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Exam 4: Accounting for Merchandising Businesses

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Question 101

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A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory, as well as returns of inventory to suppliers.

A) True
B) False

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Question 102

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What is a common size income statement? Explain how a common size income statement is useful to financial statement users.

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Common size statements express items on ...

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Question 103

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James Company experienced the following events during its accounting period: (1) Purchased $10,000 of inventory on account.(2) Returned $2,000 of inventory purchased in Event 1.(3) Paid the remaining balance in account payable for the inventory purchased in Event 1.Immediately after the three events have been recognized, the balance in the Inventory account is

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 dollar amounts. If an event increases one account and decreases another account equally within the same element (such as an asset exchange event), record I/D. If an event has no impact on the element, record NA.Increase = I Decrease = D Not Affected = NAWetzel Company discovered that a recent shipment of merchandise it had purchased was not of the same quality it had expected. The supplier agreed to grant Wetzel an allowance of $250. Wetzel had not yet paid the amount owed on the shipment to the supplier.

Taylor Company purchased $9,000 of inventory under terms FOB shipping point. Freight cost amounted to $300. The cost of inventory and freight were paid with cash. Which of the following shows how the recognition of this purchase, including freight costs if applicable, will affect Taylor's financial statements?

Which of the following would be considered as primarily a merchandising business?

Star Company recognizes sales revenue from selling inventory for $2,000 cash. Note that Star is only recording the sales revenue part of the transaction and not the cost of goods sold. Star uses the perpetual inventory system. Which of the following answers reflects the effect of the sales revenue on the financial statements?