Deck 7: Merchandising Companies: Purchases Perpetual

Question 1

Sales revenues are earned when cash is collected from the buyer.

Answer 1

False

Question 2

Retailers and wholesalers are both considered merchandisers.

Answer 2

True

Question 3

In a periodic inventory system, cost of goods sold is determined by subtracting the cost of the ending inventory from the cost of goods available for sale.

Answer 3

True

Question 4

A periodic inventory system requires a detailed inventory record of inventory items.

Question 5

Inventory is classified as a current asset on a classified balance sheet.

Question 6

Operating expenses are different for merchandising and service enterprises.

Question 7

The major difference between the balance sheet of a service company and that of a merchandising company is the presence of inventory.

Question 8

Sales revenue less cost of goods and operating expenses sold equals gross profit.

Question 9

Walgreens is an example of a merchandising company.

Question 10

If a company uses a periodic inventory system, cost of goods sold is determined each time a sale is made.

Question 11

Beginning inventory plus goods purchased equals goods available for sale.

Question 12

Gross profit represents the merchandising profit of a company.

Question 13

Sales minus operating expenses equals gross profit.

Question 14

Periodic inventory systems provide better control over inventories than perpetual inventory systems.

Question 15

Inventory is reported as a long-term asset on a classified balance sheet.

Question 16

Two categories of expenses for service companies are cost of goods sold and operating expenses.

Question 17

The operating cycle for a service business is generally longer than that of a merchandising business.

Question 18

A physical count of inventory is only needed if a periodic inventory system is used.

Question 19

Sales revenue minus cost of goods sold equals gross profit.

Question 20

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

Question 21

When goods are shipped FOB Destination, the buyer debits the Freight-Out account.

Question 22

FOB Shipping Point means the buyer pays the freight costs.

Question 23

If the terms are FOB Shipping Point, the seller pays the freight costs and charges them to the Inventory account if a perpetual inventory system is used.

Question 24

The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

Question 25

The words "on account" or the presence of credit terms indicates that purchase or sale was made for cash.

Question 26

In a cash purchase of inventory, the inventory account is debited if a perpetual inventory system is used.

Question 27

When goods are shipped FOB Shipping Point, the seller records this cost as an operating expense.

Question 28

The seller's entry for a purchase return always includes a credit to Inventory.

Question 29

The seller's entry to record a purchase return under a perpetual inventory system includes a debit to Inventory and credit to Purchase Returns and Allowances.

Question 30

When goods are shipped FOB Shipping Point, this cost reduces the seller's net income but not gross profit.

Question 31

Most purchases are for cash.

Question 32

Under a perpetual inventory system, when a buyer pays within the discount period, the amount of the discount decreases the cost of its inventory.

Question 33

The entry to record a purchase return entry is the opposite of the entry to record a purchase.

Question 34

When a purchase allowance is granted, the buyer returns units of inventory.

Question 35

Every purchase should be supported by business documents.

Question 36

In a credit purchase of inventory, the cash account is credited.

Question 37

When goods are shipped FOB Destination, this cost reduces the buyer's net income but not gross profit.

Question 38

If the terms are FOB Shipping Point, the buyer pays the freight costs and charges them to the Inventory account if a perpetual inventory system is used.

Question 39

FOB Destination means the buyer pays the freight costs.

Question 40

If the terms are FOB Destination, the buyer debits Inventory for the amount of the freight costs if a perpetual inventory system is used.

Question 41

A merchandising company that sells directly to consumers is a

A) retailer.
B) wholesaler.
C) broker.
D) service company.

Question 42

An enterprise which sells goods to customers is known as a

A) proprietorship.
B) corporation.
C) retailer.
D) service firm.

Question 43

Net income is gross profit less

A) financing expenses.
B) operating expenses.
C) other expenses and losses.
D) other expenses.

Question 44

Two categories of expenses for merchandising companies are

A) cost of goods sold and financing expenses.
B) operating expenses and financing expenses.
C) cost of goods sold and operating expenses.
D) sales and cost of goods sold.

Question 45

Detailed records of goods held for resale are not maintained under a

A) perpetual inventory system.
B) periodic inventory system.
C) double entry accounting system.
D) single entry accounting system.

Question 46

Cost of goods sold is determined only at the end of the accounting period in

A) a perpetual inventory system.
B) a periodic inventory system.
C) both a perpetual and a periodic inventory system.
D) neither a perpetual nor a periodic inventory system.

Question 47

Maz-Ing Company had a beginning inventory with a cost of $1,000. During the period, the company purchased additional inventory at a cost of $12,000. A physical count of the inventory at the end of the period showed goods at a cost of $3,000 on hand. What was the company's cost of goods available for sale for the period?

A) $2,000
B) $3,000
C) $10,000
D) $13,000

Question 48

Which of the following would not be considered a merchandising company?

A) drugstore
B) law firm
C) bookstore
D) grocery store

Question 49

Which of the following expressions is incorrect?

A) Gross profit - operating expenses = net income
B) Sales revenue - cost of goods sold - operating expenses = net income
C) Net income + operating expenses = gross profit
D) Operating expenses - cost of goods sold = gross profit

Question 50

Which of the following would not be considered a merchandising company?

A) Retailer
B) Wholesaler
C) Service firm
D) All of these are types of merchandising companies.

Question 51

The terms 1/10, n/30 state that a 1% discount is available if the invoice is paid within 10 days of the purchase and the net amount is due in 30 days.

Question 52

After gross profit is calculated, operating expenses are deducted to determine

A) gross margin.
B) net income.
C) gross profit on sales.
D) net margin.

Question 53

Which of the following is a true statement 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 be determined after each sale.
D) A perpetual system determines cost of goods sold only at the end of the accounting period.

Question 54

A perpetual inventory system would likely be used by a(n)

A) automobile dealership.
B) hardware store.
C) drugstore.
D) convenience store.

Question 55

Sales revenue less cost of goods sold is called

A) gross profit.
B) net profit.
C) net income.
D) marginal income.

Question 56

Which of the following would not be considered a merchandising company?

A) Home Depot
B) Barnes & Noble
C) Jones & Jones, CPAs
D) All of these are types of merchandising companies.

Question 57

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) with each sale.

Question 58

Maz-Ing Company had a beginning inventory with a cost of $1,000. During the period, the company purchased additional inventory at a cost of $12,000. A physical count of the inventory at the end of the period showed goods at a cost of $3,000 on hand. What was the company's cost of goods sold for the period?

A) $10,000
B) $11,000
C) $13,000
D) $14,000

Question 59

The primary source of revenue for a wholesaler is

A) investment income.
B) service fees.
C) the sale of merchandise.
D) the sale of fixed assets the company owns.

Question 60

If a company determines cost of goods sold each time a sale occurs, it

A) must have a computer 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 61

Sloan Enterprises had inventory on May 1 with a cost of $2,000. During May, the company purchased additional inventory at a cost of $8,000. Sloan uses a perpetual inventory system and recorded cost of goods sold of $7,000 for the month. What was Sloan's cost of goods available for sale during the period?

A) $1,000
B) $3,000
C) $9,000
D) $10,000

Question 62

On a classified balance sheet, inventory is classified as

A) an intangible asset.
B) property, plant, and equipment.
C) a current asset.
D) a long-term investment.

Question 63

Under a perpetual inventory system, cash purchases and credit purchases are debited to

A) inventory.
B) cash (for cash purchases) and inventory (for credit purchases).
C) inventory (for cash purchases) and accounts payable (for credit purchases).
D) accounts payable

Question 64

Companies can choose to use which inventory system?

Question 65

During August 2020, Shelby's Supply Store generated revenues of $65,000. The company's expenses were as follows: cost of goods sold of $33,000 and operating expenses of $7,000. Shelby's net income for August,2020 is

A) $25,000.
B) $27,000.
C) $24,000.
D) $32,000.

Question 66

When inventory is purchased, the purchase invoice

A) usually does not exist.
B) is prepared by the purchaser.
C) normally does not include the total purchase price.
D) is usually a copy of the sales invoice sent by the seller.

Question 67

Which of the terms below could be used when describing a cash purchase?

A) FOB destination.
B) On account.
C) 2/10, n/30.
D) Using credit.

Question 68

Grey Enterprises had inventory on March 1 with a cost of $6,000. During March, the company purchased additional inventory at a cost of $22,000. A physical count of the inventory at March showed goods at a cost of $4,000 on hand. What was Grey Enterprises' cost of goods sold for March?

A) $16,000
B) $18,000
C) $23,000
D) $24,000

Question 69

The entry for a cash purchase includes a credit to

A) inventory.
B) cash.
C) accounts payable,
D) sales.

Question 70

Under a perpetual inventory system, the acquisition of merchandise for resale is debited to the

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

Question 71

Gross profit for a merchandiser is sales revenue minus

A) operating expenses.
B) cost of goods sold.
C) sales discounts.
D) cost of goods available for sale.

Question 72

During August 2020, Shelby's Supply Store generated revenues of $65,000. The company's expenses were as follows: cost of goods sold of $33,000 and operating expenses of $7,000. Shelby's gross profit for August 2020 is

A) $25,000.
B) $27,000.
C) $24,000.
D) $32,000.

Question 73

Sloan Enterprises had inventory on May 1 with a cost of $2,000. During May, the company purchased additional inventory at a cost of $8,000. Sloan uses a perpetual inventory system and recorded cost of goods sold of $7,000 for the month. What should be the cost of inventory on hand at the end of May?

A) $1,000
B) $2,000
C) $3,000
D) $10,000

Question 74

During 2020, Wu Han Co. generated revenues of $95,000. The company's expenses were as follows: cost of goods sold of $47,000, and operating expenses of $16,000. Wu Han's net income is

A) $27,000.
B) $32,000.
C) $48,000.
D) $95,000.

Question 75

Under a perpetual inventory system, the entry to record a credit purchase of inventory is

A) debit inventory, credit cash.
B) debit cash, credit. Inventory.
C) debit inventory, credit accounts payable.
D) debit accounts payable, credit inventory.

Question 76

During 2020, Wu Han Co. generated revenues of $95,000. The company's expenses were as follows: cost of goods sold of $47,000, and operating expenses of $16,000.Wu Han's gross profit is

A) $27,000.
B) $32,000.
C) $48,000.
D) $95,000.

Question 77

The operating cycle of a merchandiser is

A) always one year in length.
B) generally longer than it is for a service company.
C) about the same as for a service company.
D) generally shorter than it is for a service company.

Question 78

Grey Enterprises had inventory on March 1 with a cost of $6,000. During March, the company purchased additional inventory at a cost of $22,000. A physical count of the inventory at March showed goods at a cost of $4,000 on hand. What was Grey Enterprises' cost of goods available for sale for March?

A) $12,000
B) $22,000
C) $28,000
D) $32,000

Question 79

Financial information is presented below: Operating Expenses $ 65,000
Sales Revenue 220,000
Cost of Goods Sold 138,000
Gross profit would be

A) $17,000.
B) $82,000.
C) $155,000.
D) $220,000.

Question 80

Retailers generally purchase inventory

A) using cash only.
B) on account only.
C) using cash or on account.
D) from other retailers.