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Exam 5: Accounting for Merchandising Businesses

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Question 91

True/False

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

A) True
B) False

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Question 92

Multiple Choice

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

A) sales on account
B) sales returns
C) cash sales
D) sales when the credit card company remits the cash

E) None of the above
F) B) and C)

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Question 93

Multiple Choice

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

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

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

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

When goods are shipped FOB destination and the seller pays the freight charges, the buyer

Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business.

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

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:

A chart of accounts for a merchandising business

The following data for the current year ended June 30 were extracted from the accounting records of Excel Co.: Prepare a multiple-step income statement for the year ended June 30, 2014.

Discounts taken by the buyer for early payment of an invoice are credited to Sales Discounts by the buyer.

Which of the following accounts will only be found in the chart of accounts of a merchandising company?

In a multiple-step income statement the dollar amount for income from operations is always the same as net income.

Sampson Co. sold merchandise to Batson Co. on account, $46,000, terms 2/15, net 45. The cost of the merchandise sold is $38,500. Sampson Co. issued a credit memo for $1,500 for merchandise returned that originally cost $950. The Batson Co. paid the invoice within the discount period. Prepare the entries that both Sampson and Batson Companies would record for the above. Assume both Sampson and Batson use a perpetual inventory system.

Details of a purchase invoice and related credit memo are summarized as follows: Assume that the credit memo was received prior to payment and that the invoice is paid within the discount period. Determine the following:

Journalize the following transactions assuming the perpetual inventory system: Journal

Under the perpetual inventory system, all purchases of merchandise are debited to the account entitled

When merchandise is sold for $600 plus 6% sales tax, the Sales account should be credited for $636.