the discount and paid the amount due from the purchase of merchandise on April 4. 7)April 28 Sold merchandise for $7,200 cash. Required: a)Record the above transactions in general journal form. b)Bloom's beginning inventory balance for April was $35,000.A physical count of inventory on April 30 revealed $33,600 of merchandise on hand.Calculate Bloom's cost of goods available for sale and cost of goods sold for April.

The purpose of common size financial statements is to:

Which of the following would not be considered as primarily a merchandising business?

Why are cash discounts given,who benefits by these discounts,and what are the benefits of those discounts?

Below are the income statements of two competitive companies,Green Company and Black Company,for 2016. Required: Based on the above statements,determine: 1)The gross margin percentage for each company 2)The net income percentage for each company 3)Which company is selling their products for lower prices (at a lower markup)?

Ashton Company uses the perpetual method.The company's inventory account had a $6,600 balance as of December 31,2016.A physical count of inventory shows only $5,900 of merchandise in stock at December 31,2016.The entry to recognize the missing inventory will

Which of the following items is not a product cost?

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Assume that Frank Company uses a perpetual inventory system. -After a physical count of its inventory,Whetzel Co.discovered that $400 of inventory is missing.Show how the required write-down of inventory would affect Whetzel Co.'s statements.

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.You do not need to enter amounts.Assume that Frank Company uses a perpetual inventory system. -A customer returned goods to Whetzel Co.that had been purchased for $60 on account.The goods had originally cost Whetzel $35.Frank credited the customer's account for the return.

Merchandising businesses include retail companies and manufacturing companies.

The entry to record the amount of inventory shrinkage affects both the balance sheet and the income statement.

Net income percentage is equal to:

Under a periodic inventory system,the buyer does not use which of the following accounts in recording purchases and related transactions?

The Wilson Company purchased $44,000 of merchandise from the Poole Wholesale Company.Wilson also paid $3,000 for freight costs to have the goods shipped to its location.Which of the following statements regarding the necessary entries for the transactions is true? Wilson uses the perpetual inventory system.

What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory method?

Selling costs are recognized as expenses in the period when goods are sold.