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Exam 5: Accounting for Retail Businesses

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Question 1

Multiple Choice

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If merchandise sold on account is returned to the seller, the seller acknowledges the return by issuing a

A) sales invoice
B) purchase invoice
C) credit memo
D) debit memo

E) None of the above
F) A) and D)

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Question 2

Multiple Choice

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Using the following information for a periodic inventory system, what is the amount of net income?

A) $29,510
B) $29,960
C) $28,310
D) $29,350

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

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Question 3

Multiple Choice

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Which of the following accounts carry a normal credit balance?

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

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

Record the following transactions related to purchases for Horston's Art Supplies using the general journal form provided below. Assume Horston's uses a periodic inventory system. Omit transaction descriptions from entries.​

The abbreviation FOB stands for "free on board."

The fees associated with credit card sales are periodically recorded as expenses.

Cost of goods sold is often the largest expense on a merchandising company income statement.

What is the major difference between a periodic and perpetual inventory system?

The arrangements between buyer and seller as to when payments for merchandise are to be made are called

Inventory is classified on the balance sheet as a

The seller may prepay the freight costs even though the terms are FOB shipping point.

Bountiful Company had sales of $650,000 and cost of goods sold of $200,000 during a year. The total assets balance at the beginning of the year was $175,000 and at the end of the year was $167,000. Calculate the asset turnover ratio.

Which of the following accounts should be closed to Retained Earnings at the end of the fiscal year?

Gross profit is equal to

Based on the information below, journalize the entries for the seller and the buyer. Both use a perpetual inventory system.(a)Seller sold merchandise on account to the buyer, $4,750, terms 2/10, net 30, FOB shipping point. The cost of the merchandise is $2,850. The seller prepays the freight of $75.(b)Buyer returns $700 of merchandise as defective. The cost of the merchandise is $420.(c)Buyer pays within the discount period.

Details of invoices for purchases of merchandise are as follows: What will be the total amount collected on all four invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.​

Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to

In a merchandising business, sales minus operating expenses equals net income.