Question Details

Business A 654 CHAPTER 5 PART 14

CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS

SHORT-ANSWER ESSAY QUESTIONS
S-A E  238
A merchandiser frequently has a need to use contra accounts related to the sale of goods. Identify the contra accounts that have normal debit balances and explain why they are not considered expenses.



S-A E  239
Distinguish between FOB shipping point and FOB destination. Identify the freight terms that will result in a debit to Inventory by the purchaser and a debit to Freight-out by the seller.


S-A E  240
Adrland Caselotti believes revenues from credit sales may be recognized before they are collected in cash. Do you agree? Explain.


S-A E  241
In a single-step income statement, all data are classified under two categories: (1) Revenues, or (2) Expenses. If the income statement is recast in a multiple-step format, what additional information or intermediate components of income would be presented?


S-A E  242
You are at a company picnic and the company president starts a conversation with you.  The president says “Since we use the perpetual inventory system, there is no reason to take a physical count of our inventory.”  What is your response to the president- remarks?


S-A E 243
The income statement for a merchandising company presents five amounts not shown on a service company- income statement. Identify and briefly explain the five unique amounts.


S-A E  244	(Ethics)
Holmes Corporation manufactures electronic components for use in many consumer products. Their raw materials are purchased literally from all over the world. Depending on the country involved, purchase terms vary widely. Some suppliers, for example, require full prepayment, while others are content to receive payment within six months of receipt of the goods.
Because of this situation, Holmes never closes its books until at least ten days after month end. In this way, it can sort out ownership of goods in transit, and document which goods were received by month end, and which were not.
Manya Andre, a new accountant, was asked to record about $70,000 in inventory as having been received before month end. She argued that the shipping documents clearly showed that the goods were actually received on the 8th of the current month. Her boss, busy with month-end reports, curtly tells Ann to check the shipping terms. She did so, and found the notation "FOB shipper's dock" on the document. She hadn't seen that particular notation before, but she reasoned that if the selling company considered it shipped when it reached their dock, Holmes should consider it received when it reached Holmes's dock. She did not record the purchase until after month end.

Required:
1.	Why are accountants concerned with the timing in the recording of purchases?
2.	Was there a violation of ethical standards here?  Explain.


S-A E  245	(Communication)
Ellen Corhy and Bryn Davis, two salespersons in adjoining territories, regularly compete for bonuses. During the last month, their dollar volume of sales, on which the bonuses are based, was nearly equal. On the last day of the month, both made a large sale. Both orders were shipped on the last day of the month and both were received by the customer on the fifth of the following month. Ellen's sale was FOB shipping point, and Bryn's was FOB destination. The company "counts" sales for purposes of calculating bonuses on the date that ownership passes to the purchaser. Ellen- sale was therefore counted in her monthly total of sales, Bryn- was not. Jill is quite upset. She has asked you to just include it, or to take Ellen's off as well. She also has told you that you are being unethical for allowing Ellen to get a bonus just for choosing a particular shipping method.
Write a memo to Bryn. Explain your position.