Financial and Managerial Accounting Study Set 1

Business

Quiz 5 :

Accounting for Merchandising Businesses

Quiz 5 :

Accounting for Merchandising Businesses

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The credit period during which the buyer of merchandise is allowed to pay usually begins with what date?
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The credit period usually begins with the date of the sale shown on the invoice

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Purchases discounts and accounts payable Rustic Furniture Co. is owned and operated by Cam Pfeifer. The following is an excerpt from a conversation between Cam Pfeifer and Mitzi Wheeler, the chief accountant for Rustic Furniture Co.: Cam: Mitzi, I've got a question about this recent balance sheet. Mitzi: Sure, what's your question? Cam: Well, as you know, I'm applying for a bank loan to finance our new store in Garden Grove, and I noticed that the accounts payable are listed as $320,000. Mitzi: That's right. Approximately $275,000 of that represents amounts due our suppliers, and the remainder is miscellaneous payables to creditors for utilities, office equipment, supplies, etc. Cam: That's what I thought. But as you know, we normally receive a 2% discount from our suppliers for earlier payment, and we always try to take the discount. Mitzi: That's right. I can't remember the last time we missed a discount. Cam: Well, in that case, it seems to me the accounts payable should be listed minus the 2% discount. Let's list the accounts payable due suppliers as $314,500 rather than $320,000. Every little bit helps. You never know. It might make the difference between getting and not getting the loan. How would you respond to Cam Pfeifer's request?
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Case study on purchase discount and accounts payable:
As a chief accountant Mitzi Wheeler, cannot make financial mistakes and once discount is allowed it should be provided. But in the given case the discount is not allowed to rustic furniture company. Therefore, accounts payable amount should be i.e., $314,500.

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Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek Co. as of May 1, 2016 (unless otherwise indicated), are as follows: img During May, the last month of the fiscal year, the following transactions were completed: img img Instructions 1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section, and place a check mark (?) in the Posting Reference column. Journalize the transactions for July, starting on Page 20 of the journal. 2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers. 3. Prepare an unadjusted trial balance. 4. At the end of May, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6). img 5. (Optional) Enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet. 6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal. 7. Prepare an adjusted trial balance. 8. Prepare an income statement, a retained earnings statement, and a balance sheet. 9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. Insert the new balance in the retained earnings account. 10. Prepare a post-closing trial balance.
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Sales-related and purchase-related transactions using perpetual inventory system The following were selected from among the transactions completed by Babcock Company during November of the current year: img Instructions Journalize the transactions.
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Sales-related transactions using perpetual inventory system The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers: img img Instructions Journalize the entries to record the transactions of Green Lawn Supplies Co.
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A ? Gross profit During the current year, merchandise is sold for $615,000 cash and $4,110,000 on account. The cost of the merchandise sold is $2,835,000. What is the amount of the gross profit? B ? Gross profit During the current year, merchandise is sold for $18,300 cash and $295,700 on account. The cost of the merchandise sold is $188,000. What is the amount of the gross profit?
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Purchase-related transactions The Stationery Company purchased merchandise on account from a supplier for $28,900, terms 1/10, n/30. The Stationery Company returned $6,100 of the merchandise and received full credit. a. What is the amount of cash required for the payment? b. Under a perpetual inventory system, what account is credited by The Stationery Company to record the return?
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Determining cost of purchase The following is an excerpt from a conversation between Mark Loomis and Krista Huff. Mark is debating whether to buy a stereo system from Tru-Sound Systems, a locally owned electronics store, or Wholesale Stereo, an online electronics company. Mark: Krista, I don't know what to do about buying my new stereo. Krista: What's the problem? Mark: Well, I can buy it locally at Tru-Sound Systems for $1,175.00. However, Wholesale Stereo has the same system listed for $1,200.00. Krista: What's the big deal? Buy it from Tru-Sound Systems. Mark: It's not quite that simple. Wholesale Stereo charges $49.99 for shipping and handling. If I have Wholesale Stereo send it next-day air, it'll cost $89.99 for shipping and handling. Krista: So? Mark: But, that's not all. Tru-Sound Systems will give an additional 2% discount if I pay cash. Otherwise, they will let me use my VISA, or I can pay it off in three monthly installments. In addition, if I buy it from Tru-Sound Systems, I have to pay 9% sales tax. I won't have to pay sales tax if I buy it from Wholesale Stereo, since they are out of state. Krista: Anything else??? Mark: Well … Wholesale Stereo says I have to charge it on my VISA. They don't accept checks. Krista: I am not surprised. Many online stores don't accept checks. Mark: I give up. What would you do? 1. Assuming that Wholesale Stereo doesn't charge sales tax on the sale to Mark, which company is offering the best buy? 2. What might be some considerations other than price that influence Mark's decision on where to buy the stereo system?
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Purchase-related transactions using perpetual inventory system The following selected transactions were completed by Niles Co. during March of the current year: img img Instructions Journalize the entries to record the transactions of Niles Co. for March.
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Sales-related and purchase-related transactions using perpetual inventory system The following were selected from among the transactions completed by Essex Company during July of the current year: img Instructions Journalize the transactions.
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Determining cost of merchandise sold For a recent year, Best Buy reported sales of $50,705 million. Its gross profit was $12,573 million. What was the amount of Best Buy's cost of merchandise sold?
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A ? Sales transactions Journalize the following merchandise transactions: a. Sold merchandise on account, $72,500 with terms 2/10, n/30. The cost of the merchandise sold was $43,500. b. Received payment less the discount. B ? Sales transactions Journalize the following merchandise transactions: a. Sold merchandise on account, $92,500 with terms 1/10, n/30. The cost of the merchandise sold was $55,500. b. Received payment less the discount.
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Sales-related transactions using perpetual inventory system The following selected transactions were completed by Amsterdam Supply Co., which sells office supplies primarily to wholesalers and occasionally to retail customers: img img Instructions Journalize the entries to record the transactions of Amsterdam Supply Co.
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Purchase-related transactions using perpetual inventory system The following selected transactions were completed by Capers Company during October of the current year: img img Instructions Journalize the entries to record the transactions of Capers Company for October.
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Sales discounts Your sister operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was recently prepared for the year ended October 31, 2016: img Your sister is considering a proposal to increase net income by offering sales discounts of 2/15, n/30, and by shipping all merchandise FOB shipping point. Currently, no sales discounts are allowed and merchandise is shipped FOB destination. It is estimated that these credit terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies, miscellaneous selling, office supplies, and miscellaneous administrative expenses, which are expected to increase proportionately with increased sales. The amounts of these preceding items for the year ended October 31, 2016, were as follows: img The other income and other expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31, 2016, were $12,000. 1. Prepare a projected single-step income statement for the year ending October 31, 2017, based on the proposal. Assume all sales are collected within the discount period. 2. a. Based on the projected income statement in (1), would you recommend the implementation of the proposed changes? b. Describe any possible concerns you may have related to the proposed changes described in (1).
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Ethics and professional conduct in business On April 18, 2016, Bontanica Company, a garden retailer, purchased $9,800 of seed, terms 2/10, n/30, from Whitetail Seed Co. Even though the discount period had expired, Shelby Davey subtracted the discount of $196 when he processed the documents for payment on May 1, 2016. Discuss whether Shelby Davey behaved in a professional manner by subtracting the discount, even though the discount period had expired.
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Can a business earn a gross profit but incur a net loss? Explain.
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Determining gross profit During the current year, merchandise is sold for $4,885,000. The cost of the merchandise sold is $3,028,700. a. What is the amount of the gross profit? b. Compute the gross profit percentage (gross profit divided by sales). c. Will the income statement necessarily report a net income? Explain.
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A ? Purchases transactions Halibut Company purchased merchandise on account from a supplier for $18,600, terms 2/10, n/30. Halibut Company returned $5,000 of the merchandise and received full credit. a. If Halibut Company pays the invoice within the discount period, what is the amount of cash required for the payment? b. What account is credited by Halibut Company to record the return? B ? Purchases transactions Hoffman Company purchased merchandise on account from a supplier for $65,000, terms 1/10, n/30. Hoffman Company returned $7,500 of the merchandise and received full credit. a. If Hoffman Company pays the invoice within the discount period, what is the amount of cash required for the payment? b. What account is debited by Hoffman Company to record the return?
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What distinguishes a merchandising business from a service business?
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