Chapter 5 Accounting for Merchandise Operations 241SELF-STUDY QUESTIONS Answers at end of chapter
- If merchandise purchased on account is returned, the
buyer may inform the seller of the details by issuing a(n):
A. debit memorandum
B. credit memorandum
C. invoice
D. bill - If merchandise is sold on account to a customer for
$1,000, terms FOB shipping point, 1/10, n/30, and the
seller prepays $50 in transportation costs, the amount of
the discount for early payment would be:
A. $0 C. $10.00
B. $5.00 D. $10.50 - The income statement in which the total of all expenses is
deducted from the total of all revenues is termed: - What distinguishes a merchandising business from a ser-
vice business? - Can a business earn a gross profit but incur a net loss?
Explain. - What is the difference between the cost of merchandise
purchased and the cost of merchandise available for sale?
Can they be the same amount? Explain. - What is the difference between the cost of merchandise
available for sale and the cost of merchandise sold? Can
they be the same amount? Explain. - Name at least three accounts that would normally appear
in the financial statements of a merchandising business,
but would not appear in the chart of accounts of a service
business. - How does the accounting for sales to customers using
bank credit cards, such as MasterCardandVISA, differ
from accounting for sales to customers using nonbank
credit cards, such as American Express? Explain. - Sometimes a retailer will not accept American Express,
but will accept MasterCard or VISA. Why would a re-
tailer accept one and not the other? - At some Texaco,Chevron, or Conocogasoline stations,
the cash price per gallon is 3 or 4 cents less than the credit
price per gallon. As a result, many customers pay cash
rather than use their credit cards. Why would a gasoline
station owner establish such a policy? - Assume that you purchased merchandise with credit
terms 2/10, n/30. On the date the invoice is due, you
don’t have the cash to pay the invoice. However, you can
borrow the necessary money at an 8% annual interest
rate. Should you borrow the money to pay the invoice?
Explain.- What is the nature of (a) a credit memorandum issued by
the seller of merchandise, (b) a debit memorandum issued
by the buyer of merchandise? - Who bears the transportation costs when the terms of
sale are (a) FOB shipping point, (b) FOB destination? - When you purchase a new car, the “sticker price” in-
cludes a “destination” charge. Are you purchasing the
car FOB shipping point or FOB destination? Explain. - Bernard Office Equipment, which uses a perpetual in-
ventory system, experienced a normal inventory shrink-
age of $19,290. (a) What accounts would be debited and
credited to record the adjustment for the inventory
shrinkage at the end of the accounting period? (b) What
are some causes of inventory shrinkage? - Assume that Bernard Office Equipment in Question 13
experienced an abnormal inventory shrinkage of $315,750.
It has decided to record the abnormal inventory shrink-
age so that it would be separately disclosed on the income
statement. What account would be debited for the ab-
normal inventory shrinkage? - Assume that Joist Inc. (the consignee) included $40,000 of
inventory held on consignment for Dory Company (the
consignor) as part of its physical inventory. (a) What is
the effect of this error on Joist’s financial statements? (b)
Would Joist’s error also cause a misstatement in Dory’s
financial statements? Explain.
A. multiple-step form C. direct form
B. single-step form D. report form- On a multiple-step income statement, the excess of net
sales over the cost of merchandise sold is called:
A. operating income
B. income from operations
C. gross profit
D. net income - As of December 31, 2007, Ames Corporation incorrectly
counted its physical inventory as $275,000 instead of
$300,000. The effect on the income statement is:
A. Cost of merchandise sold is understated by $25,000
B. Gross profit is overstated by $25,000
C. Operating income is understated by $25,000
D. Inventory shrinkage is understated by $25,000
DISCUSSION QUESTIONS