Chapter 6 – Accounting for Merchandising Businesses

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The difference between a service company’s and a merchandising company’s income statements is that the merchandising company includes
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cost of merchandise sold.
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Merchandise inventory is reported as a(n)
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current asset.
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During the month, merchandise is sold for $80,500 cash and for $119,000 on account. The cost of merchandise sold is $101,500. What is the amount of gross profit?
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$98,000
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Determine sales for the month using the following information. At month end, cost of merchandise sold is $191,350 and gross profit is $167,990.
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$359,340
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The Banks Company sold merchandise on account for $35,000 with terms 2/10, n/30. The cost of merchandise sold was $27,600. If the invoice is paid in the discount period, what is the amount of cash received by Banks Company?
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$34,300
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The Geo Company sold merchandise on account for $35,000 with terms 2/10, n/30. The cost of merchandise sold was $27,600. Which of the following journal entries will be recorded for the sale of merchandise?
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Debit to Accounts Receivable, $34,200; credit to Sales, $34,200
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Global Company purchased merchandise on account from Planet Company for $56,000 with terms 1/15, net 45. Global Company returned $6,000 of the merchandise and received full credit from Planet Company. Which of the following will be included in the journal entry for the payment (assume that the amount due was paid within the discount period)?
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Credit to Cash, $49,500
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Credit terms are terms for
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when the payments for merchandise are to made.
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In the multiple-step income statement, cost of merchandise sold is subtracted from
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sales.
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Gross profit is sales
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less cost of merchandise sold.
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Other income is
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added to income from operations.
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sales is equal to sales
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less (sales returns and allowances plus sales discounts).
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The first closing entry for a merchandising business will include which of the following?
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Sales
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The second closing entry for a merchandising business will include which of the following?
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Cost of Merchandise Sold.
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The first closing entry for a merchandising business will include which of the following?
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Sales.
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The inventory records of Garden Company indicate that $92,300 of merchandise should be on hand at the end of the month. The physical inventory indicates that $89,900 is actually on hand. The journal entry to adjust inventory shrinkage will include
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a debit to Cost of Merchandise Sold for $2,400.
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In the ratio of sales to assets, the assets consist of
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the average of total assets from previous and current balance sheets.
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The ratio of sales to assets is computed as
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Sales / Average Total Assets.
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The following financial statement data for the year ending December 31 for Agency Company is shown below. What is the ratio of sales to assets for the year?
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1.25
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When using the ratio of sales to assets, which of the following are true?
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all are correct
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Gross profit is
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profit before deducting operating expenses.
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Cost of merchandise sold is reported as a(n)
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expense
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Garden Company sold merchandise to Mamouth Industries on account for $3,450 with terms 2/10, n/30. The cost of merchandise sold was $1,850. Garden Company refunded Mamouth Industries $900 for returned merchandise. The cost of merchandise sold was $600. Which of the following will be recorded by Mamouth Industries in the journal entry for the return using the perpetual inventory system?
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credit to merchandise inventory 882
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In a perpetual inventory system
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each purchase and sale of inventory is recorded in the inventory account.
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Determine the income from operations using the following information:
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100800
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determine net income using the following amounts: rent revenue is $1,560; interest expense is $2,970; and income from operations is $75,120.
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73710
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The fourth closing entry is to close the owner’s drawing account to
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the owners capital account
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After the first two closing entries have been posted, Income Summary has a debit of $153,690 and a credit of $98,475. Which of the following is true?
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Net loss equals $55,215.
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The following financial statement data for the year ending December 31 for Aero Company is shown below.
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1.50
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A change in the ratio of sales to assets from 1.3 to 1.6 would indicate
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a favorable trend in using assets to generate sales.
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The numerator in the ratio of sales to assets is
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sales
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When using the periodic inventory system, the first closing entry will include a
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debit to Merchandise Inventory equal to the end-of period physical inventory amount.
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The operating cycle of a business is comprised of
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All of these choices are correct.
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Global Company sold merchandise to Montana Industries for cash, $3,450. The cost of merchandise sold was $1,850. Global Company refunded Montana Industries $900 for returned merchandise. The cost of merchandise sold was $600. Which of the following will be recorded by Global Company in the journal entry for the refund from the sale?
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Debit to Customer Refunds Payable, $900
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Income from operations is gross profit
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less operating expenses
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The inventory records of Global Company indicate that $76,800 of merchandise should be on hand at the end of the month. The physical inventory indicates that $74,900 is actually on hand. The journal entry to adjust inventory shrinkage will include
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a debit to Cost of Merchandise Sold for $1,900.
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A change in the ratio of sales to assets from 2.0 to 1.8 would indicate
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an unfavorable trend in using assets to generate sales.
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Purchases Discounts is
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a contra purchases account.
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The difference between a service company’s and a merchandising company’s balance sheets is that the merchandising company includes
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merchandise inventory.
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Determine the income from operations using the following information:
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50400
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The third closing entry
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. is to transfer the net income or loss to the capital account.
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The following financial statement data for the year ending December 31 for Aero Company is shown below.
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1.50
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During the month, merchandise is sold for $23,500 cash and for $34,000 on account. The cost of merchandise sold is $41,500. What is the amount of gross profit?
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16000
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Garden Company purchased merchandise on account from Parker Company for $88,000 with terms 1/15, net 45. Garden Company returned $12,000 of the merchandise and received full credit from Parker Company. If Garden Company pays within the discount period, what is the amount of cash required for payment?
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75240
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Under the periodic inventory system, which of the following accounts increase with a debit and have a normal debit balance? Purchases Purchases Discount Purchases Returns and Allowances Freight In
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1 and 4

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