Deck 11: Preparing a Worksheet for a Merchandise Company

Question 1

The first entry to adjust Merchandise Inventory includes:

A) a debit to Merchandise Inventory.
B) a credit to Merchandise Inventory.
C) a credit to Income Summary.
D) a credit to Purchases.

Answer 1

B

Question 2

Unearned Rent is what type of account?

A) Asset
B) Revenue
C) Liability
D) Contra-Asset

Answer 2

C

Question 3

The second entry to adjust Merchandise Inventory includes:

A) a debit to Merchandise Inventory.
B) a credit to Merchandise Inventory.
C) a debit to Income Summary.
D) None of these is correct.

Answer 3

A

Question 4

Tim received $3,000 in advance for renting part of his building for 4 months. What is the entry to record the adjustment after one month has passed?

A) Debit Cash; credit Rental Income
B) Debit Cash; credit Unearned Rent Revenue
C) Debit Unearned Rent, credit Rental Income
D) Debit Unearned Rent, credit Cash

Question 5

The normal balance of Income Summary is:

A) debit.
B) credit.
C) The account does not have a normal balance.
D) It depends on the change of the inventory balance.

Question 6

Net Income equals:

A) Net Sales - Cost of Goods Sold - Operating Expenses.
B) Gross Profit - Operating Expenses.
C) Sales - Sales Returns & Allowances - Sales Discounts - Cost of Goods Sold - Operating Expenses.
D) All of the above are correct.

Question 7

Ending inventory:

A) increases Cost of Goods Sold.
B) decreases Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) increases Purchases.

Question 8

As Unearned Rent Revenue is earned, it becomes:

A) an asset.
B) a revenue.
C) a liability.
D) an expense.

Question 9

If $6,700 was the beginning inventory, purchases were $12,000 and sales were $6,000. How much was ending inventory last accounting period?

A) $12,700
B) $6,700
C) $0
D) $6,000

Question 10

Unearned Rent Revenue results because:

A) no fee has been paid, and the service is not complete.
B) the fee is earned but not collected.
C) the fee has been collected before the service has been provided.
D) the fee has been paid, and the service is complete.

Question 11

Sam received $8,000 in advance for renting part of his building. What is the entry to record the receipt?

A) Debit Cash; credit Rent Expense
B) Debit Cash; credit Prepaid Rent Expense
C) Debit Cash; credit Unearned Rent Revenue
D) Debit Cash; credit Rental Income

Question 12

Cost of Goods Sold (under the Periodic Method) equals:

A) Beginning Inventory + Net Purchases + Freight-in + Freight-out + Ending Inventory.
B) Beginning Inventory - Net Purchases - Freight-in + Ending Inventory.
C) Beginning Inventory + Net Purchases + Freight-in - Ending Inventory.
D) Beginning Inventory - Net Purchases + Freight-in + Ending Inventory.

Question 13

If gross profit exceeds operating expenses, the company:

A) had a net loss.
B) broke even.
C) had a net income.
D) liabilities are greater than assets.

Question 14

When using a periodic inventory method, what account is increased when you buy merchandise inventory?

A) Cost of Goods Sold
B) Inventory
C) Supplies
D) Purchases

Question 15

Rental Income is what type of account?

A) Asset
B) Revenue
C) Expense
D) Contra-Sales

Question 16

Beginning inventory was $3,600, purchases totaled $20,200 and and Cost of Goods Sold was $17,200. What is the ending inventory? Assume gross profit is $0.

A) $3,000
B) $600
C) $6,600
D) $13,600

Question 17

What inventory method is used when the inventory balance is updated only at the end of the accounting period?

A) Periodic
B) Perpetual
C) Interim
D) Cost of Goods Sold

Question 18

When the adjustment for Unearned Rent Revenue is made:

A) liabilities decrease.
B) revenue increases.
C) assets decrease.
D) Both A and B are correct.

Question 19

The normal balance for Unearned Rent Revenue is:

A) a credit.
B) a debit.
C) zero.
D) dependent on circumstances.

Question 20

Which of the following accounts is NOT a liability?

A) Accounts Payable
B) Salaries Payable
C) Unearned Rent
D) All of the above answers are liabilities.

Question 21

As the Unearned Rent Revenue is earned:

A) the liability account is decreased and the revenue account is increased.
B) the asset account is increased and the revenue account is decreased.
C) the revenue account is decreased and the revenue account is not affected.
D) the liability account is not affected but the revenue account is decreased.

Question 22

On November 1, Call Center received $4,800 for two years' rent in advance from Garrett Company. The November 30 adjusting entry that Call Center should make is to:

A) debit Rental Income; credit Unearned Rent $4,800.
B) debit Cash; credit Rental Income $4,800.
C) debit Unearned Rent; credit Rental Income $200.
D) debit Unearned Rent; credit Rent Expense $200.

Question 23

The normal balance of Rental Income is:

A) a credit.
B) a debit.
C) zero.
D) dependent on the circumstances.

Question 24

An account never used in an adjusting entry is:

A) Consulting Fees-Revenue.
B) Interest Payable.
C) Cash.
D) Accumulated Depreciation - Equipment.

Question 25

The adjustment for supplies used would be to:

A) debit Supplies Expense; credit Supplies.
B) debit Supplies; credit Cash.
C) debit Supplies Expense; credit Inventory.
D) debit Inventory; credit Supplies.

Question 26

The adjustment for Unearned Rent Revenue is recorded when:

A) cash is received.
B) rent is earned.
C) revenue is received.
D) payment is made for rent.

Question 27

From the following items, which would most likely cause the recording of unearned revenue?

A) Receipt of a purchase order
B) Purchase of merchandise on account
C) Legal fees collected after work is performed
D) Subscriptions collected in advance for a magazine

Question 28

The financial statement on which Unearned Rent Revenue would appear is:

A) the income statement.
B) the balance sheet.
C) the owner's equity statement.
D) the trial balance.

Question 29

The financial statement on which Rental Income would appear is the:

A) income statement.
B) owner's equity statement.
C) balance sheet.
D) trial balance.

Question 30

What financial statement shows the amount for Freight-In?

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

Question 31

The adjustment for accrued wages was NOT done; this would cause:

A) liabilities to be overstated.
B) liabilities to be understated.
C) assets to be understated.
D) net income to be understated.

Question 32

Green Realty paid $6,000 rent on a building in advance for two years on May 1. The amount that should be recorded as rent expense as of December 31 at the end of Year 1 is:

A) $2,000.
B) $6,000.
C) $3,000.
D) $1,750.

Question 33

The goods a company has available to sell to customers are called:

A) Supplies.
B) Freight-in.
C) Cost of Goods Sold.
D) Merchandise Inventory.

Question 34

Accumulated Depreciation - Buildings should be shown on the:

A) Income Statement.
B) post-closing trial-balance.
C) Statement of Owner's Equity.
D) The account does not appear on a financial statement since it is a temporary account.

Question 35

Doug paid $3,000 on a one-year insurance policy on March 1. The entry included a debit to Prepaid Insurance. The adjusting entry on December 31 of Year 1 would include a:

A) debit to Prepaid Insurance for $2,500; and a credit to Cash for $2,500.
B) debit to Insurance Expense for $2,500; and a credit to Prepaid Insurance for $2,500.
C) debit to Insurance Expense for $3,000; and a credit to Prepaid Insurance for $3,000.
D) debit to Cash for $3,000; and a credit to Prepaid Insurance for $3,000.

Question 36

As supplies are used, they become:

A) inventory.
B) a liability.
C) an expense.
D) contra-asset.

Question 37

When the adjustment for depreciation is made:

A) total assets decrease.
B) total expenses decrease.
C) total liabilities increase.
D) total revenue decreases.

Question 38

The adjustment for Accrued Salaries would be to:

A) debit Salaries Expense; credit Cash.
B) debit Salaries Payable; credit Prepaid Salaries.
C) debit Salaries Expense; credit Salaries Payable.
D) debit Salaries Payable; credit Cash.

Question 39

The adjustment for salaries is necessary:

A) because the employer did not have enough cash to write the paychecks.
B) to recognize the revenue in the period earned.
C) to recognize the expense in the period incurred.
D) only in the month of a holiday.

Question 40

Mortgage Payable is what type of account?

A) Asset
B) Liability
C) Revenue
D) Contra-Asset

Question 41

The perpetual inventory method:

A) is used by more and more companies, large and small due to increasing computerization.
B) is not used by many companies today.
C) is used by companies with a variety of merchandise with low unit prices.
D) does not ever require a physical inventory.

Question 42

At the start of the year, Southern Lights had $5,000 worth of merchandise. This Merchandise is called:

A) Cost of Goods Sold.
B) beginning inventory.
C) ending inventory.
D) Purchases.

Question 43

Mortgage Payable:

A) has a debit balance.
B) has a credit balance.
C) shows the amount expected to be paid within the current period.
D) is an unsecured loan.

Question 44

This amount does NOT change during the period and is added to purchases when computing the cost of goods available for sale.

A) Beginning inventory
B) Ending inventory
C) Supplies
D) Freight-in

Question 45

The physical count of inventory was incorrect, which overstated the ending inventory. This would cause:

A) Cost of Goods Sold to be overstated.
B) Cost of Goods Sold to be understated.
C) gross profit to be understated.
D) operating expenses to be understated.

Question 46

The ending inventory in Year 1 is the beginning inventory in Year 2.

Question 47

The beginning inventory is assumed to be sold; therefore, it is added to cost of goods sold.

Question 48

When using the Periodic method, Merchandise Inventory (ending) appears on both the Income Statement and the Balance Sheet.

Question 49

If ending inventory is overstated this period, beginning inventory will be understated in the next period.

Question 50

Freight-in:

A) adds to the Cost of Goods Sold.
B) reduces the Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) increases operating expenses.

Question 51

When counting supplies, several boxes were missed. This would cause:

A) Supplies to be overstated.
B) Supplies Expense to be overstated.
C) net income to be overstated.
D) Inventory to be understated.

Question 52

In the perpetual inventory system, it is not necessary to take a physical inventory at the end of the period.

Question 53

The adjustment for depreciation expense was omitted; this would:

A) overstate the period's expenses and overstate the period end liabilities.
B) overstate the period's expenses and understate the period end liabilities.
C) understate the period's expenses and overstate the period's assets.
D) understate the period's expenses and understate the period's assets.

Question 54

When the adjustment is made for depreciation, the Depreciation Expense account is increased and the Accumulated Depreciation account is decreased.

Question 55

Gross profit less operating expenses equals:

A) Cost of Goods Sold.
B) general administrative expenses.
C) net purchases.
D) net income.

Question 56

Unearned Rent Revenue is a balance sheet account.

Question 57

The Income Summary account is used to adjust beginning and ending inventories.

Question 58

Interest Expense:

A) is a cost of borrowing money.
B) is included in the "Other Expenses" on the Income Statement.
C) has a normal debit balance.
D) All of the above are correct.

Question 59

Recording the adjustment for supplies used will:

A) increase the total liability and increase the total expenses.
B) increase the total assets and increase the total liabilities.
C) decrease the total assets and increase the total expenses.
D) decrease the merchandise inventory and decrease the total expenses.

Question 60

Depreciation on equipment was recorded twice this period. This would cause:

A) expenses to be overstated and total assets to be overstated.
B) expenses to be overstated and total assets to be understated.
C) expenses to be understated and total assets to be overstated.
D) expenses to be understated and total assets to be understated.

Question 61

Mortgage Payable is a contra-liability account.

Question 62

Why is beginning and ending inventory kept as two separate figures in the cost of goods sold under the Periodic method?

Question 63

Marie's Law Firm's unadjusted trial balance includes the following: Using the above data, record the adjusting entry for $1,000 of the unearned legal fees earned.

Question 64

Sales Discount is used when calculating Gross Profit.

Question 65

Under the periodic inventory method, the beginning and ending inventories are combined and an average calculated to determine the balance sheet inventory amount.

Question 66

Calculate: (a) net sales, (b) cost of goods sold, (c) gross profit, and (d) net income from the following:

Question 67

The amount of supplies used causes an increase in Supplies and a decrease in Expense.

Question 68

Under the periodic inventory method, the ending inventory is adjusted by debiting Income Summary and crediting Merchandise Inventory.

Question 69

Adjustments are journalized before recording them in the worksheet.

Question 70

Beginning inventory is adjusted by crediting Merchandise Inventory and debiting Income Summary.

Question 71

The Freight-in account is an operating expense account.

Question 72

Under the accrual system, revenue is recognized when cash is paid.

Question 73

Calculate: (a) net sales, (b) cost of goods sold, (c) gross profit, and (d) net income from the following:

Question 74

Under the accrual system, expenses are recorded when incurred.

Question 75

The amount for beginning inventory is used when calculating Cost of Goods Sold.

Question 76

Indicate the normal balance of each of the following accounts:
a) Purchases Returns and Allowances
b) Merchandise Inventory
c) Freight-In
d) Sales Returns and allowances
e) Unearned Revenue

Question 77

Under the periodic inventory system, an adjustment is not made on the worksheet for inventory.

Question 78

Mortgage Payable is found on the balance sheet.

Question 79

Under the periodic inventory method, indicate the financial statement(s) on which you would find the following items:
a) Cost of goods sold
b) Freight-In
c) Ending Inventory
d) Beginning Inventory
e) Purchase Discounts

Question 80

Unearned Revenue is a liability account used to record rent fees received in advance.