Question 1

Use the following for questions 
Assume the perpetual inventory method is used.
1)The company purchased $12,500 of merchandise on account under terms 2/10,n/30.
2)The company returned $1,200 of merchandise to the supplier before payment was made.
3)The liability was paid within the discount period.
4)All of the merchandise purchased was sold for $18,800 cash.
-The net cash flow from operating activities as a result of the four transactions is:

Accepted Answer

The correct answer is A because the net cash flow from operating activities is calculated as follows:Sales revenue: $18,800Less: Cost of goods sold: $12,500 - $1,200 = $11,300Gross profit: $7,500Less: Discount on purchases: $12,500 x 2% = $250Net cash flow from operating activities: $7,500 - $250 = $7,250

Question 2

Use the following for questions
Use the following account numbers and corresponding account titles to answer the next three questions.
  55.Which accounts would appear on the income statement?
A.Account numbers 3,4,7,8,and 9.
B.Account numbers 3,4,5,7,and 9.
C.Account numbers 2,3,7,8,and 9.
D.Account numbers 3,5,7,and 8.
Answer: A
Learning Objective: 04-01
Topic Area: Ledger accounts and financial statements
AACSB: Reflective thinking
AICPA: BB Critical thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Cost of goods sold,transportation-out,selling expense,loss on the sale of land,and sales will all appear on the income statement.
-Which accounts would appear on the balance sheet?

Accepted Answer

Accounts 1, 2, and 6 are all asset accounts and would appear on the balance sheet. Accounts 3, 4, 7, 8, and 9 are all expense or revenue accounts and would appear on the income statement. Account 5 is a contra asset account and would also appear on the balance sheet, but it is not listed as an option. Therefore, the best answer is C.

Question 3

A company purchased inventory on account.If the perpetual inventory method is used,which of the following choices accurately reflects how the purchase affects the company's financial statements?

Accepted Answer

The answer of A company purchased inventory on account.If the...

Question 4

Use the following for questions
Use the following account numbers and corresponding account titles to answer the next three questions.
  55.Which accounts would appear on the income statement?
A.Account numbers 3,4,7,8,and 9.
B.Account numbers 3,4,5,7,and 9.
C.Account numbers 2,3,7,8,and 9.
D.Account numbers 3,5,7,and 8.
Answer: A
Learning Objective: 04-01
Topic Area: Ledger accounts and financial statements
AACSB: Reflective thinking
AICPA: BB Critical thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Cost of goods sold,transportation-out,selling expense,loss on the sale of land,and sales will all appear on the income statement.
-Which accounts would affect gross margin?

Accepted Answer

Gross margin is calculated as sales (9)minus cost of goods sold (3).

Question 5

Abbott Company purchased $6,500 of merchandise inventory on account.Advent uses the perpetual inventory method.Which of the following entries would be required to record this transaction?

Accepted Answer

The answer of Abbott Company purchased $6,500 of merchandise inventory...

Question 6

What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory method?

Accepted Answer

The answer of What is the effect of an entry...

Question 7

Kenyon Company experienced a transaction that had the following effect on the financial statements:
Which transaction would have this effect?

Accepted Answer

Returning merchandise purchased on account would decrease both the accounts payable (liability) and the inventory (asset) accounts, which would decrease total assets and total liabilities and equity on the balance sheet.

Question 8

Galaxy Company sold merchandise costing $1,700 for $2,600 cash.The merchandise was later returned by the customer for a refund.If the perpetual inventory method is used,what effect will the sales return have on the accounting equation?

Accepted Answer

The sales return will decrease cash (an asset) by $2,600 and increase inventory (an asset) by $1,700, resulting in a net decrease in total assets of $900. Equity decreases by $900 due to the reversal of the profit from the sale.

Question 9

Use the following for questions 
Assume the perpetual inventory method is used.
1)The company purchased $12,500 of merchandise on account under terms 2/10,n/30.
2)The company returned $1,200 of merchandise to the supplier before payment was made.
3)The liability was paid within the discount period.
4)All of the merchandise purchased was sold for $18,800 cash.
-The amount of gross margin from the four transactions is:

Accepted Answer

- The company purchased $12,500 of merchandise on account, but returned $1,200 of it, so the net purchases were $11,300 ($12,500 - $1,200).
- Since the terms were 2/10,n/30, the company could take a 2% discount if it paid within 10 days, which would be $226 ($11,300 x 0.02).
- The liability was paid within the discount period, so the amount paid was $11,074 ($11,300 - $226).
- The cost of goods sold is the net purchases ($11,300) plus any other costs (such as transportation) necessary to get the merchandise ready for sale. Since the problem doesn't provide any information about additional costs, we'll assume the cost of goods sold is $11,300.
- The gross margin is the selling price ($18,800) minus the cost of goods sold ($11,300), or $7,500.
- Therefore, the amount of gross margin from the four transactions is $7,500, which corresponds to option B.

Question 10

A company using the perpetual inventory method paid cash for a transportation-in cost.Which of the following choices reflects the effects of this event on the financial statements?

Accepted Answer

The answer of A company using the perpetual inventory method...

Question 11

A company using the perpetual inventory method paid cash for freight costs to purchase merchandise.Which of the following answers reflects the effects of this event on the financial statements?

Accepted Answer

The answer of A company using the perpetual inventory method...

Question 12

The following general journal entry is taken from the journal of Becker's Bookstore:
Which of the following choices reflects how the entry will affect the company's financial statements?

Accepted Answer

The answer of The following general journal entry is taken...

Question 13

Llewelyn Company paid the amount due on a purchase of merchandise on account.Llewelyn uses the perpetual inventory system.Which of the following answers reflects the effect of the payment on the financial statements?

Accepted Answer

The answer of Llewelyn Company paid the amount due on...

Question 14

On April 1,Snell Company made a $50,000 sale giving the customer terms of 3/10/n30.The receivable was collected from the customer on April 8.Considering the collection of cash from the receivable,what effect will the transaction have on the company's statements?

Accepted Answer

The answer of On April 1,Snell Company made a $50,000...

Question 15

A company using the perpetual inventory method paid $250 cash to have goods delivered from one of its suppliers.The payment of $250 for transportation-in is considered:

Accepted Answer

The answer of A company using the perpetual inventory method...

Question 16

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account.Due to an error,this sale was never recorded in the accounting records.What effect will the failure to make the necessary entries have on the company's accounting equation?

Accepted Answer

The failure to record the sale means that both accounts receivable (an asset) and sales revenue (which affects equity) are understated.

Question 17

Middleton Company uses the perpetual inventory method.The company purchased an item of inventory for $130 and sold the item to a customer for $200.What effect will the sale have on the company's inventory account?

Accepted Answer

The sale of the item will decrease the inventory account by the cost of the item, which is $130. The revenue from the sale will be recorded separately in a revenue account.

Question 18

Use the following for questions
Use the following account numbers and corresponding account titles to answer the next three questions.
  55.Which accounts would appear on the income statement?
A.Account numbers 3,4,7,8,and 9.
B.Account numbers 3,4,5,7,and 9.
C.Account numbers 2,3,7,8,and 9.
D.Account numbers 3,5,7,and 8.
Answer: A
Learning Objective: 04-01
Topic Area: Ledger accounts and financial statements
AACSB: Reflective thinking
AICPA: BB Critical thinking
AICPA: FN Measurement
Blooms: Understand
Level of Difficulty: 1 Easy
Feedback: Cost of goods sold,transportation-out,selling expense,loss on the sale of land,and sales will all appear on the income statement.
-Which accounts would affect operating income?

Accepted Answer

Operating income is the amount of income that is generated from the normal recurring operations of a business.Items that are not expected to recur on a regular basis are subtracted from the operating income to determine the amount of net income.Here,operating income includes sales (9),cost of goods sold (3),transportation-out (4)and selling expense (7).The loss on the sale of the land (8)would not be expected to recur on a regular basis;thus,it does not affect operating income.

Question 19

Use the following for questions 
Assume the perpetual inventory method is used.
1)The company purchased $12,500 of merchandise on account under terms 2/10,n/30.
2)The company returned $1,200 of merchandise to the supplier before payment was made.
3)The liability was paid within the discount period.
4)All of the merchandise purchased was sold for $18,800 cash.
-What effect will the return of merchandise to the supplier have on the accounting equation?

Accepted Answer

The return of $1,200 in merchandise reduces both the inventory (asset) and accounts payable (liability) by $1,200.

Question 20

When using a perpetual inventory system,which of the following events is an asset use transaction?

Accepted Answer

Paying cash for transportation-out decreases assets (cash)and decreases stockholders' equity (retained earnings).Transportation-out is a period cost,which increases expenses and decreases net income.

Quiz 4: Accounting for Merchandising Businesses

A company purchased inventory on account.If the perpetual inventory method is used,which of the following choices accurately reflects how the purchase affects the company's financial statements?

Abbott Company purchased $6,500 of merchandise inventory on account.Advent uses the perpetual inventory method.Which of the following entries would be required to record this transaction?

What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory method?

Kenyon Company experienced a transaction that had the following effect on the financial statements: Which transaction would have this effect?

Galaxy Company sold merchandise costing $1,700 for $2,600 cash.The merchandise was later returned by the customer for a refund.If the perpetual inventory method is used,what effect will the sales return have on the accounting equation?

A company using the perpetual inventory method paid cash for a transportation-in cost.Which of the following choices reflects the effects of this event on the financial statements?

A company using the perpetual inventory method paid cash for freight costs to purchase merchandise.Which of the following answers reflects the effects of this event on the financial statements?

The following general journal entry is taken from the journal of Becker's Bookstore: Which of the following choices reflects how the entry will affect the company's financial statements?

Llewelyn Company paid the amount due on a purchase of merchandise on account.Llewelyn uses the perpetual inventory system.Which of the following answers reflects the effect of the payment on the financial statements?

On April 1,Snell Company made a $50,000 sale giving the customer terms of 3/10/n30.The receivable was collected from the customer on April 8.Considering the collection of cash from the receivable,what effect will the transaction have on the company's statements?

A company using the perpetual inventory method paid $250 cash to have goods delivered from one of its suppliers.The payment of $250 for transportation-in is considered:

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account.Due to an error,this sale was never recorded in the accounting records.What effect will the failure to make the necessary entries have on the company's accounting equation?

Middleton Company uses the perpetual inventory method.The company purchased an item of inventory for $130 and sold the item to a customer for $200.What effect will the sale have on the company's inventory account?

When using a perpetual inventory system,which of the following events is an asset use transaction?