Deck 5: Accounting for Merchandising Businesses

Question 1

What distinguishes a merchandising business from a service business?

Answer 1

A merchandising business differs from a service business in multiple ways. First, merchandising involves the buying and selling of goods while a service business involves providing services to customers for a fee.
Second, the income statement for a merchandising business deducts the cost of the goods from the sales to determine gross profit. After that it then deducts operating expenses to determine net income. A service business only deducts operating expenses from fees earned. There is no cost of goods sold for them.

Question 2

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?

Answer 2

Requirement (a):
The amount of cash required is calculated by deducting the amount of return of merchandise from the amount of purchase. The amount of cash required will be calculated as under:
Discount on purchase
Discount on purchase return
Requirement b:
The merchandise inventory account will be credited to show the return by the Stationery Co and Account payable account will be debited.

Question 3

What is the nature of (a) a credit memo issued by the seller of merchandise, (b) a debit memo issued by the buyer of merchandise?

Answer 3

Memos:
(a) A credit memo is issued to a customer during a return or allowance of goods and it authorizes a credit (decrease) to the buyer's account receivable.
(b) A debit memo informs the seller of the amount the buyer proposes to debit to the account payable due the seller. The buyer sends this to the seller.

Question 4

Assume that Audio Outfitter Inc. in Discussion Question 9 experienced an abnormal inventory shrinkage of $98,600. Audio Outfitter Inc. has decided to record the abnormal inventory shrinkage so that it would be disclosed separately on the income statement. What account would be debited for the abnormal inventory shrinkage?

Question 5

Determining amounts for items omitted from income statement
One item is omitted in each of the following four lists of income statement data. Determine the amounts of the missing items, identifying them by letter.

Question 6

Cost of goods sold
Identify the errors in the following schedule of the cost of goods sold for the year ended May 31, 2018:

Question 7

Determining gross profit?
During the current year, merchandise is sold for $11,750,000. The cost of the goods sold is $7,050,000.
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 always report a net income? Explain.

Question 8

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:

Instructions
Journalize the transactions.

Question 9

Purchase-related transactions
Warwick's Co., a women's clothing store, purchased $75,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30. Warwick's returned $9,000 of the merchandise, receiving a credit memo, and then paid the amount due within the discount period. Journalize Warwick's entries to record (a) the purchase, (b) the merchandise return, and (c) the payment.

Question 10

Customer return and refund
On December 28, Silverman Enterprises sold $18,500 of merchandise to Beasley Co. with terms 2/10, n/30. The cost of the goods sold was $11,200. On December 31, Silverman prepared its adjusting entries, yearly financial statements, and closing entries. On January 3, Silverman issued Beasley a credit memo for returned merchandise. The returned merchandise originally cost Silverman $2,350 and was billed (invoiced) for $4,000 with terms 2/10, n/30. (A) Journalize the entries by Silverman Enterprises to record the December 28 sale. Beasley paid the balance due on January 7. (B) Journalize the entries by Silverman Enterprises to record the merchandise returned January 3. (C) Journalize the entry to record the receipt of the amount due by Beasley Co. on January 7.

Question 11

Multiple-step income statement
On March 31, 2018, the balances of the accounts appearing in the ledger of Royal Furnishings Company, a furniture wholesaler, are as follows:

A. Prepare a multiple-step income statement for the year ended March 31, 2018.
B. Compare the major advantages and disadvantages of the multiple-step and single-step forms of income statements.

Question 12

Closing entries using periodic inventory system
United Rug Company is a small rug retailer owned and operated by Pat Kirwan. After the accounts have been adjusted on December 31, the following selected account balances were taken from the ledger:

The estimated cost of merchandise returns from December sales is $20,000. Journalize the closing entries.

Question 13

Purchase-related transactions using perpetual inventory system
The following selected transactions were completed by Capers Company during October of the current year:

Instructions
Journalize the entries to record the transactions of Capers Company for October.

Question 14

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:

Instructions
Journalize the transactions.

Question 15

Single-step income statement and balance sheet
Selected accounts and related amounts for Clairemont Co. for the fiscal year ended May 31, 2018, are presented in Problem 5-5A.
Instructions
1. Prepare a single-step income statement in the format shown in Exhibit 12.
2. Prepare a retained earnings statement.
3. Prepare balance sheet, assuming that the current portion of the note payable is $50,000.
4. Prepare closing entries as of May 31, 2018.

Question 16

Periodic inventory accounts, multiple-step income statement, closing entries
On December 31, 2018, the balances of the accounts appearing in the ledger of Wyman Company are as follows:

Instructions
1. Does Wyman Company use a periodic or perpetual inventory system? Explain.
2. Prepare a multiple-step income statement for Wyman Company for the year ended December 31, 2018. The inventory as of December 31, 2018, was $305,000. The estimated cost of customer returns inventory for December 31, 2018, is estimated to increase to $40,000.
3. Prepare the closing entries for Wyman Company as of December 31, 2018.
4. What would be the net income if the perpetual inventory system had been used?

Question 17

Multiple-step income statement
The following income statement for Curbstone Company was prepared for the year ended August 31, 2018:

A. Identify the errors in the income statement.
B. Prepare a corrected income statement.

Question 18

Purchase-related transactions using perpetual inventory system
The following selected transactions were completed by Niles Co. during March of the current year:


Instructions
Journalize the entries to record the transactions of Niles Co. for March.

Question 19

Communication
Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was prepared for the year ended October 31, 2018.

Suzi 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 the new terms will increase sales by 10%. The ratio of the cost of goods solds to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are expected to increase proportionately with increased sales. The amounts of these items for the year ended October 31, 2018, were as follows:

The interest revenue and 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, 2018, were $12,000.
Write a brief memo to Suzi discussing the potential benefits and limitations of this proposal. Include a determination of the net income that Watercraft Supply could generate next year, under the new proposal, assuming that all sales are collected within the discount period.

Question 20

Single-step income statement and balance sheet
Selected accounts and related amounts for Kanpur Co. for the fiscal year ended June 30, 2018, are presented in Problem 5-5B.
Instructions
1. Prepare a single-step income statement in the format shown in Exhibit 12.
2. Prepare a retained earnings statement.
3. Prepare a balance sheet, assuming that the current portion of the note payable is $7,000.
4. Prepare closing entries as of June 30, 2018.

Question 21

Periodic inventory accounts, multiple-step income statement, closing entries
On June 30, 2018, the balances of the accounts appearing in the ledger of Simkins Company are as follows:

Instructions
1. Does Simkins Company use a periodic or perpetual inventory system? Explain.
2. Prepare a multiple-step income statement for Simkins Company for the year ended June 30, 2018. The inventory as of June 30, 2018, was $508,000. The estimated cost of customer returns inventory for June 30, 2018 is estimated to increase to $33,000.
3. Prepare the closing entries for Simkins Company as of June 30, 2018.
4. What would be the net income if the perpetual inventory system had been used?

Question 22

Single-step income statement
Summary operating data for Custom Wire Tubing Company during the year ended April 30, 2018, are as follows: cost of goods sold, $6,100,000; administrative expenses, $740,000; interest expense, $25,000; rent revenue, $60,000; sales, $9,332,500; and selling expenses, $1,250,000. Prepare a single-step income statement.

Question 23

Ethics in Action
Margie Johnson is a staff accountant at ToolEx Company, a manufacturer of tools and equipment. The company is under pressure from investors to increase earnings, and the president of the company expects the accounting department to "make this happen." Margie's boss, who has been a mentor to her, is concerned that if earnings do not increase, he will be terminated.
Shortly after the end of the fiscal year, the company performs a physical count of the inventory. When Margie compares the physical count to the balance in the inventory account, she finds a significant amount of inventory shrinkage. The amount is so large that it will result in a significant drop in earnings this period. Margie's boss asks her not to make the adjusting entry for shrinkage this period. He assures her that they will get "caught up" on shrinkage in the next period, after the pressure is off to reach this period's earnings goal. Margie's boss asks her to do this as a personal favor to him.
What should Margie do in this situation? Why?

Question 24

C. Penney: Asset turnover ratio
J. C. Penney Company, Inc. is a large general merchandise retailer in the United States. The following data were obtained from its financial statements for four recent years:

A. Compute the asset turnover ratio for each year. (Round to two decimal places).
B. Plot the asset turnover ratio on a line chart with the year on the horizontal axis.
C. Interpret the trend in this ratio over the four years.

Question 25

Who bears the freight when the terms of sale are (a) FOB shipping point, (b) FOB destination?

Question 26

Sales-related transactions
After the amount due on a sale of $28,000, terms 2/10, n/eom, is received from a customer within the discount period, the seller consents to the return of the entire shipment for a cash refund. The cost of the merchandise returned was $16,800. (a) What is the amount of the refund owed to the customer? (b) Journalize the entries made by the seller to record the return and the refund.

Question 27

Adjusting entry for customer refunds, allowances, and returns
Scott Company had sales of $12,350,000 and related cost of goods sold of $7,500,000. Scott provides customers a refund for any returned or damaged merchandise. At the end of the year, Scott estimates that customers will request refunds for 0.8% of sales and estimates that merchandise costing $48,000 will be returned. Journalize the adjusting entries on December 31 to record the expected customer returns.

Question 28

Home Depot: Asset turnover ratio
The Home Depot reported the following data (in millions) in its recent financial statements:

A. Determine the asset turnover ratio for Home Depot for Year 2 and Year 1. (Round to two decimal places).
B. What conclusions can be drawn from these ratios concerning the trend in the ability of Home Depot to effectively use its assets to generate sales?

Question 29

Freight terms
Determine the amount to be paid in full settlement of each of two invoices, (A) and (B), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

Question 30

Purchase-related transactions
Journalize entries for the following related transactions of Lilly Heating Air Company:
A. Purchased $36,000 of merchandise from Schell Co. on account, terms 1/10, n/30.
B. Paid the amount owed on the invoice within the discount period.
C. Discovered that $9,000 of the merchandise purchased in (A) was defective and returned items, receiving credit.
D. Purchased $5,000 of merchandise from Schell Co. on account, terms n/30.
E. Received a refund from Schell Co. for return in (C) less the purchase in (D).

Question 31

Sales-related transactions
The debits and credits for five related transactions, A through E, are presented in the following T accounts. Describe each transaction.

Question 32

Adjusting entry for customer refunds, allowances, and returns
Statz Company had sales of $1,800,000 and related cost of goods sold of $1,150,000 for its first year of operations ending December 31. Statz provides customers a refund for any returned or damaged merchandise. At the end of the year, Statz estimates that customers will request refunds for 1.5% of sales and estimates that merchandise costing $16,000 will be returned. Assume that on February 3 of the following year, Buck Co. returned merchandise with a selling price of $5,000 for a cash refund. The returned merchandise originally cost Statz $3,100. (A) Journalize the adjusting entries on December 31 to record the expected customer returns. (B) Journalize the entries to record the returned merchandise and cash refund to Buck Co. on February 3.

Question 33

Purchases transactions
Hoffman Company purchased merchandise on account from a supplier for $65,000, terms 1/10, n/30. Hoffman 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?

Question 34

What is the meaning of (a) 1/15, n/60; (b) n/30; (c) n/eom?

Question 35

Purchase-related transactions using periodic inventory system
Selected transactions for Capers Company during October of the current year are listed in Problem 6-1A.
Instructions
Journalize the entries to record the transactions of Capers Company for October using the periodic inventory system.

Question 36

Sales-related transactions
Sayers Co. sold merchandise on account to a customer for $80,000 terms 2/10, n/30. The cost of the goods sold was $58,000. Journalize Sayers' entries to record (A) the sale, (B) the receipt of payment within the discount period, and (C) the receipt of payment beyond the discount period of ten days.

Question 37

Adjusting entry for inventory shrinkage
Omega Tire Co.'s perpetual inventory records indicate that $3,145,000 of merchandise should be on hand on August 31. The physical inventory indicates that $3,113,500 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Omega Tire Co. for the fiscal year ended August 31.

Question 38

Palisade Creek Co. is a merchandising business that uses the perpetual inventory system. The account balances for Palisade Creek as of May 1, 2018 (unless otherwise indicated), are as follows:

During May, the last month of the fiscal year, the following transactions were completed:


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).

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.

Question 39

Purchase-related transactions
A retailer is considering the purchase of 250 units of a specific item from either of two suppliers. Their offers are as follows:

Which of the two offers, Supplier One or Supplier Two, yields the lower price?

Question 40

Purchase-related transactions using periodic inventory system
Selected transactions for Niles Co. during March of the current year are listed in Problem 6-1B.
Instructions
Journalize the entries to record the transactions of Niles Co. for March using the periodic inventory system.

Question 41

Determining amounts to be paid on invoices
Determine the amount to be paid in full settlement of each of the following invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period:

Question 42

Closing the accounts of a merchandiser
From the following list, identify the accounts that should be closed to Income Summary at the end of the fiscal year under a perpetual inventory system: (A) Accounts Payable, (B) Advertising Expense, (C) Cost of Goods Sold, (D) Dividends, (E) Inventory, (F) Sales, (G) Supplies, (H) Supplies Expense, (I) Wages Payable.

Question 43

Can a business earn a gross profit but incur a net loss? Explain.

Question 44

Sales-related and purchase-related transactions for seller and buyer using perpetual inventory system
The following selected transactions were completed during August between Summit Company and Beartooth Co.:

Instructions
Journalize the August transactions for (1) Summit Company and (2) Beartooth Co.

Question 45

Name four accounts that would normally appear in the chart of accounts of a merchandising business but would not appear in the chart of accounts of a service business.

Question 46

Sales-related transactions
Showcase Co., a furniture wholesaler, sells merchandise to Balboa Co. on account, $254,500, terms n/30. The cost of the merchandise sold is $152,700. Showcase Co. issues a credit memo for $30,000 for merchandise returned prior to Balboa Co. paying the original invoice. The cost of the merchandise returned is $17,500. Journalize Showcase Co.'s entries for (a) the sale, including the cost of the merchandise sold; (b) the credit memo, including the cost of the returned merchandise; and (c) the receipt of the check for the amount due from Balboa Co.

Question 47

Closing entries; net income
Based on the data presented in Exercise 5-24, journalize the closing entries.

Question 48

Determining cost of goods sold
For a recent year, Best Buy reported sales of $42,410 million. Its gross profit was $9,690 million. What was the amount of Best Buy's cost of goods sold?

Question 49

Sales-related and purchase-related transactions for seller and buyer using perpetual inventory system
The following selected transactions were completed during April between Swan Company and Bird Company:

Instructions
Journalize the April transactions for (1) Swan Company and (2) Bird Company.

Question 50

Sales-related transactions, including the use of credit cards
Journalize the entries for the following transactions:
A. Sold merchandise for cash, $25,000. The cost of the goods sold was $17,500.
B. Sold merchandise on account, $98,000. The cost of the goods sold was $58,800.
C. Sold merchandise to customers who used MasterCard and VISA, $475,000. The cost of the goods sold was $280,000.
D. Sold merchandise to customers who used American Express, $63,000. The cost of the goods sold was $39,000.
E. Received an invoice from National Clearing House Credit Co. for $13,450 representing a service fee paid for processing MasterCard, VISA, and American Express sales.

Question 51

Purchase-related transactions
Based on the data presented in Exercise 6-14, journalize Balboa Co.'s entries for (a) the purchase, (b) the return of the merchandise for credit, and (c) the payment of the invoice.

Question 52

Closing entries
On July 31, the close of the fiscal year, the balances of the accounts appearing in the ledger of Serbian Interiors Company, a furniture wholesaler, are as follows:

Prepare the July 31 closing entries for Serbian Interiors Company.

Question 53

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:


Instructions
Journalize the entries to record the transactions of Amsterdam Supply Co.

Question 54

Transactions for buyer and seller
Shore Co. sold merchandise to Blue Star Co. on account, $112,000, terms FOB shipping point, 2/10, n/30. The cost of the goods sold is $67,200. Shore paid freight of $1,800. Journalize the entries for Shore and Blue Star for the sale, purchase, and payment of amount due.

Question 55

Sales-related and purchase-related transactions using periodic inventory system
Selected transactions for Babcock Company during November of the current year are listed in Problem 6-3A.
Instructions
Journalize the entries to record the transactions of Babcock Company for November using the periodic inventory system.

Question 56

Chart of accounts
Monet Paints Co. is a newly organized business with a list of accounts arranged in alphabetical order, as follows:

Construct a chart of accounts, assigning account numbers and arranging the accounts in balance sheet and income statement order, as illustrated in Exhibit 10. Each account number is three digits: the first digit is to indicate the major classification (1 for assets, and so on); the second digit is to indicate the subclassification (11 for current assets, and so on); and the third digit is to identify the specific account (110 for Cash, 112 for Accounts Receivable, 114 for Inventory, 115 for Estimated Returns Inventory, and so on).

Question 57

Rules of debit and credit for periodic inventory accounts
Complete the following table by indicating for (a) through (g) whether the proper answer is debit or credit:

Question 58

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:


Instructions
Journalize the entries to record the transactions of Green Lawn Supplies Co.

Question 59

How are sales to customers using MasterCard and VISA recorded?

Question 60

Sales-related and purchase-related transactions using periodic inventory system
Selected transactions for Essex Company during July of the current year are listed in Problem 6-3B.
Instructions
Journalize the entries to record the transactions of Essex Company for July using the periodic inventory system.

Question 61

Sales tax
A sale of merchandise on account for $36,000 is subject to an 8% sales tax. (a) Should the sales tax be recorded at the time of sale or when payment is received? (b) What is the amount recorded as sales? (c) What is the amount debited to Accounts Receivable? (d) What is the title of the account to which the $2,880 ($36,000 × 8%) is credited?

Question 62

Journal entries using the periodic inventory system
The following selected transactions were completed by Air Systems Company during January of the current year. Air Systems Company uses the periodic inventory system.

Journalize the entries to record the transactions of Air Systems Company.

Question 63

Team Activity
In teams, select a public company that interests you. Obtain the company's most recent annual report on Form 10-K. The Form 10-K is a company's annually required filing with the Securities and Exchange Commission (SEC). It includes the company's financial statements and accompanying notes. The Form 10-K can be obtained either (A) from the investor relations section of the company's Web site or (B) by using the company search feature of the SEC's EDGAR database service found at www.sec.gov/edgar/searchedgar/companysearch.html.
1. Based on the information in the company's most recent annual report, determine each of the following for all the years presented:
A. Gross profit
B. Gross profit rate (Gross profitf ÷ Sales)
C. Income from operations
D. Percentage change in income from operations
E. Net income
F. Percentage change in net income
2. Based solely on your responses to item 1, has the company's performance improved, remained constant, or deteriorated over the periods presented? Briefly explain your answer.

Question 64

Purchase-related transactions
The debits and credits from four related transactions, A through D, are presented in the following T accounts. Describe each transaction.

Question 65

Audio Outfitter Inc., which uses a perpetual inventory system, experienced a normal inventory shrinkage of $13,675. What accounts would be debited and credited to record the adjustment for the inventory shrinkage at the end of the accounting period?

Question 66

Sales tax transactions
Journalize the entries to record the following selected transactions:
A. Sold $640,000 of merchandise on account, subject to a sales tax of 7%. The cost of the goods sold was $385,000.
B. Paid $61,750 to the state sales tax department for taxes collected.

Question 67

Identify items missing in determining cost of goods sold
For (A) through (E), identify the items designated by X and Y.
A. Purchases ? (X + Y) = Net purchases
B. Net purchases + X = Cost of inventory purchased
C. Inventory (beginning) + Cost of inventory purchased = X
D. Inventory available for sale ? X = Cost of inventory before estimated returns
E. Cost of goods sold before estimated returns ? X = Cost of goods sold

Question 68

Kroger: Asset turnover ratio
The Kroger Company, a national supermarket chain, reported the following data (in millions) in its financial statements for a recent year:

A. Compute the asset turnover ratio. (Round to two decimal places.)
B. Tiffany Co. is a large North American retailer of jewelry. Tiffany's asset turnover ratio is 0.92. Why would Tiffany's asset turnover ratio be lower than that of Kroger?

Question 69

Multiple-step income statement and balance sheet
The following selected accounts and their current balances appear in the ledger of Clairemont Co. for the fiscal year ended May 31, 2018:

Instructions
1. Prepare a multiple-step income statement.
2. Prepare a retained earnings statement.
3. Prepare a balance sheet, assuming that the current portion of the note payable is $50,000.
4. Briefly explain how multiple-step and single-step income statements differ.

Question 70

Customer refund
Senger Company sold merchandise of $15,500, terms 2/10, n/30, to Burris Inc. on April 23. Burris paid Senger for the merchandise on May 2. On May 12, Senger paid Burris $650 for costs incurred by Burris to repair defective merchandise. (A) Journalize the entry by Senger Company to record the customer refund to Burris Inc. (B) Assume that instead of paying Burris cash, Senger issued a credit memo to Burris to be used against Burris's outstanding account receivable balance. Journalize the entry by Senger Company to record the issuance of the credit memo.

Question 71

Normal balances of merchandise accounts
What is the normal balance of the following accounts: (a) Cost of Merchandise Sold, (b) Customer Refunds Payable, (c) Delivery Expense, (d) Estimated Returns Inventory, (e) Merchandise Inventory, (f) Sales, (g) Sales Tax Payable.

Question 72

Cost of goods sold and related items
The following data were extracted from the accounting records of Harkins Company for the year ended April 30, 2018:

A. Prepare the cost of goods sold section of the income statement for the year ended April 30, 2018, using the periodic inventory system.
B. Determine the gross profit to be reported on the income statement for the year ended April 30, 2018.
C. Would gross profit be different if the perpetual inventory system was used instead of the periodic inventory system?

Question 73

Continuing Company Analysis-Amazon: Asset turnover ratio
Amazon.com, Inc. is one of the largest Internet retailers in the world. Netflix, Inc. provides digital streaming and DVD rentals in the United States. Amazon and Netflix compete in streaming and digital services, however Amazon also sells many other products through the Internet. The sales and total assets (in millions) from recent financial statements were reported as follows for both companies:

A. Based on your knowledge of each company, identify three major assets used by each company in generating revenue.
B. Compute the asset turnover ratio for each company. (Round to two decimal places).
C. Which company generates sales from total assets more efficiently?

Question 74

Sales transactions?
Journalize the following merchandise transactions:
A. Sold merchandise on account, $92,500 with terms 1/10, n/30. The cost of the goods sold was $55,500.
B. Received payment less the discount.
C. Refunded $750 to customer for defective merchandise that was not returned.

Question 75

Multiple-step income statement and balance sheet
The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 2018:

Instructions
1. Prepare a multiple-step income statement.
2. Prepare a retained earnings statement.
3. Prepare a balance sheet, assuming that the current portion of the note payable is $7,000.
4. Briefly explain how multiple-step and single-step income statements differ.

Question 76

Sales-related and purchase-related transactions for buyer and seller using periodic inventory system
Selected transactions during August between Summit Company and Beartooth Co. are listed in Problem 5-4A.
Instructions
Journalize the entries to record the transactions for (1) Summit Company and (2) Beartooth Co., assuming that both companies use the periodic inventory system.

Question 77

Income statement and accounts for merchandiser
For the fiscal year, sales were $46,680,000 and the cost of goods sold was $28,000,000.
A. What was the amount of gross profit?
B. If total operating expenses were $5,000,000 could you determine net income?
C. Is Customer Refunds Payable an asset, liability, or stockholders' equity account and what is its normal balance?
D. Is Estimated Returns Inventory an asset, liability, or stockholders' equity account and what is its normal balance?

Question 78

Cost of goods sold
Based on the following data, determine the cost of goods sold for November:

Question 79

Gross profit
During the current year, merchandise is sold for $18,300 cash and $295,700 on account. The cost of the goods sold is $188,000. What is the amount of the gross profit?

Question 80

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