Deck 5: Merchandising Operations

Question 1

A quantity discount is recorded separately, the same way as a purchase discount.

Answer 1

False

Question 2

When a company collects sales taxes from selling a product or service, these sales taxes are also recorded as revenue.

Answer 2

False

Question 3

Under ASPE, when returned merchandise is defective, the seller's sales account is debited.

Answer 3

False

Question 4

The operating cycle of a merchandising company is generally shorter than that of a service company.

Question 5

When goods are shipped FOB shipping point, freight costs are an operating expense for the seller.

Question 6

A Refund Liability (deferred revenue) account is used to track expected sales returns and allowances.

Question 7

If merchandise costing $2,500, terms 2/10 n/30, is paid within 10 days, the amount of the purchase discount is $250.

Question 8

A physical inventory count should be done at least once a year regardless of whether a perpetual or periodic inventory system is being used.

Question 9

Cost of Goods Sold is considered an operating expense for a merchandising company.

Question 10

The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 days but within the credit period.

Question 11

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Question 12

If a quantity discount of 10% is received on a purchase of $10,000, inventory would be recorded at $9,000.

Question 13

Operating expenses are subtracted from revenue for a service company and from gross profit for a merchandising company.

Question 14

Freight terms will specify the point at which ownership of the goods is transferred from the seller to the buyer.

Question 15

When sales are made with a right of return, the sales revenue is recorded net of the expected amount of returns and a Refund Liability is also debited.

Question 16

Freight costs incurred on incoming merchandise are an operating expense to the buyer.

Question 17

An asset account, Estimated Inventory Returns, is used to record the cost of the goods expected to be returned.

Question 18

Inventory is usually the largest current asset for a merchandiser.

Question 19

When the terms of sale are FOB shipping point, the seller is responsible for any damages to the goods during shipping.

Question 20

Cost of goods available for sale is considered an operating expense for a merchandising company.

Question 21

Profit margin is calculated by dividing net income by sales.

Question 22

Operating expenses are similar in merchandising and service companies.

Question 23

The gross profit amount is generally considered to be more informative than the gross profit margin.

Question 24

The multiple-step statement of income is considered more useful than the single-step statement of income for a merchandising company because it highlights the components of net income.

Question 25

A merchandising company's income from operations is determined by subtracting cost of goods sold from sales.

Question 26

Interest income for a merchandising company is usually reported in the non-operating activities section of the statement of income.

Question 27

Non-operating activities include revenues and expenses that are related to the company's main operations.

Question 28

Corporations following IFRS must classify their expenses either by nature or by function.

Question 29

If sales are $1,000,000 and cost of goods sold is $800,000, the gross profit margin is 20%.

Question 30

Income from operations appears on both the single-step and multiple-step forms of the statement of income.

Question 31

A key difference between the periodic and perpetual inventory systems is the timing of the calculation of cost of goods sold.

Question 32

Companies following ASPE may classify their expenses by nature, but not by function.

Question 33

Gross profit margin is calculated by dividing cost of goods sold by sales.

Question 34

Gross profit margin is the same as the gross profit amount.

Question 35

On the statement of income for a company using the periodic inventory system, the inventory at the beginning of the period is added to the cost of merchandise purchased for the period to calculate the cost of goods available for sale during the period.

Question 36

Purchase Returns and Allowances and Purchase Discounts are contra expense accounts with normal credit balances.

Question 37

The cost of goods sold section of a statement of income prepared under a periodic inventory system will contain more detail than under a perpetual inventory system.

Question 38

Gross profit appears on both the single-step and multiple-step forms of the statement of income.

Question 39

Freight In is subtracted from the Purchases account to arrive at cost of goods purchased.

Question 40

Profit margin indicates whether a company is controlling operating expenses relative to sales.

Question 41

Merchandise is sold for $2,500 with terms 1/10, n/30.If $500 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $20.

Question 42

Under ASPE, the Sales Returns account and the Sales Discounts account are both classified as expense accounts.

Question 43

When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount period.

Question 44

The primary source of revenue for a wholesaler is generated by
(a)investments.
(b)providing services.
(c)the sale of merchandise.
(d)the sale of property, plant, and equipment the company owns.

Question 45

The time it takes to go from cash to cash in producing revenues is called the
(a)accounting cycle.
(b)purchasing cycle.
(c)operating cycle.
(d)merchandising cycle.

Question 46

The largest current asset for a merchandiser is usually
(a)inventory.
(b)prepaid expenses.
(c)cash.
(d)accounts receivable.

Question 47

Gross profit equals the difference between sales and
(a)net income.
(b)cost of goods sold.
(c)operating expenses.
(d)cost of goods sold plus operating expenses.

Question 48

Gross profit equals
(a)sales less operating expenses.
(b)gross sales less cost of goods sold.
(c)cost of goods sold less operating expenses.
(d)sales less cost of goods sold.

Question 49

The operating cycle of a merchandising company is
(a)always one year in length.
(b)generally longer than that of a service company.
(c)about the same as that of a service company.
(d)generally shorter than that of a service company.

Question 50

Which of the following "formulas" is incorrect?
(a)Gross profit - operating expenses = income before income tax.
(b)Sales - cost of goods sold = gross profit.
(c)Sales - gross profit = cost of goods sold.
(d)Operating expenses - cost of goods sold = gross profit.

Question 51

Which of the following is true about inventory systems?
(a)Periodic inventory systems require more detailed inventory records.
(b)Perpetual inventory systems require more detailed inventory records.
(c)A periodic system requires cost of goods sold to be recorded after each sale.
(d)A perpetual system determines cost of goods sold only at the end of the accounting period.

Question 52

Sales less cost of goods sold is called
(a)gross profit.
(b)cost of goods sold.
(c)net income.
(d)income before income taxes.

Question 53

Net income will result if gross profit exceeds
(a)cost of goods sold.
(b)operating expenses.
(c)purchases.
(d)cost of goods sold plus operating expenses.

Question 54

Beginning inventory plus purchases equals
(a)cost of goods available for sale.
(b)cost of goods sold.
(c)ending inventory.
(d)total inventory on hand.

Question 55

Compared to a perpetual inventory system, the use of the periodic inventory system will result in a different value for inventory on the statement of financial position.

Question 56

Discounts taken for early payment of an invoice are called sales discounts by the buyer.

Question 57

Generally, the revenue account for a merchandising company is called
(a)Sales Revenue or Sales.
(b)Investment Revenue.
(c)Gross Profit.
(d)Gross Margin.

Question 58

After gross profit is calculated, operating expenses are deducted to determine
(a)gross margin.
(b)net income (loss)before income tax.
(c)cost of goods sold.
(d)profit margin.

Question 59

A merchandiser will have income from operations of exactly $0 when
(a)sales equals cost of goods sold.
(b)cost of goods sold equals gross profit.
(c)operating expenses equal sales.
(d)gross profit equals operating expenses.

Question 60

Each of the following companies is a merchandising company except a
(a)wholesale parts company.
(b)candy store.
(c)moving company.
(d)furniture store.

Question 61

The abbreviation "FOB" stands for
(a)free on board.
(b)freight on board.
(c)free only (to)buyer.
(d)freight charge on buyer.

Question 62

Alliance Corporation purchased inventory with an invoice price of $22,000 and credit terms of 1/10, n/15.How much cash will Alliance pay if they pay within the discount period?
(a)$22,000
(b)$21,780
(c)$22,220
(d)$18,700

Question 63

The primary difference between a periodic and a perpetual inventory system is that a periodic system
(a)keeps a detailed record showing the inventory on hand at all times.
(b)provides better control over inventories.
(c)records the cost of goods sold on the date the sale is made.
(d)determines the cost of goods sold at the end of the accounting period.

Question 64

A company using a perpetual inventory system that returns goods purchased on credit would
(a)debit Accounts Payable and credit Inventory.
(b)debit Sales and credit Accounts Payable.
(c)debit Cash and credit Accounts Payable.
(d)debit Accounts Payable and credit Purchases.

Question 65

Under a perpetual inventory system, purchase of inventory is recorded as a debit to the
(a)Supplies account.
(b)Purchases account.
(c)Inventory account.
(d)Cost of Goods Sold account.

Question 66

Under the perpetual inventory system, which of the following accounts would not be used?
(a)Sales
(b)Purchases
(c)Cost of Goods Sold
(d)Inventory

Question 67

When a buyer purchases inventory the
(a)buyer always pays the freight.
(b)buyer never pays the freight when the shipping terms are FOB destination.
(c)seller never pays the freight.
(d)seller always pays the freight when the shipping terms are FOB shipping point.

Question 68

The journal entry by the buyer to record a return of merchandise purchased on account under a perpetual inventory system would credit
(a)Accounts Payable.
(b)Purchase Returns and Allowances.
(c)Sales.
(d)Inventory.

Question 69

The physical inventory count is used to determine
(a)cost of inventory purchased during the period.
(b)cost of inventory sold during the period.
(c)the cost of inventory on hand.
(d)the cost of goods available for sale.

Question 70

Inventory becomes part of the cost of goods sold when a company
(a)pays for the inventory.
(b)purchases the inventory.
(c)sells the inventory.
(d)receives payment from the customer.

Question 71

In a perpetual inventory system, cost of goods sold is recorded
(a)on a daily basis.
(b)on a monthly basis.
(c)on an annual basis.
(d)each time a sale occurs.

Question 72

On July 10, Arbour Inc.purchased $5,000 of inventory on terms of 2/10, n/30.The amount due on August 25 is
(a)$5,100.
(b)$5,000.
(c)$4,900.
(d)$4,990.

Question 73

When a sale occurs under a perpetual inventory system,
(a)a decrease in cost of goods sold is recorded.
(b)a increase in inventory is recorded.
(c)a decrease in accounts receivable is recorded.
(d)a decrease in quantity is recorded.

Question 74

If a company determines cost of goods sold each time a sale occurs, it
(a)must have a computerized accounting system.
(b)uses a combination of the perpetual and periodic inventory systems.
(c)uses a periodic inventory system.
(d)uses a perpetual inventory system.

Question 75

Given a perpetual inventory system which one of the following statements is false?
(a)Freight costs incurred by the buyer are added to the Inventory account.
(b)Purchases of merchandise for sale are recorded in the Inventory account.
(c)A discount taken for early payment is credited to the Inventory account.
(d)A return of merchandise is credited to the Purchase Returns and Allowances account.

Question 76

Under a perpetual inventory system, the following is determined each time a sale occurs:
(a)Gross Profit.
(b)Cost of Goods Sold.
(c)Purchases.
(d)Accounts Receivable.

Question 77

Freight costs incurred by a seller on merchandise sold to customers will cause an increase
(a)in the selling expenses of the buyer.
(b)in operating expenses for the seller.
(c)to the cost of goods sold of the seller.
(d)to a contra revenue account of the seller.

Question 78

For a company using a perpetual inventory system, the journal entry to record the purchase of $3,500 of goods on account, with terms of 4/10, n/30, would include a
(a)debit to Accounts Payable of $3,500.
(b)credit to Accounts Payable of $3,360.
(c)debit to Inventory of $3,360.
(d)debit to Inventory of $3,500.

Question 79

Under a perpetual inventory system
(a)there is no need for a year-end physical count.
(b)increases in inventory resulting from purchases are debited to Purchases.
(c)accounting records continuously disclose the amount of inventory.
(d)the account Purchase Returns and Allowances is credited when goods are returned to vendors.

Question 80

If a purchaser using a perpetual inventory system pays freight costs, then the
(a)Inventory account is increased.
(b)Inventory account is not affected.
(c)Freight Out account is increased.
(d)Freight In account is increased.