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Exam 5: Accounting for Merchandising Businesses

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Question 41

True/False

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

A) True
B) False

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Question 42

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Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a

A) debit to Cost of Merchandise Sold
B) credit to Accounts Payable
C) credit to Merchandise Inventory
D) credit to Sales

E) B) and D)
F) B) and C)

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Question 43

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The form of the balance sheet in which assets, liabilities, and stockholders' equity are presented in a downward sequence is called the report form.

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.

A chart of accounts for a merchandising business

Gadget Palace is a retailer selling unique hardware. Gadget Palace uses a perpetual inventory system. Journalize the following transactions: On July 5, Gadget Palace purchases inventory for sale from Turbo Tools for $11,400.00 with terms 2/10, n/30. On July 6, Gadget Palace pays Fast Truck Transport $75.00 for freight-in on the July 5 order. On July 8, Gadget Palace receives a credit memo from Turbo Tools for $215.00 for damaged merchandise. On July 15, Gadget Palace pays Turbo Tools the balance due.

The following data were extracted from the accounting records of Dana Designs for the year ended March 31. $\begin{array} { | l | r | } \hline \text { Merchandise inventory, April } 1 & \$ 530,000 \\\hline \text { Merchandise inventory, March } 31 & 375,000 \\\hline \text { Purchases } & 270,000 \\\hline \text { Purchase returns and allowances } & 25,000 \\\hline \text { Purchase discounts } & 10,000 \\\hline \text { Sales } & 770,000 \\\hline \text { Freight-in } & 3,000 \\\hline\end{array}$ Prepare the gross profit and cost of merchandise sold section of the income statement for the year ended March 31, using the periodic method.

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

The following data for the current year ended June 30 are from the accounting records of Zanadu Co.: . .

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

On March 15, Monroe Sales sells $9,525.00 on account to Garrison Brewer with terms of 2/10, n/30. The cost of merchandise sold was $6,905.00. a) Journalize the sale and the recognition of the cost of the sale. b) On March 20, a $125.00 credit memo is given to Garrison Brewer due to merchandise that was the wrong color. Journalize this event. The cost of the returned merchandise was $65.00. c) On March 25, Garrison Brewer submits payment in full. Journalize this event.

Using the following information, what is the amount of gross profit?

Journalize the following transactions assuming a perpetual inventory system: May 5 Purchased merchandise from Archie Co., $6,000, terms FOB shipping point, 2/10, n/30. Prepaid freight costs of $100 were added to the invoice. 12 Issued a debit memo to Archie Co. for $2,500 of merchandise returned from purchase on May 5. 14 Paid Archie Co. for invoice of May 5, less debit memo of May 12. $\begin{array} { | l | l | l | l | } \hline \text { Date } & \text { Description } & \text { Debit } & \text { Credit } \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline & & & \\\hline\end{array}$

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. 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.

In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is

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.

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: a) Amount of the cash discount allowed. b) Amount to be paid by the purchaser if the discount is taken. c) Cost of the merchandise to the purchaser if the discount is not taken.

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

Which of the following accounts should be closed to Income Summary at the end of the fiscal year?

Complete the following data taken from the condensed income statements for merchandising Companies X, Y, and Z.