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Exam 4: Accounting for Merchandising Businesses

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Question 1

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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.)

A) Increase total assets by $2,300.
B) Increase total stockholders' equity by $3,600.
C) Increase total assets by $1,300.
D) Increase total assets by $3,600.

E) C) and D)
F) All of the above

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Question 2

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Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. If an event increases one account and decreases another account equally within the same element (such as an asset exchange event), record I/D. If an event has no impact on the element, record NA.Increase = I Decrease = D Not Affected = NAOn April 1, Year 1, Wetzel Company paid a supplier, Jacobs Company, the amount owed on account related to a purchase of inventory on account with terms of 2/10, net/30. The inventory was purchased on March 1, Year 1.

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Since payment was not made within the 1...

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Question 3

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Which of the following describes the purpose of a common size financial statement?

A common size income statement is prepared by dividing all amounts on the statement by net income.

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

James Company experienced the following events during its first accounting period.(1) Purchased $10,000 of inventory on account under terms 1/10 n/30.(2) Returned $2,000 of the inventory purchased in Event 1.(3) Paid the remaining balance in account payable for the inventory purchased in Event 1.If the Company pays the account payable after the discount period has expired, how much cash will be required to settle the liability?

Ballard Company uses the perpetual inventory system. The company purchased $16,000 of merchandise from Andes Company under the terms 2/10, net/30. Ballard paid for the merchandise within 10 days and also paid $500 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $30,000 cash. What is the amount of gross margin that resulted from these business events?

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

A company using the perpetual inventory system paid cash for freight costs to purchase merchandise. Which of the following reflects the effects of this event on the financial statements?

The following is a partial list of account balances for Fisherman's Supply at December 31, Year 1. Required:1. Prepare a multistep income statement.

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account. Due to an error, neither part of the related two-part transaction was recorded in the accounting records. What effect will the failure to make the necessary entries have on the company's financial statements?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. If an event increases one account and decreases another account equally within the same element (such as an asset exchange event), record I/D. If an event has no impact on the element, record NA.Increase = I Decrease = D Not Affected = NAWetzel Company granted a $70 allowance to a customer who was not totally satisfied with the quality of goods received. The customer did not return the goods and had not yet paid for them.

The current year income statements of two competitors, Green Company and Black Company, are as follows: Required:1)What is the gross margin percentage for each company?2)What is the net income percentage for each company?3)Which company is selling their products for lower prices (at a lower markup)?

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?

If a company uses the periodic inventory system, it records inventory purchases in the Purchases account at the time of purchase.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. If an event increases one account and decreases another account equally within the same element (such as an asset exchange event), record I/D. If an event has no impact on the element, record NA.Increase = I Decrease = D Not Affected = NAWetzel Company sold merchandise to a customer for $950 on account. Wetzel's cost of the merchandise was $600. (Consider the effects of both parts of this event.)

Ashton Company uses the perpetual inventory system. The company's inventory account had a $6,600 balance as of December 31, Year 1. A physical count of inventory shows only $5,900 of merchandise in stock at December 31, Year 1. How will recognizing the missing inventory affect the company's financial statements?

When using a perpetual inventory system, which of the following events is an asset use transaction?

Which factor has removed most of the practical limitations associated with use of the perpetual inventory system?

The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.