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Exam 4: Accounting for Merchandising Businesses

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Question 61

Multiple Choice

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Expenses that cannot be traced directly to operations are identified as:

A) other income.
B) operating expenses.
C) cost of goods sold.
D) other expenses.

E) A) and D)
F) All of the above

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Question 62

Multiple Choice

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If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as:

A) FOB shipping point.
B) FOB destination.
C) FOB n/30.
D) FOB buyer.

E) All of the above
F) A) and D)

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Question 63

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On the income statement, the merchandise inventory at the beginning of the period is added to sales to yield the cost of merchandise sold during the period.

Selected data from the ledger of Wiles Co. after adjustment at June 30, the end of the fiscal year, are listed as follows: $\begin{array}{llll}\$ 4,680 & \text { Prepaid Insurance } & \$ 39,120 & \text { Accounts Receivable } \\77,750 & \text { Notes Payable } & 60,540 & \text { AccumulatedDepreciation } \\75,000 & \text { Retained Earnings } & 90,500 & \text { Administrative Expenses } \\3,060 & \text { Salaries Payable } & 60,000 & \text { Capital Stock } \\920,000 & \text { Sales (net) } & 655,000 & \text { Cost of Merchandise Sold } \\110,000 & \text { Selling Expenses } & 40,000 & \text { Dividends } \\3,125 & \text { Supplies } & 10,500 & \text { Interest Revenue } \\& & 82,700 & \text { Office Equipment }\end{array}$ Prepare a single-step income statement for the year ended June 30, 2013.

Merchandise inventory shrinkage will decrease Retained Earnings.

Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer.

If the seller is to pay the delivery expense of delivering merchandise, the delivery terms are stated as:

Which of the following accounts is a contra account to Sales?

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

The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities.

A criticism of a single-step income statement is that net income is not available for analysis.

Prepare a multiple-step income statement for Surry Co. from the following data for the year ended December 31, 2013. Sales, $915,000; cost of merchandise sold, $670,000; administrative expenses, $30,000; interest expense, $12,000; rent revenue, $19,000; sales returns and allowances, $55,000; selling expenses, $120,000.

The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.

When purchases of merchandise are made for cash, under the perpetual inventory system, the transaction:

Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $17,500. The seller issued a credit memorandum for $4,000 prior to payment. What is the amount of the cash discount allowable?

Which of the following is not an example of selling expenses?

Freight in is the amount paid by the seller to deliver merchandise sold to a customer.

Sales discounts is used in accounting for transactions with customers.

NBC Company had $32,000 in net sales, $15,000 in cost of merchandise sold, $18,000 in operating expenses, and $2,000 in other income. What is NBC Company's gross profit?

On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold.