财务会计英语 练习及答案ch06

CHAPTER 6

ACCOUNTING FOR MERCHANDISING BUSINESSES

Chapter 6—Accounting for Merchandising Businesses Chapter 6—Accounting for Merchandising Businesses

TRUE/FALSE

1. One of the most important differences between a service business and a retail business is in

what is sold.

ANS: T DIF: 2 OBJ: 01

2. In a merchandise business, sales minus operating expenses equals net income.

ANS: F DIF: 2 OBJ: 01

3. Under a periodic inventory system, the merchandise on hand at the end of the year is

determined by a physical count of the inventory.

ANS: T DIF: 2 OBJ: 02

4. In the periodic inventory system, purchases of merchandise for resale are debited to the

Purchases account.

ANS: T DIF: 2 OBJ: 02

5. Under the periodic inventory system, the cost of goods sold is equal to the beginning

merchandise inventory plus the cost of goods purchased plus the ending merchandise

inventory.

ANS: F DIF: 3 OBJ: 02

6. In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the

beginning inventory.

ANS: F DIF: 2 OBJ: 02

7. In a periodic inventory system, the cost of goods purchased includes the cost of

transportation-in.

ANS: T DIF: 2 OBJ: 02

8. As we compare a merchandise business to a service business, the financial statement that

changes the most is the Balance Sheet.

ANS: F DIF: 2 OBJ: 02

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Chapter 6—Accounting for Merchandising Businesses

9. When a merchandising business is compared to a service business, the financial statement that

is not affected by that change is the Statement of Owner's Equity.

ANS: T DIF: 2 OBJ: 02

10. The ending merchandise inventory for 2005 is the same as the beginning merchandise

inventory for 2006.

ANS: T DIF: 2 OBJ: 02

11. In a multi-step income statement the dollar amount for income from operations is always the

same as net income.

ANS: F DIF: 2 OBJ: 02

12. Net sales is equal to sales minus cost of merchandise sold.

ANS: F DIF: 2 OBJ: 02

13. Gross profit minus selling expenses equals net income.

ANS: F DIF: 2 OBJ: 02

14. The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a

downward sequence is called the report form.

ANS: T DIF: 1 OBJ: 02

15. On the income statement in the single-step form, the total of all expenses is deducted from the

total of all revenues.

ANS: T DIF: 1 OBJ: 02

16. The single-step income statement is easier to prepare, but a criticism of this format is that

gross profit and income from operations are not readily available.

ANS: T DIF: 2 OBJ: 02

17. Income that cannot be associated definitely with operations, such as a gain from the sale of a

fixed asset, is listed as Other Income on the multiple-step income statement.

ANS: T DIF: 1 OBJ: 02

18. Under the perpetual inventory system, when a sale is made, both the retail and cost values are

recorded.

ANS: T DIF: 2 OBJ: 03

142

Chapter 6—Accounting for Merchandising Businesses 19. Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are

made.

ANS: T DIF: 1 OBJ: 03

20. If payment is due by the end of the month in which the sale is made, the invoice terms are

expressed as n/30.

ANS: F DIF: 2 OBJ: 03

21. When merchandise that was sold is returned, a credit to sales returns and allowances is made.

ANS: F DIF: 2 OBJ: 03

22. In a perpetual inventory system, when merchandise is returned to the seller, Cost of

Merchandise Sold is one of the accounts debited to record the transaction.

ANS: T DIF: 2 OBJ: 03

23. Sales Returns and Allowances is a contra-revenue account.

ANS: T DIF: 1 OBJ: 03

24. Sales Discounts is a revenue account with a credit balance.

ANS: F DIF: 2 OBJ: 03

25. Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally

treated as credit sales.

ANS: F DIF: 2 OBJ: 03

26. Sales to customers who use nonbank credit cards, such as American Express, are generally

treated as credit sales.

ANS: T DIF: 1 OBJ: 03

27. Retailers record all credit card sales as charge sales.

ANS: F DIF: 3 OBJ: 03

28. The service fee that credit card companies charge retailers varies and is the primary reason

why some businesses do not accept all credit cards.

ANS: T DIF: 2 OBJ: 03

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Chapter 6—Accounting for Merchandising Businesses

29. The document issued by the seller that informs the buyer of the details of sales returns is

called a debit memorandum.

ANS: F DIF: 2 OBJ: 03

30. A seller may grant a buyer a reduction in selling price and this is called a sales allowance.

ANS: T DIF: 2 OBJ: 03

31. The effect of a sales return and allowance is a reduction in sales revenue and a decrease in

cash or accounts receivable.

ANS: T DIF: 1 OBJ: 03

32. Merchandise Inventory normally has a debit balance.

ANS: T DIF: 1 OBJ: 04

33. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the

invoice date to take advantage of the cash discount.

ANS: F DIF: 1 OBJ: 04

34. Discounts taken by the buyer for early payment of an invoice are credited to Cash Discounts

by the buyer.

ANS: F DIF: 2 OBJ: 04

35. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise

inventory account.

ANS: T DIF: 2 OBJ: 04

36. Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30.

If payment is made within 10 days of the purchase, the entry to record the payment will

include a credit to Cash and a credit to Purchase Discounts.

ANS: F DIF: 2 OBJ: 04

37. Purchases of merchandise are typically credited to the merchandise inventory account under

the perpetual inventory system.

ANS: F DIF: 1 OBJ: 04

38. When the seller offers a sales discount, even if borrowing has to be done, it is generally

advantageous for the buyer to pay within the discount period.

ANS: T DIF: 3 OBJ: 04

144

Chapter 6—Accounting for Merchandising Businesses 39. When a large quantity of merchandise is purchased, a reduction allowed on the sale price is

called a trade discount.

ANS: T DIF: 1 OBJ: 05

40. A deduction allowed to wholesalers and retailers from the price of merchandise listed in

catalogs is called cash discounts.

ANS: F DIF: 2 OBJ: 05

41. Sellers and buyers are required to record trade discounts.

ANS: F DIF: 2 OBJ: 05

42. If the ownership of merchandise passes to the buyer when the seller delivers the merchandise

for shipment, the terms are stated as FOB destination.

ANS: F DIF: 1 OBJ: 05

43. A sale of $600 on account, subject to a sales tax of 5%, would be recorded as an account

receivable of $600.

ANS: F DIF: 2 OBJ: 05

44. When merchandise is sold for $500 plus 5% sales tax, the Sales account should be credited for

$525.

ANS: F DIF: 2 OBJ: 05

45. The abbreviation FOB stands for Free On Board.

ANS: T DIF: 1 OBJ: 05

46. Merchandise is sold for $4,500, terms FOB destination, 2/10, n/30, with prepaid

transportation costs of $250. If $800 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $79.

ANS: F DIF: 3 OBJ: 05

47. If the buyer bears the transportation costs related to a purchase, the terms are said to be FOB

destination.

ANS: F DIF: 1 OBJ: 05

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Chapter 6—Accounting for Merchandising Businesses

48. When the terms of sale are FOB shipping point, the buyer should pay the transportation

charges.

ANS: T DIF: 2 OBJ: 05

49. If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation

costs of $100, is paid within 10 days, the amount of the purchases discount is $50.

ANS: T DIF: 3 OBJ: 05

50. Comparing the merchandise entries for the seller and the buyer, the seller is required to record

more entries for the same transactions than the buyer.

ANS: T DIF: 2 OBJ: 06

51. The chart of accounts for a merchandise business would include an account called

Transportation-Out.

ANS: T DIF: 1 OBJ: 07

52. In comparing a retail business to a service business, the accounting cycle is basically the

same.

ANS: T DIF: 1 OBJ: 08

53. The adjusting entry to record inventory shrinkage would generally include a debit to Cost of

Merchandise Sold.

ANS: T DIF: 1 OBJ: 08

54. Closing entries for a merchandising business are not similar to those for a service business.

ANS: F DIF: 1 OBJ: 08

55. The ratio of net sales to assets measures how effectively a business is using its assets to

generate sales.

ANS: T DIF: 1 OBJ: 09

56. In a computerized accounting system, special journals may be replaced by electronic forms

that capture the necessary information.

ANS: T DIF: 1 OBJ: Ap1

57. The worksheet for a merchandise business is basically the same as one for a service business.

146

Chapter 6—Accounting for Merchandising Businesses ANS: T DIF: 1 OBJ: Ap 2

58. The balance sheet accounts of a work sheet provide the information to prepare the closing

entries.

ANS: F DIF: 1 OBJ: Ap2

MULTIPLE CHOICE

1. Which one of the following is not a difference between a retail business and a service

business?

a. in what is sold

b. greater number of new accounts

c. specialized journals

d. changes in financial statements

ANS: C DIF: 2 OBJ: 01

2. Net income plus operating expenses is equal to

a. cost of goods sold

b. cost of goods available for sale

c. net sales

d. gross profit

ANS: D DIF: 1 OBJ: 01

3. Generally, the revenue account for a merchandising business is entitled

a. Sales

b. Net Sales

c. Gross Sales

d. Gross Profit

ANS: A DIF: 1 OBJ: 02

4. What is the term applied to the excess of net revenue from sales over the cost of merchandise

sold?

a. gross profit

b. income from operations

c. net income

d. gross sales

ANS: A DIF: 1 OBJ: 02

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Chapter 6—Accounting for Merchandising Businesses

5. A company using the periodic inventory system has the following account balances:

Merchandise Inventory at the beginning of the year, $4,000; Transportation-In, $450;

Purchases, $12,000; Purchases Returns and Allowances, $2,300; Purchases Discounts, $220.

The cost of merchandise purchased is equal to

a. $13,930

b. $9,930

c. $9,489

d. $14520

ANS: B DIF: 4 OBJ: 02

6. A company, using the periodic inventory system, has merchandise inventory costing $140 on

hand at the beginning of the period. During the period, merchandise costing $400 is

purchased. At year-end, merchandise inventory costing $180 is on hand. The cost of

merchandise sold for the year is

a. $720

b. $550

c. $360

d. none of the above

ANS: C DIF: 4 OBJ: 02

7. Expenses that are incurred directly or entirely in connection with the sale of merchandise are

classified as

a. selling expenses

b. general expenses

c. other expenses

d. administrative expenses

ANS: A DIF: 1 OBJ: 02

8. Office salaries, depreciation of office equipment, and office supplies are examples of what

type of expense?

a. selling expense

b. miscellaneous expense

c. administrative expense

d. other expense

ANS: C DIF: 1 OBJ: 02

9. The form of income statement that derives its name from the fact that the total of all expenses

is deducted from the total of all revenues is called a

a. multiple-step statement

b. revenue statement

c. report-form statement

d. single-step statement

ANS: D DIF: 1 OBJ: 02

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Chapter 6—Accounting for Merchandising Businesses

10. Multiple-step income statements show

a. gross profit but not income from operations

b. neither gross profit nor income from operations

c. both gross profit and income from operations

d. income from operations but not gross profit

ANS: C DIF: 2 OBJ: 02

11. When the three sections of a balance sheet are presented on a page in a downward sequence, it

is called the

a. account form

b. comparative form

c. horizontal form

d. report form

ANS: D DIF: 1 OBJ: 02

12. The statement of owner's equity shows

a. only net income, beginning and ending capital

b. only total assets, beginning and ending capital

c. only net income, beginning capital, and withdrawals

d. all the changes in the owner's capital as a result of net income, net loss, additional

investments, and withdrawals

ANS: D DIF: 3 OBJ: 02

13. Merchandise inventory is classified on the balance sheet as a

a. Current Liability

b. Current Asset

c. Long-Term Asset

d. Long-Term Liability

ANS: B DIF: 1 OBJ: 02

14. Which account is not classified as a selling expense?

a. Sales Salaries

b. Transportation-Out

c. Sales Discounts

d. Advertising Expense

ANS: C DIF: 2 OBJ: 02

15. The primary difference between a periodic and perpetual inventory system is that a

a. periodic system determines the inventory on hand only at the end of the accounting

period

b. periodic system keeps a record showing the inventory on hand at all times

c. periodic system provides an easy means to determine inventory shrinkage

d. periodic system records the cost of the sale on the date the sale is made

ANS: A DIF: 3 OBJ: 02

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Chapter 6—Accounting for Merchandising Businesses

16. The inventory system employing accounting records that continuously disclose the amount of

inventory is called

a. retail

b. periodic

c. physical

d. perpetual

ANS: D DIF: 1 OBJ: 02

17. When the perpetual inventory system is used, the inventory sold is shown on the income

statement as

a. cost of merchandise sold

b. purchases

c. purchases returns and allowances

d. net purchases

ANS: A DIF: 1 OBJ: 02

18. When comparing a retail business to a service business, the financial statement that changes

the most is the

a. Balance Sheet

b. Income Statement

c. Statement of Owner's Equity

d. Statement of Cash Flow

ANS: B DIF: 2 OBJ: 02

19. When comparing a retail business to a service business, the financial statement that changes

the least is the

a. Balance Sheet

b. Income Statement

c. Statement of Owner's Equity

d. Statement of Cash Flow

ANS: C DIF: 2 OBJ: 02

20. Using a perpetual inventory system, the entry to record the sale of merchandise on account

includes a

a. debit to Sales

b. debit to Merchandise Inventory

c. credit to Merchandise Inventory

d. credit to Accounts Receivable

ANS: C DIF: 2 OBJ: 03

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Chapter 6—Accounting for Merchandising Businesses

21. Which of the following accounts has a normal debit balance?

a. Accounts Payable

b. Sales Returns and Allowances

c. Sales

d. Interest Revenue

ANS: B DIF: 2 OBJ: 03

22. Merchandise is ordered on November 12; the merchandise is shipped by the seller and the

invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the entry is made in the buyer's accounts on

November 18. The credit period begins with what date?

a. November 12

b. November 15

c. November 17

d. November 18

ANS: B DIF: 3 OBJ: 03

23. Using a perpetual inventory system, the entry to record the return from a customer of

merchandise sold on account includes a

a. credit to Sales Returns and Allowances

b. debit to Merchandise Inventory

c. credit to Merchandise Inventory

d. debit to Cost of Merchandise Sold

ANS: B DIF: 2 OBJ: 03

24. If merchandise sold on account is returned to the seller, the seller may inform the customer of

the details by issuing a

a. sales invoice

b. purchase invoice

c. credit memorandum

d. debit memorandum

ANS: C DIF: 2 OBJ: 03

25. The arrangements between buyer and seller as to when payments for merchandise are to be

made are called

a. credit terms

b. net cash

c. cash on demand

d. gross cash

ANS: A DIF: 1 OBJ: 03

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Chapter 6—Accounting for Merchandising Businesses

26. In credit terms of 1/10, n/30, the "1" represents the

a. number of days in the discount period

b. full amount of the invoice

c. number of days when the entire amount is due

d. percent of the cash discount

ANS: D DIF: 1 OBJ: 03

27. Merchandise with a sales price of $500 is sold on account with term 2/10, n/30. The journal

entry to record the sale would include a

a. debit to Cash for $500

b. Debit to Sales Discounts for $10

c. Credit to Sales for $500

d. Debit to Accounts Receivable for $$490

ANS: C DIF: 2 OBJ: 03

28. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer

for $15,000. The seller paid transportation costs of $1,000 and issued a credit memorandum for $5,000 prior to payment. What is the amount of the cash discount allowable?

a. $160

b. $150

c. $140

d. $100

ANS: D DIF: 3 OBJ: 03

29. Which of the following accounts has a normal credit balance?

a. Sales Returns and Allowances

b. Sales

c. Merchandise Inventory

d. Transportation Out

ANS: B DIF: 1 OBJ: 03

30. The entry to record the return of merchandise from a customer would include a

a. debit to Sales

b. credit to Sales

c. debit to Sales Returns and Allowances

d. credit to Sales returns and Allowances

ANS: C DIF: 2 OBJ: 03

152

Chapter 6—Accounting for Merchandising Businesses 31. Sales to customers who use bank credit cards such as MasterCard and Visa are usually

recorded by a

a. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales

b. debit to Cash and a credit to Sales

c. debit to Cash, credit to Credit Card Expense, and a credit to Sales

d. debit to Sales, debit to Credit Card Expense, and a credit to Cash

ANS: B DIF: 3 OBJ: 03

32. Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally

treated as

a. sales on account

b. sales returns

c. cash sales

d. sales when the credit card company remits the cash

ANS: C DIF: 1 OBJ: 03

33. When a buyer returns merchandise purchased for cash, the buyer may record the transaction

using the following entry

a. debit Merchandise Inventory; credit Cash

b. debit Cash; credit Merchandise Inventory

c. debit Cash; credit Sales Returns and Allowances

d. debit Sales Returns and Allowances; credit Cash

ANS: B DIF: 3 OBJ: 04

34. When merchandise is returned, the buyer would credit

a. Merchandise Inventory

b. Purchases Returns and Allowances

c. Accounts Payable

d. (a) or (b) depending on the inventory system used.

ANS: D DIF: 03 OBJ: 04

35. When purchases of merchandise are made for cash, the transaction may be recorded with the

following entry

a. debit Cash; credit Merchandise Inventory

b. debit Merchandise Inventory; credit Cash

c. debit Merchandise Inventory; credit Cash Discounts

d. debit Merchandise Inventory; credit Purchases

ANS: B DIF: 3 OBJ: 04

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Chapter 6—Accounting for Merchandising Businesses

36. Using a perpetual inventory system, the entry to record the purchase of $30,000 of

merchandise on account would include a

a. debit to Sales

b. debit to Merchandise Inventory

c. credit to Merchandise Inventory

d. credit to Sales

ANS: B DIF: 2 OBJ: 04

37. Using a perpetual inventory system, the entry to record the return of merchandise purchased

on account includes a

a. debit to Cost of Goods Sold

b. credit to Accounts Payable

c. credit to Merchandise Inventory

d. credit to Sales

ANS: C DIF: 2 OBJ: 04

38. In recording the cost of merchandise sold for cash, based on data available from perpetual

inventory records, the journal entry is

a. debit Cost of Merchandise Sold; credit Sales

b. debit Cost of Merchandise Sold; credit Merchandise Inventory

c. debit Merchandise Inventory; credit Cost of Merchandise Sold

d. debit Accounts Receivable; credit Merchandise Inventory

ANS: B DIF: 3 OBJ: 04

39. The amount of the total cash paid to the seller for merchandise purchased would normally

include

a. only the list price

b. only the sales tax

c. the list price plus the sales tax

d. the list price less the sales tax

ANS: C DIF: 2 OBJ: 05

40. A retailer purchases merchandise with a catalog list price of $10,000. The retailer receives a

25% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account?

a. $7,500

b. $10,000

c. $9,800

d. $7,350

ANS: A DIF: 2 OBJ: 05

154

Chapter 6—Accounting for Merchandising Businesses 41. A sales invoice included the following information: merchandise price, $4,000; transportation,

$300; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise

returned of $600 is granted prior to payment, that the transportation is prepaid by the seller, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?

a. $3,366

b. $3,400

c. $3,666

d. $3,950

ANS: C DIF: 3 OBJ: 05

42. Which of the following accounts usually has a debit balance?

a. Purchase Discounts

b. Sales tax Payable

c. Allowance for Doubtful Accounts

d. Transportation-In

ANS: D DIF: 1 OBJ: 05

43. Merchandise is sold for cash. The selling price of the merchandise is $2,000 and the sale is

subject to a 5% state sales tax. The journal entry to record the sale would include

a. A debit to Cash for $2,000.

b. A credit to Sales for $2,100.

c. A credit to Sales Tax Payable for $100.

d. None of the abov

e.

ANS: C DIF: 2 OBJ: 05

44. If the buyer is to pay the transportation costs of delivering merchandise, delivery terms are

stated as

a. FOB shipping point

b. FOB destination

c. FOB n/30

d. FOB buyer

ANS: A DIF: 1 OBJ: 05

45. If the seller is to pay the transportation costs of delivering merchandise, the delivery terms are

stated as

a. FOB shipping point

b. FOB destination

c. FOB n/30

d. FOB seller

ANS: B DIF: 1 OBJ: 05

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Chapter 6—Accounting for Merchandising Businesses

46. If title to merchandise purchases passes to the buyer when the goods are shipped from the

seller, the terms are

a. n/30

b. FOB shipping point

c. FOB destination

d. consigned

ANS: B DIF: 1 OBJ: 05

47. Merchandise with an invoice price of $4000 is purchased on June 2 subject to terms of 2/10,

n/30, FOB destination. Transportation costs paid by the seller totaled $150. What is the cost of the merchandise if paid on June 12, assuming the discount is taken?

a. $4,150

b. $4,070

c. $4,067

d. $3,920

ANS: D DIF: 3 OBJ: 05

48. When goods are shipped FOB destination and the seller pays the transportation charges, the

buyer

a. journalizes a reduction for the cost of the merchandise.

b. journalizes a reimbursement to the seller.

c. does not take a discount.

d. makes no journal entry for the transportation.

ANS: D DIF: 2 OBJ: 05

49. X sold Y merchandise on account FOB shipping point, 2/10, net 30, for $10,000. X prepaid

the $200 shipping charge. Which of the following entries does X make to record this sale?

a. Accounts Receivable-Y, debit $10,000; Sales, credit $10,000

b. Accounts Receivable-Y, debit $10,000; Sales, credit $10,000, and

Accounts Receivable-Y, debit $200; Cash, credit $200

c. Accounts Receivable-Y, debit $10,400; Sales, credit $10,400

d. Accounts Receivable-Y, debit $10,000; Sales, credit $10,000, and Transportation

Out, debit $200; Cash, credit $200

ANS: B DIF: 3 OBJ: 05

156

Chapter 6—Accounting for Merchandising Businesses 50. X sold Y merchandise on account FOB shipping point, 2/10, net 30, for $10,000. X prepaid

the $200 shipping charge. Using the perpetual inventory method, which of the following entries will Y make if Y pays within the discount period?

a. Accounts Payable-X, debit $10,000; Transportation In, credit $200; Cash, credit

$9,800

b. Accounts Payable-X, debit $10,200; Merchandise Inventory, credit $200; Cash,

credit $10,000

c. Accounts Payable-X, debit $10,000; Transportation In, debit $200; Cash, credit

$10,200

d. Accounts Payable-X, debit $10,200; Merchandise Inventory, debit $200; Cash,

credit $10,400

ANS: B DIF: 3 OBJ: 05

51. A chart of accounts for a merchandising business usually

a. is the same as the chart of accounts for a service business

b. requires more accounts than does the chart of accounts for a service business

c. is standardized by the FASB for all merchandising businesses

d. does not have a Cost of Goods Sold account if a perpetual inventory system is used

ANS: B DIF: 2 OBJ: 07

52. A net sales to asset ratio of 1.5 means

a. assets are one and one-half times as large as sales

b. that for every $1.50 of sales, there is $1.00 in assets

c. that for every $1.50 of assets, there is $1.00 of sales

d. assets are being poorly utilized

ANS: B DIF: 3 OBJ: 09

53. The net sales to assets ratio measures a company's

a. working capital

b. net worth

c. effective use of sales to support the purchase of new assets

d. effective use of assets to generate sales

ANS: D DIF: 1 OBJ: 09

54. A merchandising business

a. that uses a manual accounting system usually uses only two special journals

b. that uses a computerized accounting system usually uses only five special journals

c. is required to use a computerized accounting system because of the volume of

journal entries

d. that uses a computerized accounting system usually uses no special journals

ANS: D DIF: 2 OBJ: Ap1

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Chapter 6—Accounting for Merchandising Businesses

158

55. Which of the following accounts should be closed to Income Summary at the end of the fiscal

year?

a. Merchandise Inventory

b. Accumulated Depreciation

c. Drawing

d. Cost of Merchandise Sold

ANS: D DIF: 1 OBJ: Ap2

PROBLEM

1. The following data for the current year ended June 30 were extracted from the accounting

records of Roe Co.:

Cost of merchandise sold $225,000

Operating expenses 75,000

Sales 485,000

Prepare a multiple-step income statement for the year ended June 30, 2005.

ANS:

Roe Co.

Income Statement

For the Year Ended June 30, 2005

Sales $485,000

Cost of merchandise sold 225,000

Gross profit $260,000

Operating expenses 75,000

Net income $185,000

========

DIF: 1 OBJ: 02

2. Selected data from the ledger of Willis Co. after adjustment at June 30, 2005 the end of the

fiscal year, are listed as follows:

Accounts Receivable $ 39,120 Office Equipment $ 82,700

Accumulated Depreciation

60,540 Prepaid Insurance 4,680

Administrative Expenses

90,000 Note Payable 77,750

Greg Willis, Capital 75,000 Salaries Payable 3,060

Cost of Merchandise Sold

655,000 Sales (net) 900,000

Greg Willis, Drawing 40,000 Selling Expenses 110,000

Interest Revenue 10,000 Supplies 3,125

Prepare an income statement, using the single-step form, and a statement of owner's equity.