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Exam 6: Accounting for Merchandising Businesses

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Question 71

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The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.

A) True
B) False

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Question 72

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Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.

A) True
B) False

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Question 73

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Prepare a multiple-step income statement for Armour Co. from the following data for the year ended December 31, 2014. Sales, $790,000; cost of merchandise sold, $330,000; administrative expenses, $35,000; interest expense, $20,000; rent revenue, $25,000; sales returns and allowances, $35,000; selling expenses, $50,000.

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:

On March 4th, Micro Sales makes $4,850.00 in sales on bank credit cards which charge a 2.5% service charge and deposit the funds into Micro Sales bank accounts at the end of the business day. Journalize the sales and recognition of expense.

Under a periodic inventory system, closing entries will include

One of the most important differences between a service business and a retail business is in what is sold.

Bargain Wholesalers sells pet supplies to retailers including Pet World Supplies. Bargain Wholesalers uses perpetual inventory. Use a General Journal to journalize the following three transactions during the month of May:

If the merchandise costs $3,500, insurance in transit costs $250, tariff costs $75, processing the purchase order by the purchasing department costs $50, and the company receiving dock personnel cost $25, what is the total cost charged to the merchandise?

Merchandise is sold for cash. The selling price of the merchandise is $5,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include

Under a perpetual inventory system

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a

Details of invoices for purchases of merchandise are as follows: Determine the amount to be paid in full settlement of each of the invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?

Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately

What type of company would normally offer trade discounts to its customers?

Merchandise with an invoice price of $3,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September 12, assuming the discount is taken?

When the terms of sale are FOB shipping point, the buyer should pay the freight charges.

If merchandise costing $3,500, terms FOB destination, 2/10, n/30, with prepaid freight costs of $125, is paid within 10 days, the amount of the purchases discount is $70.

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