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Exam 5: Merchandising Operations and the Multiple-Step Income Statement

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Question 131

Multiple Choice

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Casin Company sells $700 of merchandise on account to Delta Exploration with credit terms of 2/10, n/30. If Delta Exploration remits a check taking advantage of the discount offered, what is the amount of Delta Exploration's check?

A) $490
B) $686
C) $630
D) $560

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

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Question 132

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A merchandising company's net income is determined by subtracting operating expenses from gross profit.

A) True
B) False

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Question 133

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Sales allowances and Sales discounts are both designed to encourage customers to pay their accounts promptly.

A Sales Returns and Allowances account is not debited if a customer

If Indiana Ink, Inc. has net sales of $400,000 and cost of goods sold of $300,000, Indiana Ink's gross profit rate is

When a seller records a return of goods, the account that is credited is

Under GAAP, companies can choose which inventory system?

Assume that Mitchell Company uses a periodic inventory system and has these account balances: Purchases $620,000; Purchase Returns and Allowances $25,000; Purchases Discounts $11,000; and Freight-In $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000. Determine the amounts to be reported for cost of goods sold and gross profit.

Financial information is presented here for two companies. Instructions (a) Compute the missing amounts. (b) Calculate the profit margin and the gross profit rate for each company.

Which of the following is a true statement about inventory systems?

A merchandiser that sells directly to consumers is a

The terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period.

Income from operations appears on both the single-step and multiple-step forms of an income statement.

Financial information is presented below: Gross profit would be

Sales revenues, cost of goods sold, and gross profit are amounts on a merchandising company's income statement not commonly found on the income statement of a service company.

After gross profit is calculated, operating expenses are deducted to determine

For a jewelry retailer, which is an example of Other Revenues and Gains?

Sampson Company's accounting records show the following at the year ending on December 31, 2014. Using the periodic system, the cost of goods sold is

On October 1, the Kile Bicycle Store had an inventory of 20 ten speed bicycles at a cost of $150 each. During the month of October the following transactions occurred. Assume Kile uses a perpetual inventory system. Oct. 4 Purchased 180 bicycles at a cost of $145 each from the Nixon Bicycle Company, terms 2/10, n/30. 5 Paid freight of $1,000 on the October 4 purchase. 6 Sold 10 bicycles from the October 1 inventory to Team America for $250 each, terms 2/10, n/30. 7 Received credit from the Nixon Bicycle Company for the return of 8 defective bicycles. 13 Issued a credit memo to Team America for the return of a defective bicycle. 14 Paid Nixon Bicycle Company in full, less discount. Instructions Prepare the journal entries to record the transactions assuming the company uses a perpetual inventory system.

June 4 Black Company purchased $9,000 worth of merchandise, terms n/30 from Hayes Company. The cost of the merchandise was $6,300. 12 Black returned $500 worth of goods to Hayes for full credit. The goods had a cost of $350 to Hayes. 12 Black paid the account in full. Instructions Prepare the journal entries to record these transactions in (a) Black's records and (b) Hayes' records. Assume use of the perpetual inventory system for both companies.