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Exam 4: Accounting for Merchandising Businesses

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Question 31

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

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

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

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Question 32

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What is the net cash flow from operating activities as a result of the four transactions?

A) $5,100
B) $7,726
C) $6,550
D) $11,074

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

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Question 33

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[The following information applies to the questions displayed below.] A company's chart of accounts includes, in part, the following account numbers and corresponding account titles: -Which accounts would affect gross margin?

Middleton Company uses the perpetual inventory system.The company purchased an item of inventory for $130 and sold the item to a customer for $200.How will the sale affect the company's Inventory account?

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

The write-off to record the amount of inventory shrinkage affects both the balance sheet and the income statement.

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

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

Common size financial statements are prepared by converting dollar amounts to percentages.

Which of the following retailers would be expected to have the highest gross margin percentage?

The financial statements of Tin Company included the following: $\begin{array} { l r } \text { Sales } & \$ 1,000,000 \\\text { Gross margin } & 300,000 \\\text { Ending Irventory } & 100,000\end{array}$ Based on the information provided,what was the company's cost of goods sold?

Which of the following is considered a product cost?

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

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory,as well as returns of inventory to suppliers.

Which of the following statements about period costs is true?

Merchandising businesses include retail companies and manufacturing companies.

Assume a company uses the periodic inventory system.Which of the following accounts would not be affected when recording purchases and related transactions?

Costs charged to the Merchandise Inventory account are product costs.

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

Indicate whether each of the following statements is true or false.(Assume a periodic inventory system)