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Exam 3: Accounting for Merchandising Businesses

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Question 61

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Strand Company uses the perpetual inventory method. The company purchased an item of inventory for $80 and sold the item to a customer for $120. What effect will the sale have on the company's inventory account?

A) The account balance will decrease by $120
B) The account balance will decrease by $80
C) The account balance will increase by $40
D) No effect

E) A) and B)
F) A) and C)

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Question 62

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Howard Company's first year in operation was 2014. The following events occurred in 2014: 1. Acquired $400 stock from issuing common stock. 2. Purchased inventory on account for $300, terms 2/10, n/30. 3. Sold inventory that had cost $210 for $360 cash. 4. Paid for the goods referred to in item 2 within the discount period. Required: a) Record the events in the statements model, below. Show amounts of increases and decreases. Indicate whether each cash flow is an operating activity, investing activity, or financing activity. Calculate the total for each account at the end of the period. b) What was the amount of total assets at the end of the period? c) What was the amount of retained earnings at the end of the period?

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a) b) Total assets ...

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Question 63

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Whitney Company's Cost of Goods Available for Sale for 2014 was $610,000. Which of the following statements is true?

Merrick Company began operations in 2014 by issuing common stock for $400 cash. During the year, Merrick Company purchased $800 of merchandise on account. It sold for $920 cash inventory that had cost $650. It paid off $500 on its account payable and also paid $180 cash for operating expenses. Required: a) Record the events in the statements model, below. Show amounts of increases and decreases. Indicate whether each cash flow is an operating activity, investing activity, or financing activity. b) Prepare the 2014 income statement for Merrick using a multistep format.

Under a periodic inventory system, the buyer does not use which of the following accounts in recording the acquisition of merchandise inventory and related transactions?

An entry to record the purchase of inventory on account under the perpetual inventory method

Fain Company returned merchandise previously purchased on account, which it had not yet paid for. Fain uses the perpetual inventory system. Which of the following answers reflects the effects of the purchase return on the financial statements?

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Assume use of a perpetual inventory system. $\text { Increase } = \mathrm { I } \quad \text { Decrease } = \mathrm { D } \quad \text { No Effect } = \mathrm { N }$ Bryan Co. paid $40 for freight cost to have merchandise shipped to one of its customers. Show how the transaction would affect Bryan's financial statements. $\begin{array} {| l| l| l| l| l| l| l| }\text { Assets}&\text { Liabilities }&\text {Equity}&\text { Revenues}&\text { Expenses }&\text { Net Income }&\text { Cash }\\\hline &&&&&\end{array}$

Schumacher Company uses the perpetual inventory system, and it engaged in the following transactions during 2014: 1) Started the business by issuing common stock for $7,500 cash 2) Paid cash to purchase $5,000 of inventory 3) Sold inventory that cost $3,000 for $7,250 cash 4) Incurred and paid operating expenses, $250 Schumacher Company engaged in the following transactions during 2015: 1) Paid cash to purchase $5,800 of inventory 2) Sold inventory that cost $7,000 for $15,150 cash 3) Incurred and paid operating expenses, $500 The amount of Retained Earnings at December 31, 2015 is:

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

Lynx Company purchased $4,000 of merchandise on account and sold the merchandise to a customer for $7,000 cash. What is Lynx's gross margin and the net change in cash flow from operating activities as a result of these transactions?

Schumacher Company uses the perpetual inventory system, and it engaged in the following transactions during 2014: 1) Started the business by issuing common stock for $7,500 cash 2) Paid cash to purchase $5,000 of inventory 3) Sold inventory that cost $3,000 for $7,250 cash 4) Incurred and paid operating expenses, $250 Schumacher Company engaged in the following transactions during 2015: 1) Paid cash to purchase $5,800 of inventory 2) Sold inventory that cost $7,000 for $15,150 cash 3) Incurred and paid operating expenses, $500 The gross margin for the year 2015 is:

On April 16, 2014, Tuxedo Company purchased $75,000 of merchandise inventory. Terms of the purchase included a discount of 3/10, n/30. Also, the freight terms were FOB destination. Freight costs amounted to $2,300. Tuxedo Company paid the account payable on April 24. Tuxedo Company sold all inventory for $93,750. Required: Determine the amount of gross margin Tuxedo Company would report on the income statement.

How is the balance sheet of a merchandising firm different from the balance sheet of a service business?

The cash inflow from the sale of a business asset other than inventory is reported in the investing activities section of the statement of cash flows.

The term "shrinkage" reflects decreases in inventory for reasons other than sales to customers.

On January 1, 2014, Shaffer Co. purchased inventory for $1,000 cash with credit terms of 2/10, n/30. If Shaffer does not pay within the discount period, what is the effective annual interest rate?

Maui Company uses the periodic inventory method. The company purchased an item of inventory for $90 and sold the item to a customer for $115. What effect will this sale have on the balance in the company's inventory account at the date of the sale?

Which of the following account titles is normally used in a periodic inventory system?

When merchandise inventory is purchased on account, how is the accounting equation affected? Assume a perpetual inventory system is in use.