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Exam 5: Accounting for Retail Businesses

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Question 71

True/False

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In a perpetual inventory system, merchandise returned to vendors reduces the inventory account.

A) True
B) False

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Question 72

Multiple Choice

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President's salaries, depreciation of office furniture, and office supplies are

A) selling expenses
B) miscellaneous expenses
C) administrative expenses
D) inventory expenses

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

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Question 73

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If merchandise sells for $3,500, with terms of 3/15, n/45, and the cost of the inventory sold is $2,100, the amount charged to sales is

Based on the information below, journalize the entries for the seller and the buyer. Both use a perpetual inventory system.

In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.

Merchandise with a list price of $4,200 and costing $2,300 is sold on account, subject to the following terms: FOB destination, 2/10, n/30. The seller prepays the freight costs of $85 (debit Delivery Expense for the freight costs). Prior to payment for the goods, the seller issues a credit memo for $750 to the customer for merchandise costing $425 that is returned. Payment is received within the discount period. The company uses a perpetual inventory system. Record the foregoing transactions of the seller in the sequence indicated below.

Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale would include a

When comparing a retail business to a service business, the financial statement that changes the least is the

What amount will be paid in full settlement of Invoice 22384, assuming that credit for returns and allowances was received prior to payment and that the invoice was paid within the discount period.

Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the goods sold was $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700. Gomez Co. paid the invoice within the discount period. What is the amount of gross profit earned by Abbey Co. on the above transactions?

Travis Company purchased merchandise on account from a supplier for $5,700, terms 2/10, net 30. Travis Company paid for the merchandise within the discount period. ​ Under a perpetual inventory system, record the journal entries required for the above transactions.

Gadget Palace is a retailer selling unique hardware. Gadget Palace uses a perpetual inventory system. Journalize the following transactions: ​

In retail businesses, inventory is reported as a current asset.

The following selected accounts and their current balances appear in the ledger of Fernandez Co. at the end of its fiscal year. -What is Fernandez Company's income from operations for the year?

Which of the following costs would be included in inventory?

Freight-in is the amount paid by the company to deliver merchandise sold to a customer.

In a perpetual inventory system, when merchandise is returned to the supplier, Cost of Goods Sold is debited as part of the transaction.

Gross profit minus selling expenses equals net income.

Estimated Returns Inventory is an account used when adjusting for expected merchandise sales in the next period.

Under the perpetual inventory system, when a sale is made, both the sale and cost of goods sold are recorded.