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Exam 6: Accounting for Merchandising Businesses

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Question 71

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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.

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Question 72

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Record the following transactions for Sparky's Pet Shop using the general journal form provided below. Assume Sparky's uses a perpetual inventory system. Omit transaction descriptions from entries.? $\begin{array} { | c | l | } \hline \textbf { Date } & ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \textbf { Transaction } } \\\hline \text { Aug. } 1 & \text { Purchased } \$ 6,000 \text { of merchandise on account, terms } 2 / 10 , \mathrm { n } / 30 . \\\hline 3 & \text { Returned } \$ 1,500 \text { of merchandise purchased on August } 1 \text { due to defects. } \\\hline 7 & \begin{array} { l } \text { Recorded cash sales for the first week of August, } \$ 9,750 ; \text { cost of the } \\\text { merchandise was } \$ 4,000 .\end{array} \\\hline 10 & \begin{array} { l } \text { Made sale on account to a local breeder for } \$ 500 , \text { terms } 1 / 10 , \text { net } 30 ; \text { cost of } \\\text { the merchandise was } \$ 200 .\end{array} \\\hline 11 & \text { Paid for the merchandise purchased on August } 1 , \text { less return. } \\\hline 20 & \text { Received payment from sale of August } 10 . \text { The customer took the discount. } \\\hline\end{array}$

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Question 73

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Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. The entry to record the purchase will include a debit to Cash and a credit to Sales.

Using the letter preceding each account, arrange the following selected accounts in the order they would normally appear in a chart of accounts of a company that uses a multiple-step income statement. (a)Accounts Payable (b)Accounts Receivable (c)Merchandise Inventory (d)Miscellaneous Selling Expense (e)Interest Expense (f)Misc. Admin. Expense (g)Freight Out

Pierce Company sold merchandise to Stanton Company on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?

On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.

Large businesses that make sales to customers who use credit cards, such as American Express, generally treat these sales as credit sales.

Closing entries for a merchandising business are not similar to those for a service business.

If the ownership of merchandise passes to the buyer when the seller delivers the merchandise to the carrier, the terms are stated as FOB destination.

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

If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

Using the following data taken from Connor Inc., determine the gross profit to be reported on the income statement for the year ended May 31.? $\begin{array} { | l | r | } \hline \text { Merchandise inventory, June 1 } & \$ 393,250 \\\hline \text { Merchandise inventory, May } 31 & 380,100 \\\hline \text { Purchases } & 1,579,600 \\\hline \text { Purchases returns and allowances } & 81,200 \\\hline \text { Purchases discounts } & 16,500 \\\hline \text { Sales } & 2,060,000 \\\hline \text { Freight in } & 59,250 \\\hline\end{array}$

$\text { Match each of the following terms } ( a - h ) \text { with the correct definition below. }$ -Losses of inventory due to theft, damage, spoilage, etc., that cause the actual inventory on hand to be less than that on record. 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

Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should Norfolk debit to the merchandise inventory account?

The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.

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

Jacob Co. sells merchandise on credit to Isaiah Co. for $9,700. The invoice is dated on May 1 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?

When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are