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Exam 4: Accounting for Merchandising Businesses

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Question 31

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How is the net income percentage calculated?

A) Net Sales divided by net Income.
B) Net Income divided by net Sales.
C) Total stockholders' equity divided by net sales.
D) Net Income divided by Gross Margin.

E) A) and D)
F) All of the above

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Question 32

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Sam Company reported the following amounts on its income statement: Based on the information provided, what was the amount of sales reported on the income statement?

A) $700,000
B) $600,000
C) $300,000
D) $200,000

E) None of the above
F) A) and B)

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Question 33

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When a company recognizes cost of goods sold, how does that event impact the elements of the financial statements? (Ignore the effects of recognizing sales revenue.)

If goods are shipped FOB destination, who is responsible for the freight costs?

Indicate whether each of the following statements is true or false. (Assume a perpetual inventory system)________ a)Purchasing merchandise inventory for cash is recorded as an expense.________ b)Merchandise inventory is expensed in the period it is sold.________ c)Merchandise inventory is an account appearing on the balance sheet.________ d)Cost of goods available for sale is allocated between cost of goods sold and selling expenses.________ e)Cost of goods sold is a part of administrative and selling expenses.

Indicate whether each of the following statements is true or false.________ a)A common size income statement facilitates comparison between two or more companies of different size and in the same industry.________ b)A common size income statement is prepared by dividing the various amounts reported on the income statement by the amount of total assets.________ c)A common size income statement is helpful in comparing the results of operation in different time periods.________ d)The gross margin percentage is computed by dividing gross margin by net income.________ e)Return on sales is computed by dividing net income by net sales.

The following data is from the income statement of Ralston Company: What is the company's gross margin percentage?

Indicate how accounting for lost and stolen merchandise differs between firms using a perpetual inventory system and those using a periodic inventory system. Which system provides the best way to account for such losses and why?.________ a)A merchandising company generates revenue primarily by selling goods to customers.________ b)The supply of goods accumulated to deliver when sales are made is called Supplies.________ c)Retail companies are firms that sell goods to other businesses.________ d)Product costs include all costs associated with the sale of products.________ e)Walmart is an example of a wholesale company.

Flagler Company purchased $4,000 of merchandise on account. Flagler sold the merchandise to a customer for $7,000 cash. What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event.)

Sullivan Company uses the periodic inventory system. The following balances were drawn from the accounts of Sullivan Company prior to the closing process: What is the gross margin that will be shown on the income statement?

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Exeter Company sold merchandise for $10,000 cash. The merchandise had cost the company $4,500. What is the effect of the sale on the balance sheet?

A company using the perpetual inventory system paid cash for a transportation-in cost. Which of the following choices reflects the effects of this event on the financial statements?

Assume the perpetual inventory system is used.1) Green Company purchased merchandise inventory that cost $16,600 under terms of 2/10, n/30 and FOB shipping point.2) Green Company paid freight cost of $660 to have the merchandise delivered.3) Payment was made to the supplier on the inventory within 10 days.4) All of the merchandise was sold to customers for $24,700 cash and delivered under terms FOB destination with freight cost amounting to $460. What is the net cash flow from operating activities that results from these transactions?

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 sold merchandise to a customer for $1,400 cash. The merchandise had originally cost Wetzel $850. (Consider the effects of both parts of this event.)

Galaxy Company sold merchandise costing $2,100 for $3,200 cash. The merchandise was later returned by the customer for a refund. The company uses the perpetual inventory system. What effect will the sales return have on the financial statements? (Consider the effects of both parts of this event.)

Faust Company uses the perpetual inventory system. Faust sold goods that cost $5,600 for $9,200. The sale was made on account. What is the net effect of the sale on the company's financial statements?(Consider the effects of both parts of this event.)

Give an example of a product cost. At what time are product costs recognized as expenses? What is the name of the expense account?

A company using a perpetual inventory system treats transportation-out as an operating expense.

Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $12,400 of merchandise on account under terms 2/10, n/30.2) The company returned $1,900 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. What is the gross margin that results from these four transactions?