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Exam 4: Accounting for Merchandising Businesses

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Question 81

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Indicate whether each of the following statements is true or false. a)The perpetual inventory system recognizes inventory transactions as they occur.b)The periodic inventory system recognizes sales revenue at the end of the accounting period.c)A physical count of inventory at the end of each accounting period is necessary for the periodic inventory system, as well as for the perpetual inventory system.d)A periodic inventory system requires more detailed record keeping than a perpetual inventory system.e)With a periodic inventory system, cost of goods sold is not determined until the end of the accounting period.

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a)This is true. Perpetual systems contin...

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Question 82

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With a periodic inventory system, the cost of goods sold is recorded at the time of a sale of merchandise.

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Question 83

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A multistep income statement shows sales revenue, cost of goods sold, and gross margin.

For a company that uses the perpetual inventory system, a physical count of the inventory can reveal the amount of inventory shrinkage the company has experienced.

Costs of selling inventory are product costs.

A company using the perpetual inventory system paid $250 cash to have goods delivered from one of its suppliers. How would the payment of $250 for transportation-in be classified?

Explain the computation and the meaning of each of the following:a. Gross margin percentageb. Return on sales

Indicate whether each of the following statements is true or false. (Assume a perpetual inventory system.)________ a)In a perpetual inventory system, an employee theft is discovered immediately.________ b)No adjustment is required for inventory losses under a perpetual inventory system.________ c)Inventory shrinkage is calculated as the difference between the beginning and ending balances in the merchandise inventory account.________ d)In a perpetual inventory system, adjustments for lost, damaged or stolen merchandise are recorded as expenses.________ e)Recording inventory losses due to employee theft or shoplifting has a negative effect on the statement of cash flows.

Xavier Company sold goods with the terms 2/15, n/30. What do these payment terms mean?

When a merchandising company sells inventory, it will

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 $12,200 of merchandise on account under terms 2/10, n/30.2) The company returned $1,700 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 $18,400 cash.What is the net cash flow from operating activities as a result of the four transactions?

James Company experienced the following events during its accounting period:(1) Purchased $10,000 of inventory on account.(2) Returned $2,000 of the inventory purchased in Event 1.(3) Paid the remaining balance in account payable for the inventory purchased in Event 1.(4) Sold inventory purchased in Event 1 for $10,000 to customers on account.At the end of the first accounting period what would be reported for Net Operating Cash Flow on the Statement of Cash Flows?

Which of the following statements about period costs is true?

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

Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $13,300 of common stock for cash.2) The company paid cash to purchase $8,000 of inventory.3) The company sold inventory that cost $5,400 for $11,150 cash.4) Operating expenses incurred and paid during the year, $4,900.Sanchez Company engaged in the following transactions during Year 2:1) The company paid cash to purchase $11,600 of inventory.2) The company sold inventory that cost $9,600 for $17,750 cash.3) Operating expenses incurred and paid during the year, $5,900.Note: Sanchez uses the perpetual inventory system. What is the amount of retained earnings that will be shown on the balance sheet at December 31, Year 2?

Which of the following retailers would be expected to have the highest gross margin percentage?

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?

Assume the perpetual inventory system is used.1) Green Company purchased merchandise inventory that cost $17,100 under terms of 4/10, n/30 and FOB shipping point.2) Green Company paid freight cost of $710 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 $25,700 cash and delivered under terms FOB destination with freight cost amounting to $510.What is the amount of gross margin that results from these transactions?

Why are cash discounts given, who benefits by these discounts, and what are the benefits of those discounts?

Common size financial statements are prepared by converting dollar amounts to percentages.