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Exam 4: Accounting for Merchandising Businesses

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Question 21

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The following is a partial list of account balances for the Fisherman's Supply at December 31,2016: 1.After the temporary accounts are closed,what is the balance of Retained Earnings? 2.From the above information,prepare a multistep income statement.

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1) 2.Mult...

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Question 22

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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.

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Question 23

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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.If the perpetual inventory method is used,what effect will the sales return have on the accounting equation?

Gross margin percentage: Company A: $32,000/$80,000 = 40% Company B: $45,000/$180,000 = 25% Company C: $48,000/$120,000 = 40% Company D: $40,000/$100,000= 40% The discount retailer would have a lower gross margin percentage. -The following data is from the income statement of Ralston Company: The company's gross margin percentage 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 amounts.Assume that Frank Company uses a perpetual inventory system. -Whetzel Co.returned some defective merchandise it had previously purchased on account from a supplier,Jacobs Company.Jacobs Company agreed to credit Whetzel's account.

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?

Indicate whether each of the following statements is true or false.(Assume a perpetual inventory system) _____ a)The purchase of merchandise inventory 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 allotted between cost of goods sold and selling expenses. _____ e)Cost of goods sold is a part of administrative and selling expenses.

The term "FOB Shipping Point" means

Jackson Medical Supply,which uses the perpetual inventory system,experienced the following events during June 2016. 1.Issued common stock for cash. 2.Purchased inventory on account,terms 2/10,n/30,FOB shipping point. 3.Paid the shipping charges on the purchase in event #2. 4.Sold merchandise to a customer on account,terms 2/10,n/30,FOB destination.Record the revenue recognition as 4(a)and the expense recognition as 4(b). 5.Paid the shipping charges on goods sold in event #4. 6.Customer returned some of the merchandise sold in event #4.Record the effect on revenue as 6(a)and the effect on expenses as 6(b). 7.Recorded discount granted to the customer in event #4. 8.Recorded payment received from the customer in event #4. 9.Recorded discount received on purchase in event #2. 10.Recorded payment of amount due on purchase in event #2. Required: Identify each event as asset source (AS),asset use (AU),asset exchange (AE),or claims exchange (CE).Also explain how each event affects the financial statements by placing a + for increase,- for decrease,or NA for not affected under each of the components of the following statements model.If the element both increases and decreases,mark with "+-".Also,indicate in the cash column if the event would be recorded as an operating activity (OA),an investing activity (IA)or a financing activity (FA).The first event is recorded as an example.

A business firm that primarily sells merchandise to other businesses is known as a:

The chief advantage of the periodic system is:

A discount given to encourage prompt payment is called:

Use the following for questions Sanchez Company engaged in the following transactions during 2015: 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 2016: 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. -The balance in the inventory account shown at December 31,2016 is:

Explain the major difference between a merchandising business and a service business.

Costs charged to the Merchandise Inventory account are product costs.

Under a periodic system,the account debited for shipping costs on goods received from the vendor is called:

A company using the perpetual inventory method paid cash for freight costs to purchase merchandise.Which of the following answers reflects the effects of this event on the financial statements?

The following events pertain to Sports World for January 2016.The company uses the perpetual inventory method.Record the following events in the general journal. 1)Jan 3.Purchased $10,000 of merchandise from a supplier,Apex Athletic Shoes.The terms of the purchase: 2/10,n/30 and FOB shipping point. 2)Jan 5.Paid $275 cash for freight to trucking company to have goods shipped from Apex. 3)Jan 7.(a)Sold merchandise for $1,500 to a customer on account.(b)The merchandise had cost Sports World $900. 4)Jan 10.Returned $1,100 of defective shoes to Apex. 5)Jan.11.Paid amount due on account to Apex for merchandise purchased on Jan.3. 6)Jan.12.a)Accepted a return of $375 of the goods sold on Jan.7.b)The cost of these goods was $225.

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 company purchased inventory on account.If the perpetual inventory method is used,which of the following choices accurately reflects how the purchase affects the company's financial statements?