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Exam 5: Accounting for Merchandising Operations Perpetual Approach

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Question 1

Essay

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An inexperienced accountant for Tilly Company made the following errors in recording merchandising transactions. 1. A $270 refund to a customer for faulty merchandise was debited to Sales Revenue $270 and credited to Cash $270. 2. A $310 credit purchase of supplies was debited to Inventory $310 and credited to Cash $310. 3. A cash payment of $40 for freight on merchandise purchases was debited to Freight-Out $400 and credited to Cash $400. Instructions Prepare separate correcting entries for each error, assuming that the incorrect entry is not reversed. (Omit explanations.)

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Question 2

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The entry to record the receipt of payment within the discount period on a sale of $2,000 with terms of 2/10, n/30 will include a credit to

A) Sales Discounts for $40.
B) Cash for $1,960.
C) Accounts Receivable for $2,000.
D) Sales Revenue for $2,000.

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Question 3

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A buyer would record a payment within the discount period under a perpetual inventory system by crediting

Conrad Company reported the following balances at June 30, 2018: Net sales for the month is

The major difference between the balance sheets of a service company and a merchandising company is inventory.

A multiple-step income statement provides users with more information about a company's income performance.

If a company determines cost of goods sold each time a sale occurs, it

Sam Wainwright is a new accountant with Ground Floor Company. Ground Floor purchased merchandise on account for $18,000. The credit terms are 1/10, n/30. Sam has talked with the company's banker and knows that he could earn 4% on any money invested in the company's savings account. Instructions (a) Should Sam pay the invoice within the discount period or should he keep the $18,000 in the money market account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best. (b) If Sam forgoes the discount, it may be viewed as paying an interest rate of 1% for the use of $18,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement.

Which of the following is not a true statement about a multiple-step income statement?

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A credit granted to a customer for returned goods requires a debit to

Financial information is presented below: Gross profit would be

Comprehensive income under IFRS

During August, 2018, Baxter's Supply Store generated revenues of $60,000. The company's expenses were as follows: cost of goods sold of $36,000 and operating expenses of $4,000. The company also had rent revenue of $1,000 and a gain on the sale of a delivery truck of $2,000. Baxter's non-operating income (loss) for the month of August, 2015 is

A sales discount does not

Sales minus operating expenses equals gross profit.

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales

Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

Under the perpetual system, freight costs incurred by the buyer for the transporting of goods is recorded in