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Exam 4: Accounting for Merchandising Businesses

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Question 71

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What happens when merchandise is delivered FOB Destination?

A) The seller pays the freight cost.
B) The seller records transportation-in expense.
C) The buyer pays the freight cost.
D) The seller pays the freight cost and records an expense.

E) B) and C)
F) All of the above

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Question 72

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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) $8,400
B) $7,200
C) $15,600
D) $18,400

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

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Question 73

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The following are the income statements for Ace and Diamond Companies. What are the net income percentages for Ace and Diamond, respectively?

Based on common-sized income statements, which of the companies spent the least on operating expenses in relationship to its sales?

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

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 $12,500 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.What effect will the return of merchandise to the supplier in event (2) have on Darlington's financial statements?

Glen Company uses the perpetual inventory system. The company entered into the following events: 1) Purchased merchandise inventory that cost $10,000 under terms of 2/10, n/30.2) Made payment to the supplier within the discount period.3) Sold all of the goods to customers on account for $22,000.What is Glen's cost of goods sold as a result of these three transactions?

Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $13,900 of common stock for cash.2) The company paid cash to purchase $8,300 of inventory.3) The company sold inventory that cost $5,700 for $11,900 cash.4) Operating expenses incurred and paid during the year, $5,200.Sanchez Company engaged in the following transactions during Year 2:1) The company paid cash to purchase $12,200 of inventory.2) The company sold inventory that cost $9,900 for $18,500 cash.3) Operating expenses incurred and paid during the year, $6,200.Note: Sanchez uses the perpetual inventory system. What is Sanchez's gross margin for Year 2?

Three of the companies are upscale stores and one is a discount store. Which company is most likely to be the discount store?

Indicate whether each of the following statements is true or false. (Assume a periodic inventory system)a)If the balance in ending inventory is overstated, net income will be understated.b)If the balance in ending inventory is understated, retained earnings will be understated.c)If the balance in ending inventory is overstated, selling and administrative expenses will not be affected.d)If the balance in ending inventory is overstated, cost of goods sold will be overstated.e)If the balance in ending inventory is overstated, assets will be overstated.

JCS Incorporated experienced the following transactions during its first year of business. The company purchased $16,000 of merchandise from Kent Company. The company paid $2,000 for selling and administrative expenses and purchased land for $5,000. All of the merchandise purchased was sold for $30,000 cash. What is the company's gross margin?

In a perpetual inventory system, a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

During April, Bloom Garden Supply Company experienced the following business events. 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 April 4 purchase.3)April 6 Returned $1,200 of the merchandise purchased on April 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)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.

What is the effect of recording the purchase of inventory on account under the perpetual inventory system?

Vargas Company sold a piece of land for $39,000 that had originally cost $32,500. How does this business event affect the company's financial statements?

The following information for Year 2 is taken from the accounts of Tuttle Company. The company uses the periodic inventory system. Based on this information, what is the inventory at December 31, Year 2?

Gains and losses are recorded for increases and decreases in the market value of land.

James Company experienced the following events during its first accounting period: (1) Purchased $10,000 of inventory on account under terms 1/10 n/30.(2) Returned $2,000 of the inventory purchased in Event 1(3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1 Immediately after the three events have been recognized, the balance in the inventory account is

Which of the following is considered a product cost?

What is the chief advantage of the periodic system?