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Exam 6: Accounting for Merchandising Businesses

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Question 1

Multiple Choice

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Which of the following is not a difference between a retail business and a service business?

A) in what is sold
B) the inclusion of gross profit on the income statement
C) accounting equation
D) merchandise inventory included on the balance sheet

E) B) and C)
F) A) and D)

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Question 2

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The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Freight In are found on the balance sheet.

A) True
B) False

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Question 3

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Determine the amount to be paid in full settlement of each invoice, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period. $\begin{array} { | l | r | r | c | r | } \hline & \textbf { Merchandise } & \begin{array} { c } \textbf { Freight Paid by } \\\textbf { Seller }\end{array} & \textbf { Freight Terms } & \begin{array} { c } \textbf { Returns and } \\\textbf { Allowances }\end{array} \\\hline \text { (a) } & \$ 4,500 & \$ 140 & \begin{array} { l } \text { FOB shipping point, } \\2 / 10 , \text { net } 30\end{array} & \$ 1,200 \\\hline \text { (b) } & 7,650 & \$ 200 & \begin{array} { l } \text { FOB destination, } \\1 / 10 , \text { net } 45\end{array} & 450 \\\hline\end{array}$

Journalize the following transactions assuming a perpetual inventory system:May 5Purchased merchandise from Archie Co., $6,000, terms FOB shipping point, 2/10, n/30.Prepaid freight costs of $100 were added to the invoice.12Issued a debit memo to Archie Co. for $2,500 of merchandise returned from purchase on May 5.14Paid Archie Co. for invoice of May 5, less debit memo of May 12 and discount.?? $\textbf { Journal } \\\begin{array} { | c | c | c | c | c | } \hline \textbf { Date } & \textbf { Description } & \begin{array} { c } \textbf { Post. } \\\textbf { Ref. }\end{array} & \textbf { Debit } & \textbf { Credit } \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline\end{array}$

Madison Company's perpetual inventory records indicate that $875,300 of merchandise should be on hand on October 31. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Madison Company for the year ended October 31.

Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry (ies) would be recorded?

Merchandise is ordered on November 10; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 13; the merchandise is received by the buyer on November 18; the entry is made in the buyer's accounts on November 20. The credit period begins with what date?

Selected accounts and amounts appear below. Journalize the closing entry, assuming a perpetual inventory system. Merchandise inventory$ 45,500 Cost of merchandise sold652,500

Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.

Journalize the following merchandise transactions: (a)Sold merchandise on account, $17,300, with terms 2/10, net 30. The cost of the merchandise sold was $12,600. (b)Received payment within the discount period.

Other income and expenses are items that are not related to the primary operating activity.

If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.

The statement of owner's equity shows

Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as

The records of Penny Co. indicated that $415,000 of merchandise should be on hand on December 31. The physical inventory indicates that $370,000 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for the year ended December 31. $\begin{array} { | c | c | c | c | c | } \hline&& { \text { Journal } } \\\hline \text { Date } & \text { Description } & \begin{array} { c } \text { Post. } \\\text { Ref. }\end{array} & \text { Debit } & \text { Credit } \\\hline & & & & \\\hline & & & & \\\hline\end{array}$

Kaden Co. sells merchandise on credit to Jase Co. for $9,600. The invoice is dated July 15 with terms of 1/15, net 45. If Jase Co. chooses not to take the discount, by when should the payment be made?

The ratio of sales to assets measures how effectively a business is using its assets to generate sales.

When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade discount.

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

Using the following information, what is the cost of merchandise sold? $\begin{array} { | l | r | l | l | r | } \hline \text { Purchases } & \$ 32,000 & & \text { Selling expenses } & \$ 960 \\\hline \begin{array} { l } \text { Merchandise inventory, } \\\text { September } 1\end{array} & 5,700 & & \begin{array} { l } \text { Merchandise inventory, } \\\text { September } 30\end{array} & 6,370 \\\hline \text { Administrative expenses } & 910 & & \text { Sales } & 63,000 \\\hline \text { Rent revenue } & 1,200 & & \text { Interest expense } & 1,040 \\\hline\end{array}$