Question 1

Rice Company sold merchandise costing $1,600 for $2,500 cash.All of the merchandise was later returned by the customer.If the perpetual inventory method is used,what effect will the sales return have on the accounting equation?

Accepted Answer

The answer of Rice Company sold merchandise costing $1,600 for...

Question 2

Longoria Company purchased merchandise inventory on account with a list price of $5,000 and credit terms of 1/10,n/30.What was the net or cash cost for the merchandise?

Accepted Answer

The credit terms of 1/10, n/30 mean that the buyer can take a 1% discount if they pay within 10 days, otherwise, the full amount is due within 30 days. Therefore, the net or cash cost for the merchandise would be:
List price - Discount
$5,000 - ($5,000 x 0.01) = $5,000 - $50 = $4,950.

Question 3

Strand Company uses the perpetual inventory method.The company purchased an item of inventory for $80 and sold the item to a customer for $120.What effect will the sale have on the company's inventory account?

Accepted Answer

With perpetual inventory method, inventory account balance is updated after every purchase and sale. In this case, the company purchased the item for $80, which increased the inventory account balance by $80. When they sold it for $120, they recorded a cost of goods sold expense of $80 and a revenue of $120. Therefore, the sale will decrease the inventory account balance by the cost of the item, which is $80.

Question 4

During the month of March,Wang Company sold merchandise on account for $9,100.The merchandise had cost Wang $4,900.Which of the following represents the effects of this transaction on Wang's financial statements?

Accepted Answer

The answer of During the month of March,Wang Company sold...

Question 5

During the month of March,Wang Company purchased merchandise inventory for cash in the amount of $6,200.Which of the following represents the effects of this transaction on Wang's financial statements?

Accepted Answer

The answer of During the month of March,Wang Company purchased...

Question 6

During the month of March,Wang Company collected $8,000 of accounts receivable.Which of the following represents the effects of the collection of the receivables on Wang's financial statements?

Accepted Answer

The answer of During the month of March,Wang Company collected...

Question 7

Cost of Goods Sold is reported

Accepted Answer

Cost of Goods Sold represents the cost of the products or services sold by the company during a specific period. It is an expense that is reported on the income statement as a direct deduction from revenue to calculate gross profit. Therefore, the correct option is D.

Question 8

The net cash flow from operating activities as a result of the four transactions is:

Accepted Answer

The answer of The net cash flow from operating activities...

Question 9

What effect does the return of merchandise to the supplier have on the accounting equation?

Accepted Answer

Returning merchandise to the supplier reduces inventory (an asset) and accounts payable (a liability) by the same amount, maintaining the balance in the accounting equation.

Question 10

Faris Company paid the amount due on a purchase of merchandise on account.Faris 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 Faris Company paid the amount due on...

Question 11

During the month of March,Wang Company incurred selling and administrative expenses on account in the amount of $1,800.Which of the following represents the effects of this transaction on Wang's financial statements?

Accepted Answer

The answer of During the month of March,Wang Company incurred...

Question 12

A company using the perpetual inventory method paid cash to purchase inventory.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 13

Lynx Company purchased $4,000 of merchandise on account and sold the merchandise to a customer for $7,000 cash.What is Lynx's gross margin and the net change in cash flow from operating activities as a result of these transactions?

Accepted Answer

The answer of Lynx Company purchased $4,000 of merchandise on...

Question 14

Unger Company uses the perpetual inventory method.Unger sold goods that cost $3,500 for $7,200.If the sale was made to a customer on account,the sale will:

Accepted Answer

The answer of Unger Company uses the perpetual inventory method.Unger...

Question 15

An entry to record the purchase of inventory on account under the perpetual inventory method

Accepted Answer

When purchasing inventory on account, the asset account "Inventory" increases because the company now owns more inventory to sell. However, the liability account "Accounts Payable" also increases because the company owes payment to the supplier. Overall, the total assets increase and the total liabilities also increase, but there is no change in total equity.

Question 16

Lemon Company paid freight costs to have goods shipped to one of its customers.What effect will these freight costs have on the company's financial statements?

Accepted Answer

The answer of Lemon Company paid freight costs to have...

Question 17

Barney Company uses the perpetual inventory system.The company purchased $4,000 of merchandise from Bittiker Company under the terms n/30.Barney also paid $150 freight to obtain the goods under terms FOB shipping point.All of the merchandise purchased was sold for $9,000 cash.The amount of gross margin for this merchandise is:

Accepted Answer

Since the company uses perpetual inventory system, inventory and cost of goods sold are updated continuously.

The cost of goods sold can be calculated as:
Cost of goods sold = Cost of merchandise + Freight
Cost of merchandise = $4,000
Freight = $150

Cost of goods sold = $4,150

Gross margin can be calculated as:
Gross margin = Selling price - Cost of goods sold
Selling price = $9,000

Gross margin = $9,000 - $4,150 = $4,850

Therefore, the gross margin for this merchandise is $4,850. The best choice is D.

Question 18

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 19

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

Accepted Answer

The answer of Reno Company experienced a transaction that had...

Question 20

The amount of gross margin from the four transactions is

Accepted Answer

To find the gross margin, we need to subtract the cost of goods sold from the selling price. 
For transaction 1: $350 - $200 = $150
For transaction 2: $550 - $375 = $175
For transaction 3: $900 - $700 = $200
For transaction 4: $800 - $500 = $300
Adding them up gives us a total gross margin of $825. However, the question asks for the amount of gross margin from all four transactions, which means we need to add the gross margins together. 
Therefore, the answer is: C) $2,188.

Quiz 3: Accounting for Merchandising Businesses