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Exam 5: Accounting for Retail Businesses

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Question 21

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Merchandise is purchased for $6,000 on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the required payment if paid on September 12?

A) $6,120
B) $5,940
C) $6,090
D) $5,880

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Question 22

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

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Question 23

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The cost of inventory is limited to the purchase price less any purchase discounts.

Stergell Company had sales of $1,500,000 and related cost of goods sold of $920,000 for the year. Stergell estimates that customers will request refunds for 1.5% of sales and estimates that merchandise costing $12,000 will be returned. Journalize the adjusting entries on December 31 to record the expected customer returns.​

Multiple-step income statements show

Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped FOB shipping point.

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

To encourage a buyer to pay before the end of the credit period, the seller may offer a

Which of the lists below shows accounts that would be closed at the end of the fiscal period?

When the perpetual inventory system is used, the inventory sold is debited to

When merchandise that was sold is returned, a credit to Customer Refunds Payable is made.

Gross profit minus selling expenses equals net income.

Which account is not classified as a selling expense?

Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as

Prepare a multiple-step income statement for Armstrong Co. from the following data for the year ended December 31.​ Sales, $755,000; cost of goods sold, $330,000; administrative expenses, $35,000; interest expense, $30,000; rent revenue, $25,000; selling expenses, $50,000.

When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit

Discuss the following statement: "Operating cycles for all merchandising businesses are the same, with similar profit margins." Include an example(s) to illustrate your explanation.

The proper journal entry to record the receipt of inventory purchased on account in a periodic inventory system would be

Journalize the following transactions for both Abbott Co. (seller) and Dalton Co. (buyer). Assume both of the companies use the perpetual inventory system.July 3 Abbott Co. sold merchandise on account to Dalton Co., $7,500, terms FOB shipping point, net/eom. The cost of the goods sold was $4,400.5 Dalton Co. paid $275 freight charges on purchase from Abbott Co.9 Abbott Co. issued Dalton Co. a credit memo for merchandise returned, $2,250.The cost of the merchandise returned was $1,325.11 Abbott Co. received payment from Dalton Co. for purchase of July 3.​

Match each of the following terms (a-h) with the correct definition below. -Statement where net income is determined by deducting all expenses from all revenues. A)Credit terms B)FOB destination C)FOB shipping point D)Periodic inventory system E)Perpetual inventory system F)Inventory shrinkage G)Single-step income statement H)Multiple-step income statement