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Exam 4: Accounting for Merchandising Businesses

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Question 41

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JJ Co.purchased on account merchandise with a list price of $10,000.Payment terms were 1/15,n/45.If collection occurs before the discount expires,what is the effect of the sales discount on the balance sheet?

A) Decreases accounts receivable
B) Decreases inventory
C) Increases accounts payable
D) Increases cash

E) A) and C)
F) A) and D)

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Question 42

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Sales discounts affect net sales,but purchase discounts do not.

A) True
B) False

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Question 43

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Faust Company uses the perpetual inventory system.Faust sold goods that cost $2,300 for $3,600.The sale was made on account.What is the net effect of the sale on the company's financial statements? (Consider the effects of both parts of this event. )

The following are the income statements for Ace and Diamond Companies. What are the net income percentages for Ace and Diamond,respectively?

Sales discounts do not affect a company's gross margin percentage.

[The following information applies to the questions displayed below.] Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $42,000 of common stock for cash. 2) The company paid cash to purchase $26,400 of inventory. 3) The company sold inventory that cost $16,000 for $30,600 cash. 4) Operating expenses incurred and paid during the year, $14,000. Sanchez Company engaged in the following transactions during Year 2: 1) The company paid cash to purchase $35,200 of inventory. 2) The company sold inventory that cost $32,800 for $57,000 cash. 3) Operating expenses incurred and paid during the year, $18,000. Note: Sanchez uses the perpetual inventory system. -What is Sanchez's gross margin for Year 2?

[The following information applies to the questions displayed below.] Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $42,000 of common stock for cash. 2) The company paid cash to purchase $26,400 of inventory. 3) The company sold inventory that cost $16,000 for $30,600 cash. 4) Operating expenses incurred and paid during the year, $14,000. Sanchez Company engaged in the following transactions during Year 2: 1) The company paid cash to purchase $35,200 of inventory. 2) The company sold inventory that cost $32,800 for $57,000 cash. 3) Operating expenses incurred and paid during the year, $18,000. Note: Sanchez uses the perpetual inventory system. -What is the amount of retained earnings that will be shown on the balance sheet at December 31,Year 2?

What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory system?

With a periodic inventory system,the cost of goods sold is recorded at the time of a sale of merchandise.

Sam Company reported the following amounts on its income statement: Based on the information provided,what was the amount of sales reported on the income statement?

What event and inventory system may have produced the following journal entry?

A company purchased inventory on account.If the perpetual inventory system is used,which of the following choices accurately reflects how the purchase affects the company's financial statements?

The financial statements of Tin Company included the following: Based on the information provided,what was the company's cost of goods sold?

Merchandising businesses include retail companies and manufacturing companies.

A multistep income statement separates routine operating results from peripheral or nonoperating items.

What type of account is the Cost of Goods Sold account?

The following general journal entry is taken from the journal of Becker's Bookstore: Which of the following choices reflects how the entry will affect the company's financial statements?

Aaron Company uses the periodic inventory system.If Aaron's ending inventory is understated due to an accounting error,what is the effect on net income and the ending balance of retained earnings?

In a perpetual inventory system,a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

What is the term used to describe a firm that primarily sells merchandise to other businesses?