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Exam 4: Accounting for Merchandising Businesses

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Question 1

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Llewelyn Company paid the amount due on a purchase of merchandise on account.Llewelyn uses the perpetual inventory system.Which of the following reflects the effect of the payment on the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

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

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A

Question 2

Multiple Choice

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A company using the perpetual inventory system paid cash for freight costs to purchase merchandise.Which of the following reflects the effects of this event on the financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

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

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Question 3

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For a company that uses the perpetual inventory system,a physical count of the inventory can reveal the amount of inventory shrinkage the company has experienced.

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory,as well as returns of inventory to suppliers.

[The following information applies to the questions displayed below.] Assume the perpetual inventory system is used. 1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point. 2) Green Company paid freight cost of $2,400 to have the merchandise delivered. 3) Payment was made to the supplier on the inventory within 10 days. 4) All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB destination with freight cost amounting to $1,600. -What is the amount of gross margin that results from these transactions?

Flagler Company purchased $4,000 of merchandise on account.Flagler sold the merchandise to a customer for $7,000 cash.What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event. )

Which of the following statements regarding a multistep income statement is true?

Which of the following is considered a period cost?

What is the chief advantage of the periodic system?

The entry to record the amount of inventory shrinkage affects both the balance sheet and the income statement.

When using a perpetual inventory system,which of the following events is an asset use transaction?

A company using a perpetual inventory system treats transportation-out as an operating expense.

Net sales is calculated by subtracting cost of goods sold from sales revenue.

Sullivan Company uses the periodic inventory system.The following balances were drawn from the accounts of Sullivan Company prior to the closing process: What is the gross margin that will be shown on the income statement?

The Wilson Company purchased $44,000 of merchandise from the Poole Wholesale Company.Wilson also paid $3,000 for freight costs to have the goods shipped to its location.The company uses the perpetual inventory system.Which of the following summarizes the effects of the journal entries required to record these transactions for The Wilson Company? (Consider the effects of both business events. )

Which of the following would be considered as primarily a merchandising business?

Wholesale companies sell goods primarily to other businesses.

A company using the perpetual inventory system paid $250 cash to have goods delivered from one of its suppliers.How would the payment of $250 for transportation-in be classified?

Galaxy Company sold merchandise costing $1,700 for $2,600 cash.The merchandise was later returned by the customer for a refund.The company uses the perpetual inventory system.What effect will the sales return have on the financial statements? (Consider the effects of both parts of this event. )

The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.