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Exam 4: Accounting for Merchandising Businesses

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Question 31

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a)What is the effect on the accounting equation of the seller for granting an "allowance" for merchandise that the customer is not satisfied with? b)What is the effect of the above situation on the accounting equation of the purchaser? For both questions,assume that the merchandise had been sold on account,and the invoice had not yet been paid.

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a)Effect for seller of granting an allow...

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Question 32

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Indicate whether each of the following statements is true or false.(Assume a perpetual inventory system. ) _____ a)In a perpetual inventory system,an employee theft is discovered immediately. _____ b)No adjusting entry is required for inventory losses under a perpetual inventory system. _____ c)Inventory shrinkage is calculated as the difference between the beginning and ending balances in the merchandise inventory account. _____ d)In a perpetual inventory system,adjustments for lost,damaged or stolen merchandise are recorded as expenses. _____ e)The entry to record inventory losses due to employee theft or shoplifting has a negative effect on the statement of cash flows.

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a)False b)...

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Question 33

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Use the following to answer questions Assume the perpetual inventory method is used. 1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10,n/30 and FOB shipping point. 2) The company paid freight cost of $2,400 to have the merchandise delivered. 3) Payment was made to the supplier within 10 days. 4) All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB shipping point with freight cost amounting to $1,600. -The gross margin from these transactions of Green Company is

Give three examples of a period cost.At what time are period costs recognized as expenses?

Which factor has removed most of the practical limitations associated with use of the perpetual inventory system?

Abbott Company purchased $6,500 of merchandise inventory on account.Advent uses the perpetual inventory method.Which of the following entries would be required to record this transaction?

Indicate whether each of the following statements is true or false. _____ a)The perpetual inventory method recognizes inventory transactions as they occur. _____ b)The periodic inventory method recognizes sales revenue at the end of the accounting period. _____ c)A physical count of inventory at the end of each accounting period is necessary for the periodic inventory system,as well as for the perpetual inventory system. _____ d)A periodic inventory system requires more detailed record keeping than a perpetual inventory system. _____ e)With a periodic inventory system,cost of goods sold is not determined until the end of the accounting period.

A common size income statement is prepared by dividing all amounts on the statement by net income.

When merchandise inventory is purchased on account,how is the accounting equation affected? (Assume a perpetual inventory system is in use. )

A multistep income statement separates routine operating results from peripheral or nonoperating items.

Explain the computation and the meaning of each of the following: a.Gross margin percentage b.Return on sales

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. -Whetzel Co.purchased $10,000 of merchandise inventory on account from a supplier,Jacobs Company.

A company that purchases merchandise treats a cash discount as a reduction to the cost of merchandise inventory.

Indicate whether each of the following statements is true or false. _____ a)A multistep income statement separates product from period costs. _____ b)A single-step income statement shows the computation of gross margin. _____ c)Interest is normally shown as a separate item on the multistep income statement. _____ d)The treatment of interest on the multistep income statement is consistent with the treatment of interest on the statement of cash flows. _____ e)Gains and losses are included in operating income on a multistep income statement.

The following are the income statements of the Hancock Company for two consecutive years.Increases in which expenses contributed to the net loss in 2016?

Sales discounts affect net sales,but purchase discounts do not.

The beginning Merchandise Inventory plus Cost of Goods Sold equals the Cost of Goods Available for Sale during the period.

If a company uses the perpetual inventory method,when would it normally discover that merchandise inventory has been lost or stolen?

Sales discounts do not affect a company's gross margin percentage.

Use the following for questions Sanchez Company engaged in the following transactions during 2015: 1) Started the business by issuing $42,000 of common stock for cash. 2) The company paid cash to purchase $26,400 of inventory. 3) The company sold inventory that cost $16,000 for $30,600 cash. 4) Operating expenses incurred and paid during the year,$14,000. Sanchez Company engaged in the following transactions during 2016: 1) The company paid cash to purchase $35,200 of inventory. 2) The company sold inventory that cost $32,800 for $57,000 cash. 3) Operating expenses incurred and paid during the year,$18,000. Note: Sanchez uses the perpetual inventory system. -Sanchez's gross margin for the year 2016 is: