Deck 4: Accounting for a Merchandising Business

Question 1

Wholesalers purchase large quantities of product from manufacturers and then sell the product to retailers.

Answer 1

True

Question 2

The general public is referred to as:

A)final consumers.
B)service customers.
C)retail customers.
D)manufacturing customers.

Answer 2

final consumers.

Question 3

Goods that a retailer has available to sell to its customers are classified as inventory.

Answer 3

True

Question 4

In the perpetual inventory system, inventory is constantly updated through the inventory tracking system.

Question 5

When the perpetual records do not equal the physical count of the inventory, the general ledger is updated with the differences.

Question 6

Retailers may buy goods from the manufacturer and then sell the goods to consumers.

Question 7

Inventory for a merchandising business is classified as a(n):

A)liability.
B)revenue.
C)part of Stockholders' Equity.
D)asset.

Question 8

Which of the following characterizes Walmart?

A)Walmart both purchases and sells products.
B)Walmart sells products but doesn't purchase products.
C)Walmart purchases products but doesn't sell products.
D)Walmart neither purchases nor sells products.

Question 9

An inventory count shows that the general ledger for inventory is understated by $5,000. The entry to correct this would include a debit to cost of goods sold.

Question 10

The Sassycat Company sells custom dog gear on their website. This would most likely be considered a retail business.

Question 11

The general public most often buys products from:

A)a wholesale business.
B)a retail business.
C)a manufacturer.
D)all of the above.

Question 12

A retailer sells goods to a wholesaler.

Question 13

Amazon.com is an example of a wholesaler.

Question 14

Under the perpetual inventory system, the need for a physical count of inventory is eliminated.

Question 15

Because of innovative and computerized methods of tracking inventory, most businesses today use the perpetual inventory system.

Question 16

Which of the following would NOT be classified as a retailer?

A)Toys R Us
B)Ernst & Young
C)Barnes & Noble
D)PetSmart

Question 17

Which of the following would be classified as a retailer?

A)Greene's Garden Care
B)Paul's Pet Walking
C)Fiona's Fashion Boutique
D)Taylor's Tax Service

Question 18

Macy's.com, Walmart.com, and Target.com are examples of Internet:

A)service businesses.
B)manufacturing businesses.
C)retail businesses.
D)wholesalers.

Question 19

Most businesses today use the periodic inventory method.

Question 20

The general public usually purchase merchandise from wholesalers.

Question 21

TNT Inc. had an inventory balance of $19,000 on January 1, and $23,500 on December 31. The cost of goods sold during the period was $25,250. What is the purchase amount?

A)$4,500
B)$1,750
C)$29,750
D)$34,250

Question 22

Woods Company had an inventory balance of $4,200 on January 1. During the accounting period they made purchases of $12,500. The ending inventory balance was $2,250. If Woods Co. uses the periodic inventory system, what is the cost of inventory sold during the period?

A)$12,500
B)$14,450
C)$16,700
D)$18,950

Question 23

A company uses the perpetual inventory system. At year end the general ledger indicated that this company had a balance of $47,000 in the Inventory account. Actual inventory on hand per a physical count was $48,500. What action does the company now need to take?

A)No action is needed; the difference between the ledger and actual is less than 5%.
B)The company needs to debit Cost of Goods Sold and credit Inventory, $1,500.
C)The company needs to debit Inventory and credit Cost of Goods Sold for $1,500.
D)The company should debit the Purchases account and credit Cost of Goods Sold.

Question 24

The purchase of inventory affects both an asset and the Stockholders' Equity account.

Question 25

When accounting for a merchandising business, which of the following is TRUE?

A)Wholesalers must use the periodic inventory system.
B)Retailers must use the perpetual inventory system.
C)Wholesalers must use the periodic inventory system; retailers may use either the perpetual or periodic inventory system.
D)Retailers and wholesalers may use either the perpetual or periodic inventory system.

Question 26

Under the periodic inventory system, the amount of inventory is:

A)constantly updated.
B)only known when a physical count is taken.
C)adjusted after each sale.
D)adjusted after each purchase.

Question 27

Bach Co. had an inventory balance of $15,250 on January 1, purchased $34,000 during the accounting period, and the cost of goods sold was $28,000. What is the ending balance in the inventory account?

A)$21,250
B)$34,000
C)$49,250
D)Not enough information provided

Question 28

Both purchase returns and allowances decrease the merchandiser's inventory cost.

Question 29

Smith Company had an inventory balance of $13,000 on January 1 and $16,000 on December 31. The cost of goods sold during the period was $60,000. What is the purchase amount?

A)$44,000
B)$31,000
C)$62,000
D)$63,000

Question 30

A useful tool that updates inventory is the:

A)cash register.
B)bar code scanner.
C)price tag on the merchandise.
D)UPC number.

Question 31

If there is a difference between the physical count and the perpetual record, the account in which the difference is recorded is:

A)Sales.
B)Cost of Goods Sold.
C)Inventory Expense.
D)Revenue.

Question 32

The Botanical Boutique uses the perpetual inventory system. At year end the general ledger indicated that the company had a balance of $24,000 in the Inventory account. Actual inventory on hand per a physical count was $19,000. What action does the company now need to take?

A)No action is required because the amount is not material.
B)Debit Cost of Goods Sold and credit Inventory, $5,000.
C)Debit Purchases and credit Cost of Goods Sold, $5,000.
D)Debit Inventory and credit Cost of Goods Sold, $5,000.

Question 33

If an invoice shows a total of $3,500 with terms 3/15, n/30, the customer may pay $3,395 within 30 days to satisfy the bill.

Question 34

An invoice with the credit terms 3/10, n/30 means that the customer has 3 days to take a 10% discount off of the invoice total.

Question 35

Woods Company had an inventory balance of $2,600 on January 1. During the accounting period they made purchases of $11,500. The ending inventory balance was $1,250. If Woods Co. uses the periodic inventory system, what is the cost of goods available for sale?

A)$2,600
B)$11,500
C)$12,850
D)$14,100

Question 36

If a customer pays within the discount period, the discount will be debited to the Inventory account.

Question 37

If an invoice reads 2/15, n/30, the 15 refers to the percent that can be taken for the discount.

Question 38

Physical inventory counts must be done:

A)when using the periodic system of inventory.
B)when using bar code scan technology.
C)when using the perpetual system of inventory.
D)regardless of inventory system.

Question 39

If an invoice shows a total of $4,000 with terms 2/10, n/30, the customer may pay $3,920 within 10 days to satisfy the bill.

Question 40

Credit terms are determined by the purchaser.

Question 41

If damaged goods are received by the merchandiser and are kept with a reduction in price, the account to be credited by the merchandiser for the reduction in price under a perpetual inventory system is:

A)Inventory.
B)Accounts Payable.
C)Returns.
D)Cash.

Question 42

TNT Corporation pays an invoice for $4,500 in time to take a 5% discount. The journal entry to record the payment of this invoice is:

A)debit Accounts Payable $4,500; credit Cash $4,500.
B)debit Accounts Payable $4,275; credit Cash $4,275.
C)debit Accounts Payable $4,275, debit Inventory $225; credit Cash for $4,500.
D)debit Accounts Payable $4,500; credit Inventory $225, credit Cash for $4,275.

Question 43

If an invoice reads n/10, it means that:

A)the company has 10 days to pay the bill in full.
B)the company has 10 days to take the discount.
C)the company takes 10% off of the total of the invoice.
D)the company pays 90% of the invoice.

Question 44

TLR Productions has received an invoice for $6,500 with terms of 3/15, n/50. If TLR pays the invoice on the seventeenth day, the Cash account will be:

A)credited for $6,500.
B)credited for $6,305.
C)debited for $6,305.
D)credited for $195.

Question 45

Simmons, Inc. received an invoice from Wilson Company for $3,500 with terms of 3/10, n/45 on March 8. If Simmons pays the bill on March 15, they will credit inventory under a perpetual inventory system for:

A)$0.
B)$350.
C)$105.
D)$3,500.

Question 46

The discount period is determined by the:

A)seller of the merchandise.
B)purchaser of the merchandise.
C)customer.
D)amount of the invoice.

Question 47

An invoice of $2,400 is dated April 2, terms 2/10, n/30. If the invoice is paid on April 9, the amount to be paid is:

A)$48.
B)$240.
C)$2,352.
D)$2,400.

Question 48

A discount offered as an inducement for prompt payment of an invoice is called a(n):

A)invoice discount.
B)purchase discount.
C)early discount.
D)cash discount.

Question 49

Caesar Company returned $800 of goods it had purchased from another company. The original invoice was for $4,200, 3/10, n/30. What is the discount if Caesar pays the balance within the discount period?

A)$126
B)$102
C)$24
D)$0

Question 50

A company pays an invoice early and takes 4% off of the original invoice price. The account to be credited for the discount under a perpetual inventory system is:

A)Inventory.
B)Accounts Payable.
C)Discount.
D)Cash.

Question 51

The time period within which an invoice may be paid early to receive a discount is called the:

A)credit period.
B)payment period.
C)discount period.
D)cash period.

Question 52

Discounts allowed for customers who pay their invoices early:

A)reduce the cost of the purchased inventory.
B)increase the cost of the purchased inventory.
C)are called manufacturers' discounts.
D)are called allowances.

Question 53

If an invoice states 2/10, n/45, the 10 refers to the:

A)percent that can be taken for the discount.
B)days in the discount period.
C)days in which to pay the bill in full.
D)percent of the bill that has to be paid in the discount period.

Question 54

Charmed, Inc. purchased merchandise from Birch Co. for cash. The journal entry for Charmed, Inc. under a perpetual inventory system will be:

A)debit Inventory; credit Cash.
B)debit Cash; credit Inventory.
C)debit Inventory; credit Accounts Payable-Birch Co.
D)debit Inventory; credit Accounts Receivable-Birch Co.

Question 55

A record to keep the amount owed to each supplier is called a(n):

A)Accounts Receivable subsidiary ledger.
B)Accounts Payable subsidiary ledger.
C)transportation ledger.
D)general ledger for Accounts Payable.

Question 56

Which of the following credit terms allows a discount of 4% if payment is made within 20 days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from the date of the invoice?

A)4/20, EOM
B)4/EOM, n/30
C)4/20, n/30
D)20/4, n/30

Question 57

Wolfe Company purchases goods for resale from Coyote, Inc. The amount of the purchase is $12,500 with terms of 3/10, n/30. Wolfe later returns $500 of the goods. Under the perpetual inventory system, the journal entry to record the return is:

A)debit Accounts Payable - Coyote, Inc.; credit Purchase Returns and Allowances.
B)debit Purchase Returns and Allowances; credit Accounts Payable - Coyote, Inc.
C)debit Accounts Payable - Coyote, Inc.; credit Inventory.
D)debit Inventory; credit Accounts Payable - Coyote, Inc.

Question 58

When merchandise is purchased on account under the perpetual inventory system, the journal entry is:

A)debit Purchases and credit Accounts Payable.
B)debit Accounts Payable and credit Inventory.
C)debit Inventory and credit Accounts Payable.
D)debit Accounts Payable and credit Purchases.

Question 59

The amount of an invoice is $1,000, with terms 2/10, n/30. The amount to be paid within the discount period is:

A)$1,000.
B)$980.
C)$900.
D)$700.

Question 60

Torres, Inc. purchases $4,800 of inventory on account from Leo Corp. The journal entry to record this purchase for Torres under a perpetual inventory system is:

A)debit Inventory; credit Cash.
B)debit Accounts Payable-Leo; credit Inventory.
C)debit Inventory; credit Accounts Payable-Torres.
D)debit Inventory; credit Accounts Payable-Leo.

Question 61

Sales Discounts and Sales Returns and Allowances are contra-accounts of the Sales Revenue account.

Question 62

When a customer returns goods, the journal entry for a merchandiser using the perpetual inventory system will include a debit to Sales Returns and Allowances and a debit to Inventory.

Question 63

Which of the following accounts is NOT used to account for merchandise sales transactions?

A)Accounts Payable
B)Accounts Receivable
C)Sales Discounts
D)Sales Returns and Allowances

Question 64

An entry that has more than one debit and/or credit is called a:

A)double entry.
B)compound entry.
C)multiple-step entry.
D)special entry.

Question 65

The Outlet Store has cash sales for the week of $4,000 and credit sales of $2,500. The account(s)to be debited for these transactions is/are:

A)MasterCard sales; Visa sales; and cash.
B)Cash; Accounts Receivable.
C)Cash only.
D)MasterCard sales; Visa sales.

Question 66

Under the perpetual inventory system, Sales Returns cause:

A)an increase in Cost of Goods Sold.
B)an increase in Revenue.
C)a decrease in Cost of Goods Sold.
D)no effect on cost of goods sold.

Question 67

Debit card and credit card sales are counted as cash transactions.

Question 68

A list of credit customers is called a(n):

A)Accounts Payable subsidiary ledger.
B)general ledger.
C)Accounts Receivable subsidiary ledger.
D)general journal.

Question 69

A customer purchased items on account from Silverfish, Inc. After a few days, the customer returned the goods. Silverfish, Inc. will issue a:

A)debit memorandum.
B)return receipt.
C)credit memorandum.
D)refund check.

Question 70

A journal entry that has more than one debit or more than one credit is known as a complex journal entry.

Question 71

Merchandise returned by the customer for a cash refund is called a:

A)sales return.
B)sales allowance.
C)debit memorandum.
D)credit memorandum.

Question 72

Sydney, a customer, purchased $350 of merchandise from Illusions, Inc. Under the perpetual inventory system, Illusions, Inc. will record a:

A)debit to Accounts Receivable or to Cash for $350.
B)credit to Accounts Receivable or to Cash for $350.
C)credit to Cost of Goods Sold for $350.
D)debit to Sales for $350.

Question 73

Under the perpetual inventory system, the account to which purchased goods are recorded is:

A)Purchases as a credit.
B)Inventory as a debit.
C)Cost of Goods Sold as a debit.
D)Purchases as a debit.

Question 74

When a customer accepts an allowance on unwanted goods, the journal entry for a merchandiser using the perpetual inventory system will include a debit to Sales Returns and Allowances and a debit to Inventory.

Question 75

When a customer pays within the discount period, the journal entry for the merchandiser will include a debit to Cash and a credit to Sales Discounts.

Question 76

Under the perpetual inventory system, which of the following T-accounts correctly shows the cost flows through the Inventory account?

A)
B)
C)
D)

Question 77

If an invoice shows a total of $3,000 with terms 5/15, n/60, which of the following is NOT a true statement?

A)The customer must pay $3,000 within 60 days after the date of the invoice.
B)The customer may pay $2,850 within 15 days to satisfy the bill.
C)The customer will receive a 10% discount if they pay within 60 days.
D)The customer has a discount period of 15 days.

Question 78

Under a perpetual inventory system, when goods are returned to the retailer from a customer:

A)Cost of Goods Sold is debited; Sales Returns and Allowances is credited.
B)Sales Returns and Allowances is debited; Cost of Goods Sold is credited.
C)Sales is debited; Cost Goods Sold is credited.
D)Inventory is debited; Sales is credited.

Question 79

C & S Company purchased 80 keyboards for $15 each from Keyboards-for-Less. When they unpacked the keyboards, C & S found that 30 of the keyboards were damaged in shipping. What is the journal entry that C & S will make to record the purchase return?

A)Debit Purchase Returns and credit Inventory, $1,200.
B)Debit Accounts Payable - Keyboards-for-Less and credit Inventory, $1,200.
C)Debit Purchase Returns and credit Inventory, $450.
D)Debit Accounts Payable - Keyboards-for-Less and credit Inventory, $450.

Question 80

Stella, Inc. purchased 75 telescopes for $25 each from Luna Co. When they unpacked the telescopes, Stella found that 20 of the telescopes were damaged in shipping. Luna offers to take them back, or provide an allowance of $300. How would the journal entries differ if Stella chose to take the allowance instead of return the telescopes?

A)The company would debit the Allowance account instead of Purchase Returns.
B)The company would debit and credit the same accounts, but for a greater amount.
C)The company would debit and credit the same accounts, but for a lesser amount.
D)There would be no difference in journal entries.