Deck 13: Completion of the Accounting Cycle for a Merchandising Company

Question 1

Gross Profit is calculated on the

A) Balance Sheet.
B) Trial Balance.
C) Income Statement.
D) Statement of Owner's Equity.

Answer 1

C

Question 2

Cost of Goods Sold includes

A) Freight-in.
B) Freight-out.
C) Other Income.
D) Net Sales.

Answer 2

A

Question 3

The information to prepare the Statement of Owner's Equity comes from the

A) income statement columns on the worksheet.
B) adjustments columns on the worksheet.
C) balance sheet columns on the worksheet.
D) general ledger.

Answer 3

C

Question 4

What is the name of the revenue account used by merchandise companies?

A) Sales
B) Merchandise Fees
C) Merchandise Inventory
D) Capital

Question 5

Which amount is not directly found on the worksheet?

A) Cost of Goods Sold
B) Inventory
C) Gross Profit
D) Sales

Question 6

Which of the following is an operating expense?

A) Salaries Expense
B) Payroll Tax Expense
C) Interest Expense
D) Both A and B are correct.

Question 7

Other Expense is used to record

A) selling expenses.
B) administrative expenses.
C) operating expenses.
D) non-operating expenses.

Question 8

Which of the following is NOT an operating expense?

A) Payroll Tax Expense
B) Interest Expense
C) Postage Expense
D) Salaries Expense

Question 9

Which of the following is an operating expense?

A) Interest expense
B) Interest revenue
C) Salaries expense
D) Inventory

Question 10

In which section does Interest Revenue appear in the Income Statement?

A) Other Income
B) Other Expense
C) Selling Expenses
D) Administrative Expenses

Question 11

Net Sales are

A) Gross Sales + Sales Discounts + Sales Returns and Allowances.
B) Gross Sales - Sales Discounts - Sales Returns and Allowances.
C) Revenue - Sales Discounts + Sales Returns and Allowances.
D) Gross Sales + Sales Discounts - Sales Returns and Allowances.

Question 12

Gross Profit equals

A) Net sales - Other Expenses.
B) Sales - Sales Returns and Allowances - Sales Discounts - Cost of Goods Sold.
C) Cost of Goods Sold - Other Expenses.
D) Cost of Goods Sold - Operating Expenses.

Question 13

Selling expenses include

A) Advertising Expense.
B) Rent Expense.
C) Office Supplies Expense.
D) All of the above are correct.

Question 14

Net Sales + Sales Discounts + Sales Returns and Allowances equals

A) Net Loss.
B) Gross Sales.
C) Net Income from Operations.
D) Gross Profit.

Question 15

The income statement is prepared from the

A) balance sheet.
B) worksheet.
C) general journal.
D) statement of owner's equity.

Question 16

Freight-in is

A) a Cost of Selling Goods.
B) a Cost of Purchasing Goods.
C) recorded as an Operating Expense.
D) recorded as an asset.

Question 17

To determine how much merchandise was returned from a company's customers, the company should review the

A) Inventory Account.
B) Cost of Goods Sold Account.
C) Sales Returns and Allowances Account.
D) Sales Discounts Account.

Question 18

Administrative Expenses include

A) Insurance Expense.
B) Delivery Expense.
C) Depreciation Expense.
D) None of the above are correct.

Question 19

Other Income is used to

A) record income from sales.
B) record any revenue from activities other than sales.
C) record all revenue.
D) record owner investments.

Question 20

Net Sales - Cost of Goods Sold is equal to

A) Net Income from Operations.
B) Operating Expenses.
C) Gross Profit.
D) Gross Expenses.

Question 21

In what category in a classified balance sheet is Store Equipment found?

A) Plant and Equipment
B) Current Liabilities
C) Current Assets
D) Owner's Equity

Question 22

To determine how much a company has discounted payments from its customers, it should review the

A) Cost of Goods Sold account.
B) Inventory account.
C) Sales Returns & Allowances account.
D) Sales Discounts account.

Question 23

A classified balance sheet provides more information about the company to

A) owners.
B) creditors.
C) suppliers.
D) All of the above answers are correct.

Question 24

If Net Sales is $7,000, Cost of Goods Sold is $3,000, Gross Profit is $4,000 and Operating Expenses are $1,000, what is the Net Income from Operations?

A) $2,000
B) $4,000
C) $1,000
D) $3,000

Question 25

In what category in a classified balance sheet is Mortgage Payable found?

A) Plant and Equipment
B) Current Liabilities
C) Long-term Liabilities
D) Both B and C are correct.

Question 26

Merchandise purchased for resale under the perpetual inventory method is added to

A) Merchandise Inventory.
B) Sales.
C) Sales Discounts.
D) Cost of Goods Sold.

Question 27

To determine how much merchandise a company has had returned from its customers, it should review the

A) Cost of Goods Sold account.
B) Inventory account.
C) Sales Returns & Allowances account.
D) Sales Discounts account.

Question 28

The correct worksheet columns to use for preparing the income statement are the

A) adjustments columns.
B) income statement columns.
C) adjusted trial balance columns.
D) trial balance columns.

Question 29

Liquidity is

A) how quickly Accounts Payable can be paid.
B) how easily an asset can be converted to cash.
C) how much cash a company has on its balance sheet.
D) None of the above are correct.

Question 30

In what category in a classified balance sheet is Accounts Receivable found?

A) Plant and Equipment
B) Current Liabilities
C) Current Assets
D) Owner's Equity

Question 31

A company paid next month's rent in advance. This would be classified as

A) a current asset.
B) Other Income.
C) Revenue.
D) a current liability.

Question 32

Plant and Equipment is usually listed

A) in alphabetical order.
B) in order of liquidity.
C) by how long they will last.
D) None of these are correct.

Question 33

To calculate gross profit,

A) subtract Freight-In from net purchases.
B) subtract ending inventory from cost of goods available for sale.
C) subtract cost of goods sold from net sales.
D) add freight to net purchases.

Question 34

The income statement lists regular business expenses under the heading

A) current expenses.
B) operating debts.
C) liabilities.
D) operating expenses.

Question 35

The ending merchandise inventory was understated. This error would cause

A) assets to be understated.
B) assets to be overstated.
C) net income to be overstated.
D) None of these are correct.

Question 36

Payment discounts received on merchandise purchased for resale under the perpetual inventory method are subtracted from

A) Merchandise Inventory.
B) Sales.
C) Sales Discounts.
D) Inventory Expense.

Question 37

A merchandise company's interest expense is a(n)

A) selling expense.
B) administrative expense.
C) contra-revenue.
D) other expense.

Question 38

The ending merchandise inventory was overstated. This error would cause

A) net income to be understated.
B) assets to be understated.
C) net income to be overstated.
D) None of these are correct.

Question 39

Plant and Equipment includes which of the following?

A) Cash
B) Accounts Receivable
C) Accumulated Depreciation on office machines
D) All of these are correct.

Question 40

An item that can be converted into cash or used up during the normal operating cycle is

A) a current asset.
B) Plant and Equipment.
C) a current liability.
D) a long-term liability.

Question 41

When calculating Gross Profit on the Income Statement, the Net Sales and Cost of Goods Sold values are both required.

Question 42

Non-operating expenses are found in the Cost of Goods Sold section of the income statement.

Question 43

The statement of owner's equity ending capital is equal to the capital on the worksheet.

Question 44

The amount for Cost of Goods Sold is found on the worksheet.

Question 45

The formal income statement can be prepared from the income statement columns of the worksheet.

Question 46

The left and right columns on the financial statements are used for debits and credits.

Question 47

Net income from operations plus other income minus other expenses equals net income.

Question 48

Land is listed first under Plant and Equipment.

Question 49

Which of the following is NOT under the heading Plant and Equipment on a classified balance sheet?

A) Store Equipment
B) Office Machines
C) Accumulated Depreciation on Office Machines
D) Office Supplies

Question 50

Plant and equipment are

A) liabilities used to generate net income.
B) cash and accounts receivable.
C) long-lived assets used in the production or sales of goods or services.
D) cash and assets that will be converted or used during the normal operating cycle of the company or one year, whichever is longer.

Question 51

Rental income earned by a merchandise company is

A) included in gross sales.
B) added to gross profit.
C) other income.
D) subtracted from administrative expenses.

Question 52

Accounts payable is a(n)

A) current liability.
B) long-term liability.
C) current asset.
D) operating expense.

Question 53

The average time it takes to buy and sell merchandise and collect Accounts Receivable is the normal operating cycle for a business.

Question 54

Gross profit minus Operating Expenses equals Net Income.

Question 55

A classified balance sheet includes all of the following EXCEPT

A) current assets.
B) plant and equipment.
C) revenues.
D) current liabilities.

Question 56

Operating expenses that are not related to the selling of goods are administrative expenses.

Question 57

Gross profit minus cost of goods sold equals net sales.

Question 58

The Statement of Owner's Equity is the same for a service business as for a merchandise business.

Question 59

A balance sheet where assets and liabilities are broken down into more detail is called a comprehensive balance sheet.

Question 60

Current assets are

A) cash and other assets that will not be used during the year.
B) cash and other assets that will be used during the year.
C) cash and other assets that will be converted or consumed during the normal operating cycle of the company or one year, whichever is longer.
D) cash and assets that will be converted or consumed during the normal operating cycle or one year, whichever is shorter.

Question 61

Store Equipment would normally be classified as a current asset.

Question 62

Determine the ending Capital balance of a business having:
Beginning Capital of $40,000
No investments or withdrawals
Inventory of $10,000
Cost of Goods Sold of $90,000
Prepaid Insurance of $12,000
Operating expenses of $72,000
Net sales $180,000

Question 63

Discuss the purpose of a detailed income statement. Briefly describe the major kinds of business activities covered on a detailed income statement.

Question 64

The following amounts are on the Bear Sporting Goods worksheet for the month ended October 31.
Required: Calculate the following:
a. Net sales
b. Gross profit
c. Operating expenses
d. Other revenue
e. Net income

Question 65

The following accounts are on the Balance Sheet section of Scents Galore worksheet for the period ending November 30, 2020.
Required: Prepare a classified Balance Sheet for the company as of Nov. 30, 2020.
Additional information: Withdrawals for the period are $4, and Net Income is $12.

Question 66

The following amounts are on the Riley's Clothing worksheet for the month ended March 30.
Required: Calculate the following:
a. Net sales
b. Gross profit
c. Operating expenses
d. Other revenue
e. Net income

Question 67

Merchandise Inventory would be classified as a current asset.

Question 68

Canada Pension Plan Payable would be classified as a current liability.

Question 69

How is Income Summary closed if the company had a net income?

A) Debit Capital; credit Income Summary
B) Debit Income Summary; credit Capital
C) Debit Capital; credit Withdrawals
D) Debit Withdrawals; credit Capital

Question 70

Administrative expenses are also called general expenses.

Question 71

Discuss the purpose of a classified balance sheet. Include a description of the major balance sheet classifications including: current assets, plant and equipment, current liabilities, and long-term liabilities.

Question 72

Determine the ending Capital amount of a business having:
Beginning Capital amount of $25,000
Withdrawals of $1,500
Net sales of $150,000
Cost of Goods Sold of $80,000
Interest expense of $1,500
Prepaid rent of $6,000
Payroll liabilities of $7,000
Operating expenses of $32,000

Question 73

The following accounts are on the Balance Sheet section of Marble Company worksheet for the month ended August 31, 2020.
Required: Prepare a classified balance sheet.

Question 74

The following accounts are on the Balance Sheet section of Appleton Company worksheet for the month ended July 31, 2019. Required: Prepare a classified Additional information Withdrawals for the period are $2, and Net Income is $6.

Question 75

How is Income Summary closed if the company had a net loss?

A) Credit Income Summary; debit Capital
B) Debit Income Summary; credit Capital
C) Debit Capital; credit Withdrawals
D) Debit Withdrawals; credit Capital

Question 76

Prepaid Insurance would be classified as a current asset.

Question 77

Identify the category(s) of each of the accounts below.
Current Asset
Plant and Equipment
Current Liabilities
Long-Term Liabilities
Item Category
0. Cash Current Asset ________
a. Accts. Payable ________ ________
b. Accumulated Amount. ________ ________
c. Mortgage Payable ________ ________
d. Unearned Revenue ________ ________
e. Merchandise Inv. ________ ________

Question 78

The following accounts are on the Balance Sheet section of Great Lakes Camping worksheet for the month ended January 31, 2019.
Required: Prepare a classified balance sheet.
Additional information: Withdrawals for the period are $2, and Net Income is $3.

Question 79

Adjusting entries from the worksheet

A) are journalized and posted to the ledger.
B) are posted directly to the ledger.
C) are closed to the Income Summary account.
D) affect only balance sheet accounts.

Question 80

Identify the category(s) of each of the accounts below.
Current Asset
Plant and Equipment
Current Liabilities
Long-Term Liabilities
Item Category
0. Cash Current Asset ________
a. Accts. Receivable ________ ________
b. Accts. Payable ________ ________
c. Mortgage Payable ________ ________
d. Office Equipment ________ ________
e. Prepaid Insurance ________ ________