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Eye openers
1. What distinguishes a merchandising business from a service business?
2. Can a business earn a gross profit but incur a net loss? Explain.
3. In computing the cost of merchandise sold, does each of the following items increase or decrease that cost? (a) freight, (b) beginning merchandise inventory,
(c) purchase discounts, (d) ending merchandise inventory
4. Describe how the periodic system differs from the perpetual system of accounting for merchandise inventory.
5. Differentiate between the multiple-step and the single-step forms of the income statement.
6. What are the major advantages and disadvantages of the single-step form of income statement compared to the multiple-step statement?
7. What type of revenue is reported in the Other income section of the multiple-step income statement?
8. Name at least three 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.
9. How are sales to customers using MasterCard and VISA recorded?
10. The credit period during which the buyer of merchandise is allowed to pay usually begins with what date?
11. What is the meaning of (a) 1/15, n/60; (b) n/30; (c) n/eom?
12. 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?
13. Who bears the freight when the terms of sale are (a) FOB shipping point, (b) FOB destination?
14. Business Outfitters Inc., which uses a perpetual inventory system, experienced a normal inventory shrinkage of $9,175. What accounts would be debited and credited to record the adjustment for the inventory shrinkage at the end of the accounting period?
15. Assume that Business Outfitters Inc. in Eye Opener 14 experienced an abnormal inventory shrinkage of $80,750. Business Outfitters Inc. has decided to record the abnormal inventory shrinkage so that it would be separately disclosed on the income statement. What account would be debited for the abnormal inventory shrinkage?
Complete the exercise
EX 5-32
Closing entries
On May 31, 2010, the balances of the accounts appearing in the ledger of Champion
Interiors Company, a furniture wholesaler, are as follows:
Accumulated Depr.—Building $ 30,460 Retained Earnings $116,155
Administrative Expenses 65,300 Salaries Payable 680
Building 55,680 Sales 313,540
Capital Stock 25,000 Sales Discounts 18,000
Cash 8,840 Sales Returns and Allow. 12,000
Cost of Merchandise Sold 188,000 Sales Tax Payable 4,900
Dividends 7,950 Selling Expenses 124,000
Interest Expense 1,920 Store Supplies 4,580
Merchandise Inventory 26,000 Store Supplies Expenses 2,465
Notes Payable 24,000
Prepare the May 31, 2010, closing entries for Champion Interiors Company.
