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Exam 4: Accounting for Merchandising Businesses

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Question 21

True/False

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Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise.

A) True
B) False

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Question 22

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If cash dividends of $145,000 were declared during the year and the decrease in dividends payable from the beginning to the end of the year was $7,000,the statement of cash flows would report $152,000 in the financing activities section.

A) True
B) False

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Question 23

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Gross profit is equal to:

Net sales is equal to sales plus cost of merchandise sold.

There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1)the direct method and (2)the indirect method.

If merchandise costing $2,500,terms FOB destination,2/10,n/30,with prepaid transportation costs of $100,is paid within 10 days,the amount of the purchases discount is $48.

Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows.

Based on the information below,illustrate the effects on the accounts and financial statements of the Seller and the Buyer.Both use a perpetual inventory system. (a)Seller (a)Buyer (b)Seller (b)Buyer (c)Seller (c)Buyer

Under the indirect method for preparing the statement of cash flows,increases in current liabilities are __________ net income in the cash flows from operating activities section.

The following data for the current year ended December 31,2010,were extracted from the accounting records of Gilbert Co.: Prepare a multiple-step income statement for the year ended December 31,2010.

A sales invoice included the following information: merchandise price,$5,000;terms 1/10,n/eom.Assuming that a credit for merchandise returned of $600 is granted prior to payment,and that the invoice is paid within the discount period,what is the amount of cash received by the seller?

If merchandise sold on account is returned to the seller,the seller may inform the customer of the details by issuing a

A buyer who acquires merchandise under credit terms of 1/10,n/30 has 10 days after the invoice date to take advantage of the cash discount.

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller,the terms are

Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system.

When someone purchases merchandise and incurs the cost of transportation,these costs of purchasing inventory are added to the cost of the inventory.

In recording the cost of merchandise sold for cash using a perpetual inventory system,the effect on the accounts is

Under a perpetual inventory system,

When the terms of sale are FOB shipping point,the buyer should pay the transportation charges.

Sales Returns and Allowances is a contra-asset account.