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Exam 6: Accounting for Merchandising Businesses

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Question 81

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Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are recorded.

A) True
B) False

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Question 82

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For each of the following, calculate the cost of inventory reported on the balance sheet. (a)The total merchandise on hand at the end of the year is $62,000. Of the $62,000, $8,000 has been sold FOB destination and is awaiting pickup by the carrier. (b)The total merchandise inventory at the end of the year was $63,000. Excluded from the amount were purchases of $6,000 in transit under FOB shipping point terms. (c)The total merchandise inventory at the end of the year was $75,000. Excluded from the amount were purchases of $5,000 in transit under FOB destination terms.

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(a)$62,000...

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Question 83

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A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade discount and has credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount period?

$\text { Match each of the following items } ( a - h ) \text { with the appropriate definition below. }$ -Discount taken by the buyer for early payment of invoice. a. $\quad$ Freight b. $\quad$ Delivery Expense c. $\quad$ Merchandise Inventory d. $\quad$ Sales discount e. $\quad$ Purchases Returns and Allowances f. $\quad$ Debit memo g. $\quad$ Purchase discount h. $\quad$ Trade discount

$\text { Match each of the following items } ( a - h ) \text { with the appropriate definition below. }$ -Expense account for recording shipping costs paid by the seller. a. $\quad$ Freight b. $\quad$ Delivery Expense c. $\quad$ Merchandise Inventory d. $\quad$ Sales discount e. $\quad$ Purchases Returns and Allowances f. $\quad$ Debit memo g. $\quad$ Purchase discount h. $\quad$ Trade discount

During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the merchandise sold is $76,240. What is the amount of the gross profit?

Using the list of accounts below, construct a chart of accounts for a merchandising business that rents out a portion of its building, and assign account numbers and arrange the accounts in balance sheet and income statement order ("1" for assets, and so on). Each account number should have three digits. Contra accounts should be designated with a decimal of the account (100.1 for contra of account 100). Assets and liabilities should be in order of liquidity; expenses should be in alphabetical order.? $\begin{array} { | l | l | l | } \hline\text { Accounts Payable } & \text { Interest Expense } & \text { Salaries Payable } \\\hline \text { Accounts Receivable } & \text { Land } & \text { Sales } \\\hline \text { Accumulated Depr.-Equip. } & \text { Merchandise Inventory } & \text { Supplies Expense } \\\hline \text { Advertising Expense } & \text { Notes Payable } & \text { Unearned Revenue } \\\hline & & \\\hline \text { Cash } & \text { Office Supplies } & \text { Utilities Expense } \\\hline \text { Cost of Merchandise Sold } & \text { Owner, Capital } & \\\hline \begin{array} { l } \text { Depreciation Expense- } \\\text { Equip. }\end{array} & \text { Owner, Drawing } & \\\hline \text { Equipment } & \text { Rent Revenue } & \\\hline & \text { Salaries Expense } & \\\hline\end{array}$

Complete the following data taken from the condensed income statements for merchandising Companies X, Y, and Z. $\begin{array} { | l | r | r | r | } \hline & \textbf { Company X } & \textbf { Company Y } & \textbf { Company } \mathrm { Z } \\\hline \text { Operating income (loss) } & \$ 220 & \$? & \$ ( 70 ) \\\hline \text { Sales } & ? & 1,315 & 890 \\\hline \text { Gross profit } & 435 & ? & 465 \\\hline \text { Operating expenses } & ? & 565 & ? \\\hline \text { Cost of merchandise sold } & 330 & 775 & ? \\\hline\end{array}$

Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale would include a

The seller records the sales tax as part of the sales amount.

The inventory system employing accounting records that continuously disclose the amount of inventory is called

Where are selling and administrative expenses found on the multiple-step income statement?

In credit terms of 3/15, n/45, the "3" represents the

Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a

As we compare a merchandise business to a service business, the financial statement that changes the most is the balance sheet.

In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.

In a perpetual inventory system, the merchandise inventory account is only used to reflect the beginning inventory.

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a

Merchandise Inventory normally has a debit balance.

Inventory shrinkage is recorded when