Deck 5: Accounting for Merchandising Operations

Question 1

For merchandising companies, operating expenses are expenses that are incurred in the process of earning sales revenue.

Answer 1

True

Question 2

Cost of goods sold is a contra revenue account

Answer 2

False

Question 3

Cost of goods sold is subtracted from gross profit to determine operating income.

Answer 3

False

Question 4

Under IFRS, companies must classify operating and other expenses based on either the nature of the expenses or their function within the company.

Question 5

In a perpetual inventory system, the Merchandise Inventory account acts as a control account for the individual inventory accounts in the subsidiary ledger.

Question 6

Freight costs for items shipped FOB destination are paid by the buyer.

Question 7

A quantity discount is offered to customers who pay their invoices promptly

Question 8

A physical inventory count is only necessary in a periodic inventory system

Question 9

In a single-step income statement, gross profit and are shown on the income statement.

Question 10

An adjusting entry prepared to account for the difference between actual inventory on hand and inventory according to the accounting records includes an adjustment of cost of goods sold.

Question 11

Sales Returns and Allowances:

A) is a contra revenue account.
B) has a normal debit balance.
C) appears on the income statement.
D) All of the above.

Question 12

Recording a sale requires a:

A) credit to a revenue account and a debit to an asset account.
B) debit to Cash and a credit to Owner's Capital.
C) debit to a revenue account and credit to an asset account.
D) credit to Sales and a debit to Sales Returns and Allowances

Question 13

Which of the following is a non-operating expense?

A) Interest expense
B) Rent expense
C) Delivery expense
D) Office expense

Question 14

Which of the following statements is false?

A) Freight costs paid by the seller are debited to Delivery Expense.
B) Freight charges for goods shipped FOB destination are paid by the seller.
C) Freight charges for goods shipped FOB shipping point are paid by the purchaser.
D) Freight costs paid by the purchaser are debited to Delivery Expense.

Question 15

When a company uses the perpetual inventory system, the:

A) Merchandise Inventory account balance does not change until the end of the year.
B) Merchandise Inventory account is debited when inventory is purchased.
C) sale of inventory requires a credit to Cost of Goods Sold.
D) acquisition of merchandise requires a debit to Purchases

Question 16

Baker Department Store uses a perpetual inventory system. Prepare journal entries to record the following transactions for Baker.
a. Baker bought ten stoves from a manufacturer on account, at a cost of $300 each.
b. Baker returned two of the stoves to the manufacturer because they were defective.
c. Baker sold a stove to a customer for $650 cash.
d. Baker paid the manufacturer for the stoves.

Question 17

Freight on goods shipped FOB shipping point is the responsibility of the ____________.

Question 18

What is the formula to calculate Gross Profit Margin?

Question 19

Using the account balances listed in the following table, calculate the following:
a. Net Sales _________________
b. Gross Profit _________________
c. Profit from Operations _________________
d. Profit _________________

Question 20

Detailed inventory records of every purchase and sale of inventory are maintained when using a ________________ inventory system.

Question 21

Companies that use the ___________________inventory system must take a physical count of inventory at the end of the period to determine the quantity on hand and to determine the cost of goods sold and cost of ending inventory