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Exam 6: Accounting for Merchandising Businesses

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Question 1

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Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold is $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

A) 10,500
B) 30,772
C) 7,972
D) 31,400

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

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Question 2

Multiple Choice

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

A) Merchandise Inventory
B) Purchases
C) Accounts Payable
D) Cost of Merchandise Purchased

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

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Question 3

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

Because many companies use computerized accounting systems, periodic inventory is widely used.

Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes a

Journalize the following transactions assuming the perpetual inventory system: Journal

A retailer purchases merchandise with a catalog list price of $25,000. 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?

Discounts taken by the buyer for early payment of an invoice are credited to Sales Discounts by the buyer.

On March 29th, customers who owe $10,500.00 for purchases made on Sonic Sales Company submit payments of $4,250.00. Journalize this event.

Merchandise is sold for $3,600, terms FOB destination, 2/10, n/30, with prepaid freight costs of $150. If $500 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $65.

The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are readily available.

Complete the following data taken from the condensed income statements for merchandising Companies A, B, & C.

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

Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?

Travis Company purchased merchandise on account from a supplier for $5,700, terms 2/10, net 30. Travis returned $1,100 of the merchandise and received full credit. Travis Company paid for the merchandise within the discount period. Under a perpetual inventory system, record all of the journal entries required for the above transactions.

Based on the information below, journalize the entries for the Seller and the Buyer. Both use a perpetual inventory system.

The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.

Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.

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

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are