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Exam 4: Accounting for Merchandising Businesses

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Question 31

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With a perpetual inventory system,assets and stockholders' equity increase by the amount of the gross margin when inventory is sold.(Consider the effects of both parts of this event. )

A) True
B) False

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Question 32

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What happens when merchandise is delivered FOB Destination?

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

E) B) and C)
F) C) and D)

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Question 33

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Costs of selling inventory are product costs.

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account.Due to an error,this sale was never recorded in the accounting records.What effect will the failure to make the necessary entries have on the company's financial statements?

[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?

Which of the following is considered a product cost?

A company that purchases merchandise treats a cash discount as a reduction to the cost of merchandise inventory.

Consider the following T-account in the ledger of Gibbs Company.The company uses the perpetual inventory system. What business event would result in the $400 credit?

Kenyon Company experienced a transaction that had the following effect on the financial statements: Which of the following business events would result in this effect on the financial statements?

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.

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?

[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?

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?

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

Middleton Company uses the perpetual inventory system.The company purchased an item of inventory for $130 and sold the item to a customer for $200.How will the sale affect the company's Inventory account?

Net income is not affected by a purchase of merchandise.

What happens when merchandise is delivered FOB shipping point?

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

Assume a company uses the periodic inventory system.Which of the following accounts would not be used in a journal entry to record purchases and related transactions?

A company's chart of accounts includes,in part,the following account numbers and corresponding account titles: -Which accounts would appear on the balance sheet?