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1. One of the most important differences between a service business and a retail business is in what is sold.
True False
3. Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends
to sell.
True False
4. Service businesses provide services for income, while a merchandising business sells merchandise.
True False
6. Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a
physical count of the inventory.
True False
7. In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.
True False
8. Under the periodic inventory system, the cost of merchandise sold is equal to the beginning merchandise
inventory plus the cost of merchandise purchased plus the ending merchandise inventory.
True False
9. In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning
inventory.
True False
10. In a periodic inventory system, the cost of merchandise purchased includes the cost of freight-in.
True False
11. As we compare a merchandise business to a service business, the financial statement that changes the most
is the Balance Sheet.
True False
12. When a merchandising business is compared to a service business, the financial statement that is not
affected by that change is the Statement of Owner's Equity.
True False
13. The ending merchandise inventory for 2010 is the same as the beginning merchandise inventory for 2011.
True False
14. In a multiple-step income statement the dollar amount for income from operations is always the same as net
income.
True False
17. The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a downward
sequence is called the report form.
True False
18. On the income statement in the single-step form, the total of all expenses is deducted from the total of all
revenues.
True False
19. The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and
income from operations are not readily available.
True False
20. Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is
listed as Other Income on the multiple-step income statement.
True False
21. Freight in is the amount paid by the company to deliver merchandise sold to a customer.
True False
22. In the merchandising income statement, sales will be reduced by sales discounts and sales returns and
allowances to arrive at net sales.
True False
23. Other income and expenses are items that are not related to the primary operating activity.
True False
25. The cost of merchandise inventory is limited to the purchase price less any purchase discounts.
True False
26. Cost of Merchandise Sold is often the largest expense on a merchandising company income statement.
True False
27. Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are
recorded.
True False
28. Under the periodic inventory system, the cost of merchandise sold is recorded when sales are made.
True False
29. If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as
n/30.
True False
30. When merchandise that was sold is returned, a credit to sales returns and allowances is made.
True False
31. In a perpetual inventory system, when merchandise is returned to the seller, Cost of Merchandise Sold is
debited as part of the transaction.
True False
34. Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit
sales.
True False
35. Sales to customers who use nonbank credit cards, such as American Express, are generally treated as credit
sales.
True False
36. Retailers record all credit card sales as credit sales.
True False
37. The service fee that credit card companies charge retailers varies and is the primary reason why some
businesses do not accept all credit cards.
True False
38. A seller may grant a buyer a reduction in selling price and this is called a sales allowance.
True False
39. The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts
receivable.
True False
41. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30days after the invoice date to take
advantage of the cash discount.
True False
42. Discounts taken by the buyer for early payment of an invoice are credited to Sales Discounts by the buyer.
True False
43. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory
account.
True False
44. Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. If payment
is made within 10 days of the purchase, the entry to record the payment will include a credit to Cash and a
credit to Purchase Discounts.
True False
45. Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual
inventory system.
True False
46. When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for
the buyer to pay within the discount period.
True False
47. When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade
discount.
True False
48. A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called
cash discounts.
True False
50. If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment,
the terms are stated as FOB destination.
True False
51. A sale of $750 on account, subject to a sales tax of 6%, would be recorded as an account receivable of
$750.
True False
52. When merchandise is sold for $600 plus 6% sales tax, the Sales account should be credited for $636.
True False
55. If the buyer bears the freight costs related to a purchase, the terms are said to be FOB destination.
True False
56. When the terms of sale are FOB shipping point, the buyer should pay the freight charges.
True False
57. 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.
True False
58. The chart of accounts for a merchandise business would include an account called Delivery Expense.
True False
59. There is no difference between the recording of cash sales and the recording of MasterCard or VISA sales.
True False
60. When companies use a perpetual inventory system, the recording of the purchase of inventory will include a
debit to purchases.
True False
61. Most companies will not take a purchases discount, because 1% or 2% discounts are insignificant.
True False
62. The seller may prepay the freight costs even though the terms are FOB shipping point.
True False
63. The seller records the sales tax as part of the sales amount.
True False
64. The buyer will include the sales tax as part of the cost of items purchased for use.
True False
65. A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take
a physical inventory.
True False
66. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to
the buyer's place of business.
True False
67. Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped
FOB shipping point.
True False
68. Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the
buyer.
True False
69. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the
general ledger.
True False
70. The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise
Sold.
True False
71. Closing entries for a merchandising business are not similar to those for a service business.
True False
72. The ratio of net sales to assets measures how effectively a business is using its assets to generate sales.
True False
73. Because many companies use computerized accounting systems, periodic inventory is widely used.
True False
74. Computerized systems can be used to capture accounting information such as accounts receivable, inventory
items, accounts payable, and sales.
True False
75. The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Freight In are found
on the balance sheet.
True False
76. Match each of the following terms with the appropriate definition below.
78. Which one of the following is not a difference between a retail business and a service business?
A. in what is sold
B. the inclusion of gross profit in the income statement
C. accounting equation
D. merchandise inventory included in the balance sheet
83. A company using the periodic inventory system has the following account balances: Merchandise Inventory
at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances,
$1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to
A. $12,670
B. $9,070
C. $8,420
D. $17,230
84. A company, using the periodic inventory system, has merchandise inventory costing $175 on hand at the
beginning of the period. During the period, merchandise costing $635 is purchased. At year-end, merchandise
inventory costing $160 is on hand. The cost of merchandise sold for the year is
A. $970
B. $650
C. $300
D. $620
85. Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
A. selling expenses
B. general expenses
C. other expenses
D. administrative expenses
86. Office salaries, depreciation of office equipment, and office supplies are examples of what type of expense?
A. selling expense
B. miscellaneous expense
C. administrative expense
D. other expense
87. The form of income statement that derives its name from the fact that the total of all expenses is deducted
from the total of all revenues is called a
A. multiple-step statement
B. revenue statement
C. report-form statement
D. single-step statement
89. When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the
A. account form
B. comparative form
C. horizontal form
D. report form
94. The inventory system employing accounting records that continuously disclose the amount of inventory is
called
A. retail
B. periodic
C. physical
D. perpetual
95. When the perpetual inventory system is used, the inventory sold is shown on the income statement as
A. cost of merchandise sold
B. purchases
C. purchases returns and allowances
D. net purchases
96. When comparing a retail business to a service business, the financial statement that changes the most is the
A. Balance Sheet
B. Income Statement
C. Statement of Owner's Equity
D. Statement of Cash Flow
97. When comparing a retail business to a service business, the financial statement that changes the least is the
A. Balance Sheet
B. Income Statement
C. Statement of Owner's Equity
D. Statement of Cash Flow
A. $26,900
B. $20,530
C. $30,210
D. $28,130
100. Using the following information, what is the amount of gross profit?
A. $34,870
B. $31,880
C. $27,460
D. $62,090
101. Using the following information, what is the amount of net sales?
A. $28,970
B. $63,130
C. $63,000
D. $62,090
102. Using the following information, what is the amount of merchandise available for sale?
A. $35,540
B. $36,580
C. $37,700
D. $34,500
103. Where are selling and administrative expenses found on the multiple-step income statement?
A. before gross profit
B. after sales and before gross profit
C. after net income before expenses
D. after gross profit
104. Dorman Co. sold merchandise to Smith Co. on account, $23,500, terms 2/15, net 45. The cost of the
merchandise sold is $16,000. Dorman Co. issued a credit memo for $1,750 for merchandise returned that
originally cost $1,400. The Smith Co. paid the invoice within the discount period. What is amount of net sales
from the above transactions?
A. $23,030
B. $21,750
C. $21,315
D. $13,808
105. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
A. debit to Sales
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. credit to Accounts Receivable
108. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on
account includes a
A. credit to Sales Returns and Allowances
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. debit to Cost of Merchandise Sold
109. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details
by issuing a
A. sales invoice
B. purchase invoice
C. credit memo
D. debit memo
110. The arrangements between buyer and seller as to when payments for merchandise are to be made are
called
A. credit terms
B. net cash
C. cash on demand
D. gross cash
113. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for
$25,000. The seller paid freight costs of $2,000 and issued a credit memo for $10,000 prior to payment. What
is the amount of the cash discount allowable?
A. $170
B. $150
C. $130
D. $250
115. The entry to record the return of merchandise from a customer would include a
A. debit to Sales
B. credit to Sales
C. debit to Sales Returns and Allowances
D. credit to Sales returns and Allowances
116. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
A. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
B. debit to Cash and a credit to Sales
C. debit to Cash, credit to Credit Card Expense, and a credit to Sales
D. debit to Sales, debit to Credit Card Expense, and a credit to Cash
117. Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as
A. sales on account
B. sales returns
C. cash sales
D. sales when the credit card company remits the cash
118. When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the
following entry
A. debit Merchandise Inventory; credit Cash
B. debit Cash; credit Merchandise Inventory
C. debit Cash; credit Sales Returns and Allowances
D. debit Sales Returns and Allowances; credit Cash
119. When merchandise is returned under the perpetual inventory system, the buyer would credit
A. Merchandise Inventory
B. Purchases Returns and Allowances
C. Accounts Payable
D. Accounts Receivable
120. When purchases of merchandise are made for cash, the transaction may be recorded with the following
entry
A. debit Cash; credit Merchandise Inventory
B. debit Merchandise Inventory; credit Cash
C. debit Merchandise Inventory; credit Cash Discounts
D. debit Merchandise Inventory; credit Purchases
121. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account
would include a
A. debit to Accounts Payable
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. credit to Sales
122. 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
123. In recording the cost of merchandise sold for cash, based on data available from perpetual inventory
records, the journal entry is
A. debit Cost of Merchandise Sold; credit Sales
B. debit Cost of Merchandise Sold; credit Merchandise Inventory
C. debit Merchandise Inventory; credit Cost of Merchandise Sold
D. debit Accounts Receivable; credit Merchandise Inventory
124. The amount of the total cash paid to the seller for merchandise purchased for consumption would normally
include
A. only the list price
B. only the sales tax
C. the list price plus the sales tax
D. the list price less the sales tax
125. A retailer purchases merchandise with a catalog list price of $25,000. The retailer receives a 30% trade
discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory
account?
A. $7,500
B. $17,500
C. $25,000
D. $17,250
126. A sales invoice included the following information: merchandise price, $10,000; freight, $900; terms 1/10,
n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $500 is granted prior to
payment and that the invoice is paid within the discount period, what is the amount of cash that should be
received by the seller?
A. $10,305
B. $9,500
C. $9,306
D. $9,900
129. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
A. FOB shipping point
B. FOB destination
C. FOB n/30
D. FOB buyer
130. If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
A. FOB shipping point
B. FOB destination
C. FOB n/30
D. FOB seller
131. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms
are
A. n/30
B. FOB shipping point
C. FOB destination
D. consigned
132. 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?
A. $3,140
B. $3,136
C. $2,744
D. $2,940
133. When goods are shipped FOB destination and the seller pays the freight charges, the buyer
A. journalizes a reduction for the cost of the merchandise.
B. journalizes a reimbursement to the seller.
C. does not take a discount.
D. makes no journal entry for the freight.
134. Anthony Company sold Madison Company merchandise on account FOB shipping point, 2/10, net 30, for
$10,000. Anthony prepaid the $300 shipping charge. Which of the following entries does Anthony make to
record this sale?
A. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000
B. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000, and
Accounts Receivable-Madison, debit $300; Cash, credit $300
C. Accounts Receivable-Madison, debit $10,300; Sales, credit $10,300
D. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000, and
Freight Out, debit $300; Cash, credit $300
135. Emma Co. sold Isabella Co. merchandise on account FOB shipping point,, 2/10, net 30, for
$15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the
following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the
discount period?
A. Accounts Payable-Emma Co., debit $15,000; Freight In, credit $750; Cash, credit $14,250
B. Accounts Payable-Emma Co., debit $15,750; Merchandise Inventory, credit $300; Cash, credit $15,450
C. Accounts Payable-Emma Co., debit $15,000; Freight In, debit $750; Cash, credit $15,750
D. Accounts Payable-Emma Co., debit $15,750; Merchandise Inventory, debit $300; Cash, credit $16,050
137. Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the
merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be
recorded?
A. Cash $2,000 Dr, Merchandise Inventory $1,250 Cr
B. Cash $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr, Merchandise Inventory $1,250
Cr.
C. Cash $1,250 Dr, Sales $1,250 Cr
D. Accounts Receivable $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr, Merchandise
Inventory $1,250 Cr.
138. Isaac Co. sells merchandise on credit to Sonar Co in the amount of $5,700. The invoice is dated on April
1 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the invoice be paid
in order for the buyer to take advantage of the discount?
A. $114, April 15
B. $114, April 16
C. $57, April 15
D. $57, April 16
139. Isaac Co. sells merchandise on credit to Sonar Co in the amount of $9,600. The invoice is dated on April
15 with terms of 1/15, net 45. If Sonar Co. chooses not to take the discount, by when should the payment be
made?
A. April 30
B. May 30
C. May 15
D. April 25
140. Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as
A. Purchases discount
B. Sales discount
C. Trade discount
D. Early payment discount
141. Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately
A. 2%
B. 24%
C. 20%
D. 36%
142. Who pays the freight costs when the terms are FOB shipping point?
A. the ultimate customer
B. the buyer
C. the seller
D. either the seller or the buyer
143. Who pays the freight cost when the terms are FOB destination?
A. the seller
B. the buyer
C. the customer
D. either the buyer or the seller
144. A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade
discount and credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount
period?
A. $30,000
B. $24,900
C. $29,400
D. $24,990
145. What type of company would normally offer trade discounts to its customers?
A. Service companies
B. Retailers
C. Wholesalers
D. On-line retailers
146. Which of the following accounts will only be found in the chart of accounts of a merchandising company?
A. Sales
B. Accounts Receivable
C. Merchandise Inventory
D. Accounts Payable
147. Which of the following items would affect the cost of merchandise inventory acquired during the period?
A. quantity discounts
B. cash discounts
C. freight-in
D. all of these costs
148. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms
are
A. consigned
B. n/30
C. FOB shipping point
D. FOB destination
149. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms
are
A. n/30
B. FOB shipping point
C. FOB destination
D. consigned
150. 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?
A. $3,825
B. $3,850
C. $3,875
D. $3,500
151. Under the perpetual inventory system, all purchases of merchandise are debited to the account entitled
A. Merchandise Inventory
B. Cost of Merchandise Sold
C. Cost of Merchandise Available for Sale
D. Purchases
152. When the perpetual inventory system is used, the inventory sold is debited to
A. supplies expense
B. cost of merchandise sold
C. merchandise inventory
D. sales
154. The proper journal entry to record the receipt of inventory purchased on account in a perpetual inventory
system would be:
A. Jan 1 Merchandise Inventory 1,500
Accounts Payable 1,500
B. Jan 1 Office Supplies 1,500
Accounts Payable 1,500
C. Jan 1 Purchases 1,500
Accounts Payable 1,500
D. Jan 1 Purchases 1,500
Accounts Receivable 1,500
155. Which of the following items should not be included in the cost of ending merchandise inventory?
A. purchased units in transit, shipped FOB shipping point
B. purchased units in transit, shipped FOB destination
C. units on hand in the warehouse
D. sold units in transit, not invoiced and shipped FOB destination
156. The Corbit Corp. sold merchandise $10,000 for cash. The cost of the merchandise sold was $7,590. The
journal entry(s) to record this transaction would be
A. Cash 10,000
Merchandise Inventory 10,000
158. If the physical count of the inventory revealed $158,000 of merchandise on hand and the inventory records
reported $163,000, what would be the necessary adjusting entry to record inventory shortage?
A. Merchandise inventory debit $158,000; Cost of Merchandise Sold credit $158,000.
B. Merchandise inventory debit $5,000; Cost of Merchandise Sold credit $5,000.
C. Cost of Merchandise Sold debit $163,000; Merchandise Inventory credit $158,000.
D. Cost of Merchandise Sold debit $5,000; Merchandise Inventory credit $5,000.
159. Which account will be included in both service and merchandising companies closing entries?
A. Sales
B. Cost of Merchandise Sold
C. Purchase Discounts
D. Sales Returns and Allowances
160. Ramone Company had $600,000 in Net Sales for the year 2010. The total assets at the beginning of the
year were $240,000 and total assets at the end of the year were $280,000. The ratio of net sales to total assets is
(round answer to 2 decimal places):
A. 2.31
B. 1.15
C. .43
D. .87
161. Cleary Company had total Sales of $550,000; Sales Discounts of $10,000; Sales Returns of $40,000 and
Cost of Merchandise Sold of $200,000 during 2010. The total asset balance at the beginning of the year was
$175,000 and at the end of the year was $167,000. Calculate the ratio of net sales to total assets (Round answer
to 2 decimal points).
A. 1.75
B. 2.92
C. .34
D. .57
162. What is the major difference between a periodic and perpetual inventory system?
A. Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account
B. Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the
cost of the inventory.
C. Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts
are reconciled at the end of the month.
D. All are correct.
163. Which of the following accounts will not be found on the Cost of Merchandise Sold section on the Income
Statement?
A. Purchases
B. Freight In
C. Sales Returns and Allowances
D. Merchandise Inventory
164. Under the periodic inventory system, the journal entry to record the purchase of merchandise inventory
will include a debit to
A. Merchandise Inventory
B. Purchases
C. Accounts Payable
D. Cost of Merchandise Purchased
165. Under the periodic inventory system, the journal entry to record the cost of merchandise sold at the point
of sale will include the following account
A. No entry is made.
B. Cost of merchandise sold
C. Inventory
D. Purchases
167. The proper journal entry to record the receipt of inventory purchased on account in a periodic inventory
system would be:
A. Jan 1 Merchandise Inventory 1,600
Accounts Payable 1,600
B. Jan 1 Office Supplies 1,600
Accounts Payable 1,600
C. Jan 1 Purchases 1,600
Accounts Payable 1,600
D. Jan 1 Purchases 1,600
Accounts Receivable 1,600
168. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?
A. Merchandise Inventory
B. Accumulated Depreciation
C. Drawing
D. Cost of Merchandise Sold
169. Calculate the gross profit for Jonas Company based on the data given below:
Sales $764,000
Selling Expenses 52,500
Cost of Merchandise Sold 538,000
Sales Discounts 7,100
Sales Returns and Allowances 3,650
A. $753,250
B. $700,750
C. $162,750
D. $215,250
170. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the
merchandise sold is $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?
A. 10,500
B. 30,772
C. 7,972
D. 31,400
171. Calculate income from operations for Jonas Company based on the data given below:
Sales $764,000
Selling Expenses 52,500
Cost of Merchandise Sold 538,000
Sales Discounts 7,100
Sales Returns and Allowances 3,650
A. 753,250
B. 700,750
C. 162,750
D. 215,250
172. Describe the major differences in preparing the financial statements for a service business and a
merchandising business.
Sales $764,000
Selling Expenses 52,500
Cost of Merchandise Sold 538,000
Sales Discounts 7,100
Sales Returns and Allowances 3,650
174. During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the
merchandise sold is $76,240. What is the amount of the gross profit?
175. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the
merchandise sold is $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?
176. Based upon the following data, determine the cost of merchandise sold for August.
A. Sold merchandise on account, $17,300 with terms 2/10, net 30. The cost of the merchandise sold was $12,600.
B. Received payment less the discount.
178. Travis Company purchased merchandise on account from a supplier for $5,700, terms 2/10, net 30. Travis
returned $1,100 of the merchandise and received full credit. Travis Company paid for the merchandise within
the discount period.
Under a perpetual inventory system, record all of the journal entries required for the above transactions.
179. On March 25, 2014, Patton Company sold merchandise on account,$10,000. The applicable sales tax
percentage is 8.5%. Record the transaction.
Journal
Post Ref
Date Description Debit Credit
180. On March 29th, customers who owe $10,500.00 for purchases made on Sonic Sales Company submit
payments of $4,250.00. Journalize this event.
181. Determine the amount to be paid in full settlement of each invoice, assuming that credit for returns and
allowances was received prior to payment and that all invoices were paid within the discount period.
182. 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.
183. 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. Sampson Co. issued a credit memo for $1,500 for merchandise returned that
originally cost $950. 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.
184. Maxi Company’s perpetual inventory records indicate that $820,300 of merchandise should be on hand on
October 31, 2014. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting
entry for the inventory shrinkage for Maxi Company for the year ended October 31, 2014.
185. The records of Nevada Co. indicated that $420,000 of merchandise should be on hand on December 31,
2010. The physical inventory indicates that $370,000 of merchandise is actually on hand. Journalize the
adjusting entry for the inventory shrinkage for the year ended December 31, 2010.
Journal
Post Ref
Date Description Debit Credit
186. Selected accounts and amounts appear below. Journalize the closing entry, assuming a perpetual
inventory system.
“Operating cycles for all merchandising businesses are the same, with similar profit margins.”
188. Complete the following data taken from the condensed income statements for merchandising Companies
A, B, & C.
189. Complete the following data taken from the condensed income statements for merchandising Companies
X, Y, & Z.
191. During the current year, merchandise is sold for $117,500 cash and $241,750 on account. The cost of the
merchandise sold is $157,400. What is the amount of the gross profit?
192. What is the normal balance of the following accounts?
193. Using the following data taken from Hsu’s Imports Inc., prepare the cost of merchandise sold section of
the income statement for the year ended March 31, 2011.
194. Using the following data taken from Hsu’s Imports Inc., determine the gross profit to be reported on the
income statement for the year ended March 31, 2011.
196. Using the following data taken from Martinez Inc., determine the gross profit to be reported on the income
statement for the year ended May 31, 2011.
(1) Purchases
(2) Freight in
(3) Sales Returns and Allowances
(4) Delivery Expense
(5) Purchases Returns and Allowances
198. Which of the following accounts would be included in the chart of accounts of a merchandising company
using the: (a) periodic inventory system, (b) perpetual inventory system, or (c) both systems?
Oct.7 Sold merchandise on credit to Rondo Distributors, terms n/30, FOB destination, $1,200; the cost of the
merchandise was $720.
Oct. 8 Purchased merchandise, $10,000, terms FOB shipping point, 2/15, n/30, with prepaid freight charges of
$525 added to the invoice.
200. Journalize the following transactions for Dulcimer Inc. using both the periodic inventory system and the
perpetual inventory system, presented in a side-by-side format shown at the end of this exercise.
Oct. 9 Merchandise sold on October 7 accepted back from Rondo Co. for full credit and returned to
merchandise inventory, $300; the cost of the merchandise was $180.
Nov. 5 Received payment in full of $900 from Pine Co. for sale of merchandise on Oct. 25.
Oct. 5 Purchased $18,000 of merchandise from Rex on account, terms 2/10, n/30.
Oct. 15 Paid for purchase of Oct. 5, less Oct. 8 return and purchase discount.
Prepare the cost of merchandise sold section of the income statement for the year ended March 31, 2014, using the periodic method. Also determine
gross profit.
203. The following data for the current year ended June 30 were extracted from the accounting records of Excel
Co.:
Prepare a multiple-step income statement for the year ended June 30, 2014.
204. Selected data from the ledger of Morrison Co. after adjustment at September 30, 2011 the end of the fiscal
year, are listed as follows:
Prepare an income statement, using the single-step form, and a statement of owner's equity.
205. Prepare (a) a single-step income statement, (b) a statement of owner's equity, and (c) a balance sheet in
report form from the following data for Kooper Co., taken from the ledger after adjustment on December 31,
2010 the end of the fiscal year.
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.
(a) The total merchandise on hand at the end of the year as determined by taking a physical inventory is $62,000. Of the $62,000, $8,000
has been sold FOB destination and is awaiting pickup by the carrier.
(b) The total merchandise inventory counted at the end of the year was $63,000. Purchases for $6,000 are in transit under FOB shipping
point terms.
(c) The total merchandise inventory counted at the end of the year was $75,000. Purchases for $5,000 are in transit under FOB destination
terms.
209. Using the perpetual inventory system, journalize the entries for the following selected transactions:
(a) Sold merchandise on account, for $12,000. The cost of the merchandise sold was $6,500.
(b) Sold merchandise to customers who used MasterCard and VISA, $9,500. The cost of the merchandise sold was $5,300.
(c) Sold merchandise to customers who used American Express, $2,900. The cost of the merchandise sold was $1,700.
(d) Paid an invoice from First National Bank for $385, representing a service fee for processing MasterCard and VISA sales.
(e) Received $4,325 from American Express Company after a $115 collection fee had been deducted.
210. 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 Freight Out 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. The correct amount 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.
(a) Sold the merchandise, recognizing the sale and cost of merchandise sold.
(b) Paid the freight charges.
(c) Issued the credit memo.
(d) Received payment from the customer.
211. Based on the information below, journalize the entries for the Seller and the Buyer. Both use a perpetual
inventory system.
(a) Seller sold merchandise on account to the buyer, $4,750, terms 2/10, net 30, FOB shipping point. The cost of the merchandise is
$2,850. The seller prepays the freight of $75.
(b) Buyer returns $ 700 of merchandise as defective. The cost of the merchandise is $420.
(c) Buyer pays within the discount period.
Seller Buyer
Accounts DR CR DR CR
212. Details of a purchase invoice and related credit memo are summarized as follows:
213. Conquest Company uses a perpetual inventory system. Conquest purchased $1,500 of merchandise on
account and payment was made within the discount period. The credit terms were 2/10,n/30. Journalize
Conquest’s purchase and payment.
214. Merchandise with a list price of $4,700 is purchased on account, terms FOB shipping point, 1/10,
n/30. The seller prepaid freight costs of $100. Prior to payment, $1,400 of the merchandise is returned. The
correct amount is paid within the discount period.
Record the foregoing transactions of the buyer in the sequence indicated below, assuming a perpetual inventory
system is used.
Returns and
Merchandise Freight Terms Allowances
(a) $2,800 $45 FOB shipping point, 1/10, n/30 $200
(b) 7,600 --- FOB destination, n/30 800
(c) 1,400 55 FOB shipping point, 2/10, n/30 600
(d) 500 --- FOB destination, 1/10, n/30
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) Sold $900 of merchandise on account, subject to 7% sales tax. The cost of the merchandise sold was $510.
(b) Paid $436 to the state sales tax department for taxes collected.
217. Using the letter preceding each account, arrange the following selected accounts in the order they would
normally appear in a chart of accounts of a company that uses a multiple-step income statement.
(a) On July 5th, Gadget Palace purchases inventory for sale from Turbo Tools for $11,400.00 with terms 2/10, n/30.
(b) On July 6th, Gadget Palace pays Fast Truck Transport $75 for freight-in on the July 5th order.
(c) Gadget Palace gets a credit memo from Turbo Tools for $215.00 for damaged merchandise on July 8th.
(d) On July 15th, Gadget Palace pays Turbo Tools the balance due.
Ge
neral Journal
Date: Account Title Debit: Credit:
219. Marshall Supplies is a janitorial supply store. Marshall Supplies uses perpetual inventory. Use a General
Journal to journalize the following four transactions during the month of July:
(a) On July 4th, Marshall purchases inventory for sale from Tidy Wholesalers for $8,500.00 with terms 1/10, n/30.
(b) On July 5th, Marshall pays Express Transfer $45 for freight-in on the July 4th order.
(c) On July 12th, Marshall buys an additional $11,985 in inventory from Tidy Wholesalers with terms 1/10, n/30.
(d) On July 22nd, Marshall pays Tidy Wholesalers the balance due.
Ge
neral Journal
Date: Account Title Debit: Credit:
220. 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:
(a) On May 4th, Bargain Wholesalers sells inventory to Pet World Supplies for $8,250.00 with terms 1/10, n/30. The cost of the
merchandise is $5,755.00.
(b) On May 13th, Bargain Wholesalers sells an additional $10,985 in inventory to Pet World Supplies with terms 1/10, n/30. The
cost of the merchandise is $6,925.00.
(c) On May 23rd, Bargain Wholesalers receives a check from Pet World Supplies paying the balance due.
Ge GJ Page 85
neral Journal
Date: Account Title Post Debit: Credit:
Ref:
221. On March 3rd, Blowout Sales makes $3,450.00 in cash sales of general merchandise which have a cost of
$1,215.00. Blowout uses a perpetual inventory system.
(a) Journalize the sale event.
223. On March 15th 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 20th 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.
(c) On March 25th Garrison Brewer submits payment in full. Journalize this event.
224. Journalize the following transactions assuming the perpetual inventory system:
July 3 Sold merchandise on account $3,750. The cost of the merchandise sold was $2,000.
July 5 Issued credit memo for $1,050 for merchandise returned from sale on July 3rd.
The cost of the merchandise returned was $610.
July 12 Received check for the amount due for sale on July 3rd less return on July 5th.
July 17 Sold merchandise for $7,000 plus 6% sales tax to cash customers. The cost of the merchandise sold was $3,830.
Journal
Post Ref
Date Description Debit Credit
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.
May 12 Issued a debit memo to Archie Co., for $2,500 of merchandise returned from purchase on May 5th.
May 14 Paid Archie Co. for invoice of May 5, less debit memo of May 12 and discount.
Journal
Post Ref
Date Description Debit Credit
226. Record the following transactions for Sparky’s Pet Shop using the general journal form provided
below. Assume Sparky’s uses a perpetual inventory system. Omit transaction descriptions from entries:
Date Transaction
August 1 Purchased $6,000 of merchandise on account, terms 2/10, n/30.
August 3 Returned $1,500 of merchandise purchased on August 1 due to defects.
August 7 Recorded cash sales for the first week of August $9,750; cost of the merchandise was $4,000.
August 10 Sale on account made to a local breeder for $500, terms 1/10 net 30; cost of the merchandise was $200.
August 11 Paid for the merchandise purchased on August 1, less return.
August 20 Received payment from sale of August 10. The customer took the discount.
July 3 Abbott Co.sold merchandise on account to Dalton Co., $7,500, terms FOB shipping point, net/eom. The cost of the
merchandise sold was $4,400.
July 5 Dalton Co. paid $275 freight charges on purchase from Abbott Co.
July 9 Abbott Co. issued Dalton Co. a credit memo for merchandise returned, $2,250.
The cost of the merchandise returned was $1,325.
July 11 Abbott Co. received payment from Dalton Co. for purchase of July 3.
229. Journalize the following transactions for the Evans Company. Assume the company uses a perpetual
inventory system.
Journal P. 46
Date Description Debit Credit
Chapter 6--Accounting for Merchandising Businesses Key
1. One of the most important differences between a service business and a retail business is in what is sold.
TRUE
3. Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends
to sell.
FALSE
4. Service businesses provide services for income, while a merchandising business sells merchandise.
TRUE
6. Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a
physical count of the inventory.
TRUE
7. In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.
TRUE
8. Under the periodic inventory system, the cost of merchandise sold is equal to the beginning merchandise
inventory plus the cost of merchandise purchased plus the ending merchandise inventory.
FALSE
9. In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning
inventory.
FALSE
10. In a periodic inventory system, the cost of merchandise purchased includes the cost of freight-in.
TRUE
11. As we compare a merchandise business to a service business, the financial statement that changes the most
is the Balance Sheet.
FALSE
12. When a merchandising business is compared to a service business, the financial statement that is not
affected by that change is the Statement of Owner's Equity.
TRUE
13. The ending merchandise inventory for 2010 is the same as the beginning merchandise inventory for 2011.
TRUE
14. In a multiple-step income statement the dollar amount for income from operations is always the same as net
income.
FALSE
17. The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a downward
sequence is called the report form.
TRUE
18. On the income statement in the single-step form, the total of all expenses is deducted from the total of all
revenues.
TRUE
19. The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and
income from operations are not readily available.
TRUE
20. Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is
listed as Other Income on the multiple-step income statement.
TRUE
21. Freight in is the amount paid by the company to deliver merchandise sold to a customer.
FALSE
22. In the merchandising income statement, sales will be reduced by sales discounts and sales returns and
allowances to arrive at net sales.
TRUE
23. Other income and expenses are items that are not related to the primary operating activity.
TRUE
25. The cost of merchandise inventory is limited to the purchase price less any purchase discounts.
FALSE
26. Cost of Merchandise Sold is often the largest expense on a merchandising company income statement.
TRUE
27. Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are
recorded.
TRUE
28. Under the periodic inventory system, the cost of merchandise sold is recorded when sales are made.
FALSE
29. If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as
n/30.
FALSE
30. When merchandise that was sold is returned, a credit to sales returns and allowances is made.
FALSE
31. In a perpetual inventory system, when merchandise is returned to the seller, Cost of Merchandise Sold is
debited as part of the transaction.
FALSE
34. Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit
sales.
FALSE
35. Sales to customers who use nonbank credit cards, such as American Express, are generally treated as credit
sales.
TRUE
36. Retailers record all credit card sales as credit sales.
FALSE
37. The service fee that credit card companies charge retailers varies and is the primary reason why some
businesses do not accept all credit cards.
TRUE
38. A seller may grant a buyer a reduction in selling price and this is called a sales allowance.
TRUE
39. The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts
receivable.
TRUE
41. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30days after the invoice date to take
advantage of the cash discount.
FALSE
42. Discounts taken by the buyer for early payment of an invoice are credited to Sales Discounts by the buyer.
FALSE
43. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory
account.
TRUE
44. Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. If payment
is made within 10 days of the purchase, the entry to record the payment will include a credit to Cash and a
credit to Purchase Discounts.
FALSE
45. Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual
inventory system.
FALSE
46. When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for
the buyer to pay within the discount period.
TRUE
47. When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade
discount.
TRUE
48. A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called
cash discounts.
FALSE
50. If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment,
the terms are stated as FOB destination.
FALSE
51. A sale of $750 on account, subject to a sales tax of 6%, would be recorded as an account receivable of
$750.
FALSE
52. When merchandise is sold for $600 plus 6% sales tax, the Sales account should be credited for $636.
FALSE
55. If the buyer bears the freight costs related to a purchase, the terms are said to be FOB destination.
FALSE
56. When the terms of sale are FOB shipping point, the buyer should pay the freight charges.
TRUE
57. 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.
TRUE
58. The chart of accounts for a merchandise business would include an account called Delivery Expense.
TRUE
59. There is no difference between the recording of cash sales and the recording of MasterCard or VISA sales.
TRUE
60. When companies use a perpetual inventory system, the recording of the purchase of inventory will include a
debit to purchases.
FALSE
61. Most companies will not take a purchases discount, because 1% or 2% discounts are insignificant.
FALSE
62. The seller may prepay the freight costs even though the terms are FOB shipping point.
TRUE
63. The seller records the sales tax as part of the sales amount.
FALSE
64. The buyer will include the sales tax as part of the cost of items purchased for use.
TRUE
65. A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take
a physical inventory.
FALSE
66. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to
the buyer's place of business.
FALSE
67. Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped
FOB shipping point.
TRUE
68. Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the
buyer.
TRUE
69. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the
general ledger.
TRUE
70. The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise
Sold.
TRUE
71. Closing entries for a merchandising business are not similar to those for a service business.
FALSE
72. The ratio of net sales to assets measures how effectively a business is using its assets to generate sales.
TRUE
73. Because many companies use computerized accounting systems, periodic inventory is widely used.
FALSE
74. Computerized systems can be used to capture accounting information such as accounts receivable, inventory
items, accounts payable, and sales.
TRUE
75. The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Freight In are found
on the balance sheet.
FALSE
76. Match each of the following terms with the appropriate definition below.
78. Which one of the following is not a difference between a retail business and a service business?
A. in what is sold
B. the inclusion of gross profit in the income statement
C. accounting equation
D. merchandise inventory included in the balance sheet
83. A company using the periodic inventory system has the following account balances: Merchandise Inventory
at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances,
$1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to
A. $12,670
B. $9,070
C. $8,420
D. $17,230
84. A company, using the periodic inventory system, has merchandise inventory costing $175 on hand at the
beginning of the period. During the period, merchandise costing $635 is purchased. At year-end, merchandise
inventory costing $160 is on hand. The cost of merchandise sold for the year is
A. $970
B. $650
C. $300
D. $620
85. Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
A. selling expenses
B. general expenses
C. other expenses
D. administrative expenses
86. Office salaries, depreciation of office equipment, and office supplies are examples of what type of expense?
A. selling expense
B. miscellaneous expense
C. administrative expense
D. other expense
87. The form of income statement that derives its name from the fact that the total of all expenses is deducted
from the total of all revenues is called a
A. multiple-step statement
B. revenue statement
C. report-form statement
D. single-step statement
89. When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the
A. account form
B. comparative form
C. horizontal form
D. report form
94. The inventory system employing accounting records that continuously disclose the amount of inventory is
called
A. retail
B. periodic
C. physical
D. perpetual
95. When the perpetual inventory system is used, the inventory sold is shown on the income statement as
A. cost of merchandise sold
B. purchases
C. purchases returns and allowances
D. net purchases
96. When comparing a retail business to a service business, the financial statement that changes the most is the
A. Balance Sheet
B. Income Statement
C. Statement of Owner's Equity
D. Statement of Cash Flow
97. When comparing a retail business to a service business, the financial statement that changes the least is the
A. Balance Sheet
B. Income Statement
C. Statement of Owner's Equity
D. Statement of Cash Flow
A. $26,900
B. $20,530
C. $30,210
D. $28,130
100. Using the following information, what is the amount of gross profit?
A. $34,870
B. $31,880
C. $27,460
D. $62,090
101. Using the following information, what is the amount of net sales?
A. $28,970
B. $63,130
C. $63,000
D. $62,090
102. Using the following information, what is the amount of merchandise available for sale?
A. $35,540
B. $36,580
C. $37,700
D. $34,500
103. Where are selling and administrative expenses found on the multiple-step income statement?
A. before gross profit
B. after sales and before gross profit
C. after net income before expenses
D. after gross profit
104. Dorman Co. sold merchandise to Smith Co. on account, $23,500, terms 2/15, net 45. The cost of the
merchandise sold is $16,000. Dorman Co. issued a credit memo for $1,750 for merchandise returned that
originally cost $1,400. The Smith Co. paid the invoice within the discount period. What is amount of net sales
from the above transactions?
A. $23,030
B. $21,750
C. $21,315
D. $13,808
105. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
A. debit to Sales
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. credit to Accounts Receivable
108. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on
account includes a
A. credit to Sales Returns and Allowances
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. debit to Cost of Merchandise Sold
109. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details
by issuing a
A. sales invoice
B. purchase invoice
C. credit memo
D. debit memo
110. The arrangements between buyer and seller as to when payments for merchandise are to be made are
called
A. credit terms
B. net cash
C. cash on demand
D. gross cash
113. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for
$25,000. The seller paid freight costs of $2,000 and issued a credit memo for $10,000 prior to payment. What
is the amount of the cash discount allowable?
A. $170
B. $150
C. $130
D. $250
115. The entry to record the return of merchandise from a customer would include a
A. debit to Sales
B. credit to Sales
C. debit to Sales Returns and Allowances
D. credit to Sales returns and Allowances
116. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
A. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
B. debit to Cash and a credit to Sales
C. debit to Cash, credit to Credit Card Expense, and a credit to Sales
D. debit to Sales, debit to Credit Card Expense, and a credit to Cash
117. Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as
A. sales on account
B. sales returns
C. cash sales
D. sales when the credit card company remits the cash
118. When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the
following entry
A. debit Merchandise Inventory; credit Cash
B. debit Cash; credit Merchandise Inventory
C. debit Cash; credit Sales Returns and Allowances
D. debit Sales Returns and Allowances; credit Cash
119. When merchandise is returned under the perpetual inventory system, the buyer would credit
A. Merchandise Inventory
B. Purchases Returns and Allowances
C. Accounts Payable
D. Accounts Receivable
120. When purchases of merchandise are made for cash, the transaction may be recorded with the following
entry
A. debit Cash; credit Merchandise Inventory
B. debit Merchandise Inventory; credit Cash
C. debit Merchandise Inventory; credit Cash Discounts
D. debit Merchandise Inventory; credit Purchases
121. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account
would include a
A. debit to Accounts Payable
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. credit to Sales
122. 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
123. In recording the cost of merchandise sold for cash, based on data available from perpetual inventory
records, the journal entry is
A. debit Cost of Merchandise Sold; credit Sales
B. debit Cost of Merchandise Sold; credit Merchandise Inventory
C. debit Merchandise Inventory; credit Cost of Merchandise Sold
D. debit Accounts Receivable; credit Merchandise Inventory
124. The amount of the total cash paid to the seller for merchandise purchased for consumption would normally
include
A. only the list price
B. only the sales tax
C. the list price plus the sales tax
D. the list price less the sales tax
125. A retailer purchases merchandise with a catalog list price of $25,000. The retailer receives a 30% trade
discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory
account?
A. $7,500
B. $17,500
C. $25,000
D. $17,250
126. A sales invoice included the following information: merchandise price, $10,000; freight, $900; terms 1/10,
n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $500 is granted prior to
payment and that the invoice is paid within the discount period, what is the amount of cash that should be
received by the seller?
A. $10,305
B. $9,500
C. $9,306
D. $9,900
129. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
A. FOB shipping point
B. FOB destination
C. FOB n/30
D. FOB buyer
130. If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
A. FOB shipping point
B. FOB destination
C. FOB n/30
D. FOB seller
131. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms
are
A. n/30
B. FOB shipping point
C. FOB destination
D. consigned
132. 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?
A. $3,140
B. $3,136
C. $2,744
D. $2,940
133. When goods are shipped FOB destination and the seller pays the freight charges, the buyer
A. journalizes a reduction for the cost of the merchandise.
B. journalizes a reimbursement to the seller.
C. does not take a discount.
D. makes no journal entry for the freight.
134. Anthony Company sold Madison Company merchandise on account FOB shipping point, 2/10, net 30, for
$10,000. Anthony prepaid the $300 shipping charge. Which of the following entries does Anthony make to
record this sale?
A. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000
B. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000, and
Accounts Receivable-Madison, debit $300; Cash, credit $300
C. Accounts Receivable-Madison, debit $10,300; Sales, credit $10,300
D. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000, and
Freight Out, debit $300; Cash, credit $300
135. Emma Co. sold Isabella Co. merchandise on account FOB shipping point,, 2/10, net 30, for
$15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the
following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the
discount period?
A. Accounts Payable-Emma Co., debit $15,000; Freight In, credit $750; Cash, credit $14,250
B. Accounts Payable-Emma Co., debit $15,750; Merchandise Inventory, credit $300; Cash, credit $15,450
C. Accounts Payable-Emma Co., debit $15,000; Freight In, debit $750; Cash, credit $15,750
D. Accounts Payable-Emma Co., debit $15,750; Merchandise Inventory, debit $300; Cash, credit $16,050
137. Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the
merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be
recorded?
A. Cash $2,000 Dr, Merchandise Inventory $1,250 Cr
B. Cash $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr, Merchandise Inventory $1,250
Cr.
C. Cash $1,250 Dr, Sales $1,250 Cr
D. Accounts Receivable $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr, Merchandise
Inventory $1,250 Cr.
138. Isaac Co. sells merchandise on credit to Sonar Co in the amount of $5,700. The invoice is dated on April
1 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the invoice be paid
in order for the buyer to take advantage of the discount?
A. $114, April 15
B. $114, April 16
C. $57, April 15
D. $57, April 16
139. Isaac Co. sells merchandise on credit to Sonar Co in the amount of $9,600. The invoice is dated on April
15 with terms of 1/15, net 45. If Sonar Co. chooses not to take the discount, by when should the payment be
made?
A. April 30
B. May 30
C. May 15
D. April 25
140. Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as
A. Purchases discount
B. Sales discount
C. Trade discount
D. Early payment discount
141. Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately
A. 2%
B. 24%
C. 20%
D. 36%
142. Who pays the freight costs when the terms are FOB shipping point?
A. the ultimate customer
B. the buyer
C. the seller
D. either the seller or the buyer
143. Who pays the freight cost when the terms are FOB destination?
A. the seller
B. the buyer
C. the customer
D. either the buyer or the seller
144. A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade
discount and credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount
period?
A. $30,000
B. $24,900
C. $29,400
D. $24,990
145. What type of company would normally offer trade discounts to its customers?
A. Service companies
B. Retailers
C. Wholesalers
D. On-line retailers
146. Which of the following accounts will only be found in the chart of accounts of a merchandising company?
A. Sales
B. Accounts Receivable
C. Merchandise Inventory
D. Accounts Payable
147. Which of the following items would affect the cost of merchandise inventory acquired during the period?
A. quantity discounts
B. cash discounts
C. freight-in
D. all of these costs
148. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms
are
A. consigned
B. n/30
C. FOB shipping point
D. FOB destination
149. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms
are
A. n/30
B. FOB shipping point
C. FOB destination
D. consigned
150. 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?
A. $3,825
B. $3,850
C. $3,875
D. $3,500
151. Under the perpetual inventory system, all purchases of merchandise are debited to the account entitled
A. Merchandise Inventory
B. Cost of Merchandise Sold
C. Cost of Merchandise Available for Sale
D. Purchases
152. When the perpetual inventory system is used, the inventory sold is debited to
A. supplies expense
B. cost of merchandise sold
C. merchandise inventory
D. sales
154. The proper journal entry to record the receipt of inventory purchased on account in a perpetual inventory
system would be:
A. Jan 1 Merchandise Inventory 1,500
Accounts Payable 1,500
B. Jan 1 Office Supplies 1,500
Accounts Payable 1,500
C. Jan 1 Purchases 1,500
Accounts Payable 1,500
D. Jan 1 Purchases 1,500
Accounts Receivable 1,500
155. Which of the following items should not be included in the cost of ending merchandise inventory?
A. purchased units in transit, shipped FOB shipping point
B. purchased units in transit, shipped FOB destination
C. units on hand in the warehouse
D. sold units in transit, not invoiced and shipped FOB destination
156. The Corbit Corp. sold merchandise $10,000 for cash. The cost of the merchandise sold was $7,590. The
journal entry(s) to record this transaction would be
A. Cash 10,000
Merchandise Inventory 10,000
158. If the physical count of the inventory revealed $158,000 of merchandise on hand and the inventory records
reported $163,000, what would be the necessary adjusting entry to record inventory shortage?
A. Merchandise inventory debit $158,000; Cost of Merchandise Sold credit $158,000.
B. Merchandise inventory debit $5,000; Cost of Merchandise Sold credit $5,000.
C. Cost of Merchandise Sold debit $163,000; Merchandise Inventory credit $158,000.
D. Cost of Merchandise Sold debit $5,000; Merchandise Inventory credit $5,000.
159. Which account will be included in both service and merchandising companies closing entries?
A. Sales
B. Cost of Merchandise Sold
C. Purchase Discounts
D. Sales Returns and Allowances
160. Ramone Company had $600,000 in Net Sales for the year 2010. The total assets at the beginning of the
year were $240,000 and total assets at the end of the year were $280,000. The ratio of net sales to total assets is
(round answer to 2 decimal places):
A. 2.31
B. 1.15
C. .43
D. .87
161. Cleary Company had total Sales of $550,000; Sales Discounts of $10,000; Sales Returns of $40,000 and
Cost of Merchandise Sold of $200,000 during 2010. The total asset balance at the beginning of the year was
$175,000 and at the end of the year was $167,000. Calculate the ratio of net sales to total assets (Round answer
to 2 decimal points).
A. 1.75
B. 2.92
C. .34
D. .57
162. What is the major difference between a periodic and perpetual inventory system?
A. Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account
B. Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the
cost of the inventory.
C. Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts
are reconciled at the end of the month.
D. All are correct.
163. Which of the following accounts will not be found on the Cost of Merchandise Sold section on the Income
Statement?
A. Purchases
B. Freight In
C. Sales Returns and Allowances
D. Merchandise Inventory
164. Under the periodic inventory system, the journal entry to record the purchase of merchandise inventory
will include a debit to
A. Merchandise Inventory
B. Purchases
C. Accounts Payable
D. Cost of Merchandise Purchased
165. Under the periodic inventory system, the journal entry to record the cost of merchandise sold at the point
of sale will include the following account
A. No entry is made.
B. Cost of merchandise sold
C. Inventory
D. Purchases
167. The proper journal entry to record the receipt of inventory purchased on account in a periodic inventory
system would be:
A. Jan 1 Merchandise Inventory 1,600
Accounts Payable 1,600
B. Jan 1 Office Supplies 1,600
Accounts Payable 1,600
C. Jan 1 Purchases 1,600
Accounts Payable 1,600
D. Jan 1 Purchases 1,600
Accounts Receivable 1,600
168. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?
A. Merchandise Inventory
B. Accumulated Depreciation
C. Drawing
D. Cost of Merchandise Sold
169. Calculate the gross profit for Jonas Company based on the data given below:
Sales $764,000
Selling Expenses 52,500
Cost of Merchandise Sold 538,000
Sales Discounts 7,100
Sales Returns and Allowances 3,650
A. $753,250
B. $700,750
C. $162,750
D. $215,250
170. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the
merchandise sold is $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?
A. 10,500
B. 30,772
C. 7,972
D. 31,400
171. Calculate income from operations for Jonas Company based on the data given below:
Sales $764,000
Selling Expenses 52,500
Cost of Merchandise Sold 538,000
Sales Discounts 7,100
Sales Returns and Allowances 3,650
A. 753,250
B. 700,750
C. 162,750
D. 215,250
172. Describe the major differences in preparing the financial statements for a service business and a
merchandising business.
173. Calculate the gross profit for Jonas Company based on the data given below:
Sales $764,000
Selling Expenses 52,500
Cost of Merchandise Sold 538,000
Sales Discounts 7,100
Sales Returns and Allowances 3,650
Sales $764,000 - Sales Discounts $7,100 - Sales Returns and Allowances $3,650 - Cost of Merchandise Sold
$538,000 = Gross Profit $215,250
174. During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the
merchandise sold is $76,240. What is the amount of the gross profit?
175. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the
merchandise sold is $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?
$7,972 (Net Sales $35,000 - $3,600 - $628) - (Cost of Merchandise Sold $24,500 - $1,700)
176. Based upon the following data, determine the cost of merchandise sold for August.
A. Sold merchandise on account, $17,300 with terms 2/10, net 30. The cost of the merchandise sold was $12,600.
B. Received payment less the discount.
B. Cash 16,954
Sales Discounts 346
Accounts Receivable 17,300
178. Travis Company purchased merchandise on account from a supplier for $5,700, terms 2/10, net 30. Travis
returned $1,100 of the merchandise and received full credit. Travis Company paid for the merchandise within
the discount period.
Under a perpetual inventory system, record all of the journal entries required for the above transactions.
179. On March 25, 2014, Patton Company sold merchandise on account,$10,000. The applicable sales tax
percentage is 8.5%. Record the transaction.
Journal
Post Ref
Date Description Debit Credit
Journal
Post Ref
Date Description Debit Credit
Mar. 25 Accounts Receivable 10,850
Sales 10,000
Sales Tax Payable 850
180. On March 29th, customers who owe $10,500.00 for purchases made on Sonic Sales Company submit
payments of $4,250.00. Journalize this event.
a. $3,374
b. $7,128
182. 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.
The sales can be debited to cash since the deposit is at the end of the business day. Also, since the expense is easily determined (2.5% of sales), that
expense can be immediately identified and should be recorded.
183. 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. Sampson Co. issued a credit memo for $1,500 for merchandise returned that
originally cost $950. 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.
184. Maxi Company’s perpetual inventory records indicate that $820,300 of merchandise should be on hand on
October 31, 2014. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting
entry for the inventory shrinkage for Maxi Company for the year ended October 31, 2014.
185. The records of Nevada Co. indicated that $420,000 of merchandise should be on hand on December 31,
2010. The physical inventory indicates that $370,000 of merchandise is actually on hand. Journalize the
adjusting entry for the inventory shrinkage for the year ended December 31, 2010.
Journal
Post Ref
Date Description Debit Credit
Journal
Post Ref
Date Description Debit Credit
Dec 31 Cost of Merchandise Sold 50,000
Merchandise Inventory 50,000
186. Selected accounts and amounts appear below. Journalize the closing entry, assuming a perpetual
inventory system.
“Operating cycles for all merchandising businesses are the same, with similar profit margins.”
This is not true. While the operations of merchandising businesses generally all involve the purchase of
merchandise (purchasing), the sale of products to customers (sales), and the receipt of cash from customers
(collection), operating cycles may vary in length between merchandisers. This is due to the nature of the
product they sell. Typically, businesses with longer operating cycles have higher profit margins on their
products. A good example is a jewelry store that price their products 30-50% above cost, as opposed to the
grocery store, who sometimes makes less than 5% profit margin. The grocery store depends on selling more
products in a very short time span.
188. Complete the following data taken from the condensed income statements for merchandising Companies
A, B, & C.
189. Complete the following data taken from the condensed income statements for merchandising Companies
X, Y, & Z.
190. During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the
merchandise sold is $322,325. What is the amount of the gross profit?
a. credit
b. debit
c. debit
d. debit
e. debit
f. debit
g. credit
193. Using the following data taken from Hsu’s Imports Inc., prepare the cost of merchandise sold section of
the income statement for the year ended March 31, 2011.
194. Using the following data taken from Hsu’s Imports Inc., determine the gross profit to be reported on the
income statement for the year ended March 31, 2011.
*Cost
of
merch
andise
sold:
Merch.
invento
ry,
April $193,250
1, 2010
Purcha $1,0
ses 79,6
00
Less: Purcha
ses
returns
and
allowa $51,
nces 200
Purcha 18,5 69,700
ses 00
discou
nts
Net $1,009,
purcha 900
ses
Add 19,250
Freight
in
Cost of
mercha
ndise
purc 1,029,150
hase
d
Mercha$1,222,
ndise 400
availab
le for
sale
Less
mercha
ndise
invento
ry,
March 180,100
31,
2011
Cost of $1,0
mercha 42,3
ndise 00
sold
195. Using the following data taken from Martinez Inc., prepare the cost of merchandise sold section of the
income statement for the year ended May 31, 2011.
*Cost
of
merch
andise
sold:
Mercha
ndise
invento
ry,
June $
1, 3
201 9
0 3
,
2
5
0
Purcha $1,579,
ses 600
Less: Purc
hase
s
retur
ns
and
allo $81,20
wan 0
ces
Purcha 197,
ses 670
discou ,0
nts 5
0
0
Net $1,481,
purcha 900
ses
Add 59,250
Freight
in
Cost
of
mer
chan
dise
purc 1
hase ,
d 5
4
1
,
1
5
0
Mercha $
ndise 1
availab ,
le for 9
sale 3
4
,
4
0
0
Less
mercha
ndise
invento
ry,
May 3
31, 8
201 0
1 ,
1
0
0
Cost of $
mercha 1
ndise ,
sold 5
5
4
,
3
0
0
197. Which of the following accounts would be included in the chart of accounts of a merchandising company
using the: (a) periodic inventory system, (b) perpetual inventory system, or (c) both systems?
(1) Purchases
(2) Freight in
(3) Sales Returns and Allowances
(4) Delivery Expense
(5) Purchases Returns and Allowances
199. Journalize the following transactions for Armour Inc. using both the periodic inventory system and the
perpetual inventory system, presented in a side-by-side format shown at the end of this exercise.
Oct.7 Sold merchandise on credit to Rondo Distributors, terms n/30, FOB destination, $1,200; the cost of the
merchandise was $720.
Oct. 8 Purchased merchandise, $10,000, terms FOB shipping point, 2/15, n/30, with prepaid freight charges of
$525 added to the invoice.
Oct.7 Sold merchandise on credit to Rondo Distributors, terms n/30, FOB destination, $1,200; the cost of the
merchandise was $720:
Cost 720
of
Mer
cha
ndis
e
Sold
720
Mer
cha
ndis
e
Inve
ntor
y
Oct. 9 Merchandise sold on October 7 accepted back from Rondo Co. for full credit and returned to
merchandise inventory, $300; the cost of the merchandise was $180.
Nov. 5 Received payment in full of $900 from Pine Co. for sale of merchandise on Oct. 25.
R
e
t
u
r
n
s
&
A
l
l
o
w
a
n
c
e
s
Accounts Receivable 300 300
A
c
c
o
u
n
t
s
R
e
c
e
i
v
a
b
l
e
M180
e
r
c
h
a
n
d
i
s
e
I
n
v
e
n
t
o
r
y
180
C
o
s
t
o
f
M
e
r
c
h
a
n
d
i
s
e
S
o
l
d
RECEIPTS ON ACCOUNT
Nov. 5 Received payment in full of $900 from Pine Co. for sale of merchandise on Oct. 25.
201. Journalize the following transactions for Donnell Inc. using both the periodic inventory system and the
perpetual inventory system, presented in a side-by-side format shown at the end of this exercise.
Oct. 5 Purchased $18,000 of merchandise from Rex on account, terms 2/10, n/30.
Oct. 15 Paid for purchase of Oct. 5, less Oct. 8 return and purchase discount.
Oct. 15 Paid for purchase of Oct. 5, less Oct. 8 return and purchase discount.
202. The following data were extracted from the accounting records of Meridian Designs for the year ended
March 31, 2014.
Prepare the cost of merchandise sold section of the income statement for the year ended March 31, 2014, using the periodic method. Also determine
gross profit.
Meridian Designs
Income Statement
For the Year Ended March 31, 2014
Sales $790,000
Less: Sales returns 20,000
Net Sales $770,000
Cost of Merchandise Sold
Merchandise inventory, April 1, 2013 530,000
Purchases 270,000
Less: Purchases returns and allowances $25,000
Purchase discounts 10,000 35,000
Net Purchases 235,000
Plus: Freight In 3,000
Cost of Merchandise Purchased 238,000
Merchandise available for sale 768,000
Less merchandise inventory, March 31, 2011 375,000
Cost of merchandise sold 393,000
Gross profit $377,000
203. The following data for the current year ended June 30 were extracted from the accounting records of Excel
Co.:
Prepare a multiple-step income statement for the year ended June 30, 2014.
Excel Co.
Income Statement
For the Year Ended June 30, 2014
Sales $548,000
Less: Sales Returns and Allowances 9,000
Sales Discounts 4,560
Net sales 534,440
Cost of merchandise sold 181,440
Gross profit 353,000
Operating expenses;
Selling Expenses 65,000
Administrative Expenses 28,750
Total Operating Expenses 93,750
Income from Operations 259,250
Other income and expense:
Rent revenue 1,500
Interest expense 3,600
204. Selected data from the ledger of Morrison Co. after adjustment at September 30, 2011 the end of the fiscal
year, are listed as follows:
Morrison Co.
Income Statement
For the Year Ended September 30, 2011
Revenues:
Net sales $950,000
Interest revenue 10,000
Total revenues $960,000
Expenses:
Cost of merchandise sold $550,000
Selling expenses 102,000
Administrative expenses 90,000
Total expenses 742,000
Net income $ 218,000
Morrison Co.
Statement of Owner's Equity
For the Year Ended September 30, 2011
205. Prepare (a) a single-step income statement, (b) a statement of owner's equity, and (c) a balance sheet in
report form from the following data for Kooper Co., taken from the ledger after adjustment on December 31,
2010 the end of the fiscal year.
Revenues:
Net sales $365,500
Rent revenue 17,500
Total revenues $383,000
Expenses:
Cost of merchandise sold $121,700
Selling expenses 41,500
Administrative expenses 56,500
Interest expense 12,000
Total expenses 231,700
Net income $ 151,300
(b)
Kooper Co.
Statement of Owner's Equity
For the Year Ended December 31, 2010
Assets
Current assets:
Cash $53,000
Accounts receivable 64,300
Merchandise inventory 93,250
Prepaid insurance 6,500
Supplies 4,000
Total current assets $221,050
Property, plant, and equipment:
Store equipment $325,000
Less Accumulated depreciation 162,100 $162,900
Office equipment $ 149,750
Less Accumulated depreciation 72,750 77,000
Total property, plant, and equipment 239,900
Total assets $460,950
Liabilities
Current liabilities:
Accounts payable $97,200
Salaries payable 28,700
Total current liabilities $ 125,900
Long-term liabilities:
Note payable (due 2012) 154,000
Total liabilities $279,900
Owner's Equity
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.
Armour Co.
Income Statement
For the Year Ended December 31, 2014
208. For each of the following, calculate the cost of inventory reported on the balance sheet.
(a) The total merchandise on hand at the end of the year as determined by taking a physical inventory is $62,000. Of the $62,000, $8,000
has been sold FOB destination and is awaiting pickup by the carrier.
(b) The total merchandise inventory counted at the end of the year was $63,000. Purchases for $6,000 are in transit under FOB shipping
point terms.
(c) The total merchandise inventory counted at the end of the year was $75,000. Purchases for $5,000 are in transit under FOB destination
terms.
(a) $62,000
(b) $69,000
(c) $75,000
209. Using the perpetual inventory system, journalize the entries for the following selected transactions:
(a) Sold merchandise on account, for $12,000. The cost of the merchandise sold was $6,500.
(b) Sold merchandise to customers who used MasterCard and VISA, $9,500. The cost of the merchandise sold was $5,300.
(c) Sold merchandise to customers who used American Express, $2,900. The cost of the merchandise sold was $1,700.
(d) Paid an invoice from First National Bank for $385, representing a service fee for processing MasterCard and VISA sales.
(e) Received $4,325 from American Express Company after a $115 collection fee had been deducted.
Record the foregoing transactions of the seller in the sequence indicated below.
(a) Sold the merchandise, recognizing the sale and cost of merchandise sold.
(b) Paid the freight charges.
(c) Issued the credit memo.
(d) Received payment from the customer.
211. Based on the information below, journalize the entries for the Seller and the Buyer. Both use a perpetual
inventory system.
(a) Seller sold merchandise on account to the buyer, $4,750, terms 2/10, net 30, FOB shipping point. The cost of the merchandise is
$2,850. The seller prepays the freight of $75.
(b) Buyer returns $ 700 of merchandise as defective. The cost of the merchandise is $420.
(c) Buyer pays within the discount period.
Seller Buyer
Accounts DR CR DR CR
(a)
Seller Buy
er
Accounts Receivable 4,750 Merchandise Inventory 4,750
Sales 4,750 Accounts Payable 4,750
(b)
Sales Returns & Allow. 700 Accounts Payable 700
Accounts Receivable 700 Merchandise Inventory 700
(c)
Cash 3,969 Accounts Payable 4,050
Sales Discounts 81 Merchandise Inventory 81
Accounts Receivable 4,050 Cash 3,969
212. Details of a purchase invoice and related credit memo are summarized as follows:
(a) $50
(b) $5,100
(c) $5,150
213. Conquest Company uses a perpetual inventory system. Conquest purchased $1,500 of merchandise on
account and payment was made within the discount period. The credit terms were 2/10,n/30. Journalize
Conquest’s purchase and payment.
214. Merchandise with a list price of $4,700 is purchased on account, terms FOB shipping point, 1/10,
n/30. The seller prepaid freight costs of $100. Prior to payment, $1,400 of the merchandise is returned. The
correct amount is paid within the discount period.
Record the foregoing transactions of the buyer in the sequence indicated below, assuming a perpetual inventory
system is used.
Returns and
Merchandise Freight Terms Allowances
(a) $2,800 $45 FOB shipping point, 1/10, n/30 $200
(b) 7,600 --- FOB destination, n/30 800
(c) 1,400 55 FOB shipping point, 2/10, n/30 600
(d) 500 --- FOB destination, 1/10, n/30
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) Sold $900 of merchandise on account, subject to 7% sales tax. The cost of the merchandise sold was $510.
(b) Paid $436 to the state sales tax department for taxes collected.
(b) (c) (a) (g) (j) (e) (i) (d) (h) (f)
OR
(b) (c) (a) (g) (e) (j) (i) (d) (h) (f)
218. Gadget Palace is a retailer selling unique hardware. Gadget Palace uses perpetual inventory. Use a General
Journal to journalize the following four transactions during the month of August:
(a) On July 5th, Gadget Palace purchases inventory for sale from Turbo Tools for $11,400.00 with terms 2/10, n/30.
(b) On July 6th, Gadget Palace pays Fast Truck Transport $75 for freight-in on the July 5th order.
(c) Gadget Palace gets a credit memo from Turbo Tools for $215.00 for damaged merchandise on July 8th.
(d) On July 15th, Gadget Palace pays Turbo Tools the balance due.
Ge
neral Journal
Date: Account Title Debit: Credit:
Ge
neral Journal
Date: Account Title Debit: Credit:
July 5 Merchandise Inventory 11,400.00
A/P - Turbo Tools 11,400.00
Computation of payment:
Purchase: $11,400.00
Less credit memo: 215.00
Balance: 11,185.00
Discount - 2% of balance: 223.70
Cash paid: $10,961.30
While inventory is debited for the value of freight-in, $75.00, this value is paid directly to the truck company and is not discounted.
219. Marshall Supplies is a janitorial supply store. Marshall Supplies uses perpetual inventory. Use a General
Journal to journalize the following four transactions during the month of July:
(a) On July 4th, Marshall purchases inventory for sale from Tidy Wholesalers for $8,500.00 with terms 1/10, n/30.
(b) On July 5th, Marshall pays Express Transfer $45 for freight-in on the July 4th order.
(c) On July 12th, Marshall buys an additional $11,985 in inventory from Tidy Wholesalers with terms 1/10, n/30.
(d) On July 22nd, Marshall pays Tidy Wholesalers the balance due.
Ge
neral Journal
Date: Account Title Debit: Credit:
General
Journal
Date: Account Title Debit: Credit:
July 4 Merchandise Inventory 8,500.00
A/P - Tidy Wholesalers 8,500.00
Computation of payment:
Purchase July 4th: - Discount period expired $8,500.00
Purchase July 12th: $11,985.00
Discount - 1% of balance: 119.85
Amount due on purchase 11,865.15
Cash paid: $20,365.15
While inventory is debited for the value of freight-in, $45.00, this value is paid directly to the truck company and is not discounted.
220. 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:
(a) On May 4th, Bargain Wholesalers sells inventory to Pet World Supplies for $8,250.00 with terms 1/10, n/30. The cost of the
merchandise is $5,755.00.
(b) On May 13th, Bargain Wholesalers sells an additional $10,985 in inventory to Pet World Supplies with terms 1/10, n/30. The
cost of the merchandise is $6,925.00.
(c) On May 23rd, Bargain Wholesalers receives a check from Pet World Supplies paying the balance due.
Ge GJ Page 85
neral Journal
Date: Account Title Post Debit: Credit:
Ref:
General GJ Page 63
Journal
Date: Account Title Post Debit: Credit:
Ref:
May 4 A/R - Pet World Supplies 8,250.00
Sales 8,250.00
Cost of Merchandise Sold 5,755.00
Merchandise Inventory 5,755.00
221. On March 3rd, Blowout Sales makes $3,450.00 in cash sales of general merchandise which have a cost of
$1,215.00. Blowout uses a perpetual inventory system.
(a) Journalize the sale event.
222. On March 5th, Blowout Sales makes $22,500.00 in sales on the company’s own credit cards. The cost of
merchandise sold are $16,825.00. Journalize the sales and recognition of the cost of merchandise sold.
223. On March 15th 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 20th 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.
(c) On March 25th Garrison Brewer submits payment in full. Journalize this event.
(a)
(c)
Cash 9,212.00
Sales Discounts 188.00
Accounts Receivable - Garrison Brewer 9,400.00
224. Journalize the following transactions assuming the perpetual inventory system:
July 3 Sold merchandise on account $3,750. The cost of the merchandise sold was $2,000.
July 5 Issued credit memo for $1,050 for merchandise returned from sale on July 3rd.
The cost of the merchandise returned was $610.
July 12 Received check for the amount due for sale on July 3rd less return on July 5th.
July 17 Sold merchandise for $7,000 plus 6% sales tax to cash customers. The cost of the merchandise sold was $3,830.
Journal
Post Ref
Date Description Debit Credit
Journal
Post Ref
Date Description Debit Credit
July 3 Accounts Receivable 3,750
Sales 3,750
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.
May 12 Issued a debit memo to Archie Co., for $2,500 of merchandise returned from purchase on May 5th.
May 14 Paid Archie Co. for invoice of May 5, less debit memo of May 12 and discount.
Journal
Post Ref
Date Description Debit Credit
Journal
Post Ref
Date Description Debit Credit
May 5 Merchandise Inventory 6,000
Accounts Payable 6,000
226. Record the following transactions for Sparky’s Pet Shop using the general journal form provided
below. Assume Sparky’s uses a perpetual inventory system. Omit transaction descriptions from entries:
Date Transaction
August 1 Purchased $6,000 of merchandise on account, terms 2/10, n/30.
August 3 Returned $1,500 of merchandise purchased on August 1 due to defects.
August 7 Recorded cash sales for the first week of August $9,750; cost of the merchandise was $4,000.
August 10 Sale on account made to a local breeder for $500, terms 1/10 net 30; cost of the merchandise was $200.
August 11 Paid for the merchandise purchased on August 1, less return.
August 20 Received payment from sale of August 10. The customer took the discount.
Date Accounts Debit Credit
July 3 Abbott Co.sold merchandise on account to Dalton Co., $7,500, terms FOB shipping point, net/eom. The cost of the
merchandise sold was $4,400.
July 5 Dalton Co. paid $275 freight charges on purchase from Abbott Co.
July 9 Abbott Co. issued Dalton Co. a credit memo for merchandise returned, $2,250.
The cost of the merchandise returned was $1,325.
July 11 Abbott Co. received payment from Dalton Co. for purchase of July 3.
229. Journalize the following transactions for the Evans Company. Assume the company uses a perpetual
inventory system.
Journal P. 46
Date Description Debit Credit
1) Cash 645
Sales 645
2) Cash 432
Sales 432