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Exam 4: Accounting for Merchandising Businesses

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Question 31

Multiple Choice

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The term "FOB Destination" means

A) The seller pays the shipping cost.
B) The buyer records an increase in inventory.
C) The buyer pays the shipping cost.
D) The buyer assumes ownership of the goods during shipment.

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

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Question 32

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Which accounts would affect gross margin?

A) Account numbers 2 and 9.
B) Account numbers 3 and 9.
C) Account numbers 3, 4, 7, and 9.
D) Account numbers 3, 7, 8 and 9.

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

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Question 33

Multiple Choice

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Greencroft Company sold merchandise costing $1,800 for $2,600 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

Gains and losses are recorded for increases and decreases in the market value of assets such as land.

If the buyer is to pay the transportation cost of delivering merchandise, the freight or shipping terms would be stated as:

Which accounts would appear on the balance sheet?

Which of the following items is not a product cost?

What type of financial statement matches sales revenue items with related expense items and distinguishes between recurring operating activities and non-operating items such as gains and losses?

The entry to record the amount of inventory shrinkage affects the balance sheet, but not the income statement.

Yancey Company granted a sales discount of $360 to a customer when it collected the amount due on account. Yancey uses the perpetual inventory system. Which of the following answers reflects the effects of the discount only on the financial statements?

For a company that uses a perpetual inventory system, a physical count of the inventory can reveal the amount of inventory shrinkage the company has experienced.

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

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

Frank Co. sold merchandise to a customer for $1,200 cash. The merchandise had originally cost Frank $700.

The gross margin from these transactions of Grace Company is

A company using a perpetual inventory system treats transportation-out as part of the cost of merchandise.

The following information for the year 2014 is taken from the accounts of Thayer Company. The company uses the periodic inventory method. Based on this information, the inventory at December 31, 2014 is

Indicate whether each of the following statements is true or false. _____ a) The freight terms FOB shipping point increase the cost of inventory to the buyer. _____ b) The term FOB means that goods are shipped free of charge to buyer and seller. _____ c) FOB shipping point means that purchaser's responsibility ends at shipping point. _____ d) FOB destination means that seller's responsibility ends at destination. _____ e) When the seller of merchandise records freight under the terms FOB shipping point, the seller records an expense.

Which of the following is considered a period cost?

Ardent Company uses the perpetual method. The company's inventory account had a $6,500 balance as of December 31, 2013. A physical count of inventory shows only $5,800 of merchandise in stock at December 31, 2013. The entry to recognize the missing inventory will