Integrated Accounting

Fundamentals
Retailers and wholesalers are both considered
merchandisers.
The steps in the accounting cycle are different
for a merchandising company than for a
service company.
Sales minus operating expenses equals gross
profit.
Under a perpetual inventory system, the cost
of goods sold is determined each time a sale
occurs.
Freight terms of FOB Destination means that
the seller pays the freight costs.
Freight costs incurred by the seller on
outgoing merchandise are an operating
expense to
the seller.
The Sales Returns and Allowances account
and the Sales Discount account are both
classified as expense accounts.
Sales Allowances and Sales Discounts are
both designed to encourage customers to pay
their accounts promptly.
Nonoperating activities exclude revenues and
expenses that result from secondary or
auxiliary operations
Net sales appears on both the multiple-step
and single-step forms of an income
statement.
In a multiple-step income statement, income
from operations excludes other revenues and
gains and other expenses and losses.
Gain on sale of equipment and interest
expense are reported under other revenues
and gains in a multiple-step income
statement.
If net sales are $800,000 and cost of goods
sold is $600,000, the gross profit rate is 25%.
If net sales are $800,000 and cost of goods
sold is $600,000, the gross profit rate is 25%.
Gross profit is a measure of the overall
profitability of a company.
Purchase Returns and Allowances and
Purchase Discounts are subtracted from
Purchases to produce net purchases.
Freight-in is an account that is subtracted
from the Purchases account to arrive at cost
of goods purchased.
Under a periodic inventory system, the
acquisition of inventory is charged to the
Purchases account
In a worksheet, cost of goods sold will be
shown in the trial balance (Dr.), adjusted trial
balance (Dr.) and income statement (Dr.)
columns.
The terms 2/10, n/30 state that a 2% discount
is available if the invoice is paid within the
first 10 days of the next month.
Two categories of expenses for
merchandising companies are
a. cost of goods sold and financing expenses.
b. operating expenses and financing
expenses.
c. cost of goods sold and operating expenses.
d. sales and cost of goods sold.
Which of the following expressions is incorrect?
a. Gross profit – operating expenses = net income
b. Sales – cost of goods sold – operating expenses = net income
c. Net income + operating expenses = gross profit
d. Operating expenses – cost of goods sold = gross profit
Detailed records of goods held for resale are
not maintained under a
a. perpetual inventory system.
b. periodic inventory system.
c. double entry accounting system.
d. single entry accounting system.
A perpetual inventory system would likely be
used by a(n)
a. automobile dealership.
b. hardware store.
c. drugstore.
d. convenience store.
The journal entry to record a return of
merchandise purchased on account under a
perpetual inventory system would credit
a. Accounts Payable.
b. Purchase Returns and Allowances.
c. Sales.
d. Merchandise Inventory.
The Merchandise Inventory account is used in
each of the following except the entry to
record
a. goods purchased on account.
b. the return of goods purchased.
c. payment of freight on goods sold.
d. payment within the discount period
If a purchaser using a perpetual system agrees to
freight terms of FOB shipping point, then the
a. Merchandise Inventory account will be increased.
b. Merchandise Inventory account will not be
affected.
c. seller will bear the freight cost.
d. carrier will bear the freight cost.
Freight costs paid by a seller on merchandise
sold to customers will cause an increase
a. in the selling expense of the buyer.
b. in operating expenses for the seller.
c. to the cost of goods sold of the seller.
d. to a contra-revenue account of the seller.
Bryan Company purchased merchandise from
Cates Company with freight terms of FOB
shipping point. The freight costs will be paid
by the
a. seller.
b. buyer.
c. transportation company.
d. buyer and the seller.
Flynn Company purchased merchandise inventory
with an invoice price of $5,000 and credit terms of
2/10, n/30. What is the net cost of the goods if Flynn
Company pays within the discount period?
a. $5,000
b. $4,900
c. $4,500
d. $4,600
Stine Company purchased merchandise with an invoice
price of $2,000 and credit terms of 2/10, n/30.
Assuming a 360 day year, what is the implied annual
interest rate inherent in the credit terms?
a. 20%
b. 24%
c. 36%
d. 72%
Zach’s Market recorded the following events involving a recent
purchase of merchandise:
Received goods for $50,000, terms 2/10, n/30.
Returned $1,000 of the shipment for credit.
Paid $250 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s merchandise inventory
a. increased by $48,020.
b. increased by $49,250.
c. increased by $48,265.
d. increased by $48,270.
A credit sale of $800 is made on April 25, terms
2/10, n/30, on which a return of $50 is granted on
April 28. What amount is received as payment in full
on May 4?
a. $735
b. $784
c. $800
d $750
The entry to record the receipt of payment
within the discount period on a sale of $750
with terms of 2/10, n/30 will include a credit to
a. Sales Discounts for $15.
b. Cash for $735.
c. Accounts Receivable for $750.
d. Sales for $750.
The collection of a $600 account within the 2
percent discount period will result in a
a. debit to Sales Discounts for $12.
b. debit to Accounts Receivable for $588.
c. credit to Cash for $588.
d. credit to Accounts Receivable for $588.
A credit memorandum is prepared when
a. an employee does a good job.
b. goods are sold on credit.
c. goods that were sold on credit are returned.
d. customers refuse to pay their accounts.
If a customer agrees to retain merchandise that
is defective because the seller is willing to
reduce the selling price, this transaction is
known as a sales
a. discount.
b. return.
c. contra asset.
d. allowance.
Feine Company sells merchandise on account for $2,000 to Tang Company with
credit terms of 2/10, n/30. Tang Company returns $300 of merchandise that was
damaged, along with a check to settle the account within the discount period. What
entry does Feine Company make upon receipt of the check?
a. Cash .................................................................................... 1,700
Accounts Receivable .................................................. 1,700
b. Cash .................................................................................... 1,666
Sales Returns and Allowances ............................................ 334
Accounts Receivable .................................................. 2,000
c. Cash .................................................................................... 1,666
Sales Returns and Allowances ............................................ 300
Sales Discounts ................................................................... 34
Accounts Receivable .................................................. 2,000
d. Cash .................................................................................... 1,960
Sales Discounts ................................................................... 40
Sales Returns and Allowances ................................... 300
Accounts Receivable .................................................. 1,700
Which of the following would not be
classified as a contra account?
a. Sales
b. Sales Returns and Allowances
c. Accumulated Depreciation
d. Sales Discounts
A merchandising company using a perpetual system will
make
a. the same number of adjusting entries as a service
company does.
b. one more adjusting entry than a service company does.
c. one less adjusting entry than a service company does.
d. different types of adjusting entries compared to a service
company.
Indicate which one of the following would
appear on the income statement of both a
merchandising company and a service company.
a. Gross profit
b. Operating expenses
c. Sales revenues
d. Cost of goods sold
A company shows the following balances:
Sales $1,000,000
Sales Returns and Allowances 180,000
Sales Discounts 20,000
Cost of Goods Sold 560,000
What is the gross profit percentage?
a. 56% c. 44%
b. 70% d. 30%
During 2008, Salon Enterprises generated revenues of
$60,000. The company’s expenses were as follows: cost of
goods sold of $30,000, operating expenses of $12,000 and
a loss on the sale of equipment of $2,000.
Salon’s income from operations is
a. $60,000.
b. $30,000.
c. $18,000.
d. $12,000.
Financial information is presented below:
Operating Expenses $ 45,000
Sales Returns and Allowances 13,000
Sales Discounts 6,000
Sales 150,000
Cost of Goods Sold 67,000
The gross profit rate would be
a. .535. c. .489.
b. .511. d. .553.
Ingrid’s Fashions sold merchandise for $38,000 cash
during the month of July. Returns that month totaled $800.
If the company’s gross profit rate is 40%, Ingrid’s will
report monthly net sales revenue and cost of goods sold of
a. $38,000 and $22,800.
b. $37,200 and $14,880.
c. $37,200 and $22,320.
d. $38,000 and $22,320.
At the beginning of the year, Midtown Athletic had an inventory of
$400,000. During the year, the company purchased goods costing
$1,600,000. If Midtown Athletic reported ending inventory of
$600,000 and sales of $2,000,000, the company’s cost of goods
sold and gross profit rate must be
a. $1,000,000 and 50%.
b. $1,400,000 and 30%.
c. $1,000,000 and 30%.
d. $1,400,000 and 70%.
During the year, Darla’s Pet Shop’s merchandise
inventory decreased by $20,000. If the company’s
cost of goods sold for the year was $300,000,
purchases must have been
a. $320,000.
b. $280,000.
c. $260,000.
d. Unable to determine.
Baden Shoe Store has a beginning merchandise inventory of
$30,000. During the period, purchases were $140,000; purchase
returns, $4,000; and freight-in $10,000. A physical count of
inventory at the end of the period revealed that $20,000 was still
on hand. The cost of goods available for sale was
a. $164,000.
b. $156,000.
c. $176,000.
d. $184,000
A company just starting in business purchased three merchandise
inventory items at the following prices. First purchase $80;
Second purchase $95; Third purchase $85. If the company sold
two units for a total of $240 and used FIFO costing, the gross
profit for the period would be
a. $65.
b. $75.
c. $60.
d. $50
July 1 Beginning Inventory 20 units at $19 $ 380
7 Purchases 70 units at $20 1,400
22 Purchases 10 units at $22 220
$2,000
A physical count of merchandise inventory on July 31 reveals that
there are 30 units on hand.
Using the average-cost method, the value of ending inventory is
a. $580.
b. $600.
c. $610.
d. $620.