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Exam 4: Accounting for Merchandising Businesses

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Question 41

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Galaxy Company sold merchandise costing $1,700 for $2,600 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.)

A) Total assets and total stockholders' equity decrease by $900.
B) Total assets decrease by $2,600 and total stockholders' equity decreases by $1,700.
C) Total assets and total stockholders' equity decrease by $2,600.
D) Total assets and total stockholders' equity increase by $900.

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

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Question 42

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Foote Company was granted a purchase discount of $200 on merchandise the company had purchased a few days ago.Foote uses the perpetual inventory system.Which of the following reflects the effects of this event on the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

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

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Question 43

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Which of the following account titles is normally used in a periodic inventory system?

[The following information applies to the questions displayed below.] -Three of the companies are upscale stores and one is a discount store.Which company is most likely to be the discount store?

What is the chief advantage of the periodic system?

What happens when merchandise is delivered FOB shipping point?

[The following information applies to the questions displayed below.] Sanchez Company engaged in the following transactions during Year 1: 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 Year 2:" 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." -What is Sanchez's gross margin for Year 2?

[The following information applies to the questions displayed below.] -Based on common-sized income statements,which of the companies spent the least on operating expenses in relationship to its sales?

The following are the income statements of the Hancock Company for two consecutive years.Increases in which of the expenses contributed to the net loss in Year 2?

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?

Jake Co.purchased on account merchandise with a list price of $90,000.Payment terms were 1/15,n/45.If collection occurs within 18 days,what discount will Jake Co.recognize on the merchandise?

[The following information applies to the questions displayed below.] Assume the perpetual inventory system is used. 1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point. 2) Green Company paid freight cost of $2,400 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 $94,000 cash and delivered under terms FOB destination with freight cost amounting to $1,600. -What is the net cash flow from operating activities that results from these transactions?

Olly Company is a merchandising business that sells dog food.Based on the following information,what is the gross margin for Olly Company? $\begin{array}{lr}\text { Sales Revenue } & \$ 500,000 \\\text { Cash } & 100,000 \\\text { Accounts Receivable } & 50,000 \\\text { Inventory } & 25,000 \\\text { Cost of goods sold } & 300,000 \\\text { Operating expenses } & 40,000\end{array}$

What do the credit terms,2/15,n/30 mean?

Melbourne Company sold merchandise that it had purchased with a list price of $3,300.The credit terms were of 2/10,n/30.Assuming that Melbourne paid for the merchandise during the discount period,the cost of goods sold for this transaction would be $2,970.

[The following information applies to the questions displayed below.] A company's chart of accounts includes, in part, the following account numbers and corresponding account titles: -Which accounts would appear on the income statement?

[The following information applies to the questions displayed below.] A company's chart of accounts includes, in part, the following account numbers and corresponding account titles: -Which accounts would affect operating income?

Ramirez Company returns merchandise previously purchased on account.It had not yet been paid for.Ramirez uses the perpetual inventory system.Which of the following reflects the effects on the financial statements of only the purchase return?

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?"

[The following information applies to the questions displayed below.] Sanchez Company engaged in the following transactions during Year 1: 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 Year 2:" 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." -What is the amount of inventory that will be shown on the balance sheet at December 31,Year 2?