Deck 4: Accounting for Merchandising Businesses

Question 1

Credit memorandum is issued by the seller to customers for return of damaged or defective merchandise.

Answer 1

True

Question 2

Freight in is the amount paid by the seller to deliver merchandise sold to a customer.

Answer 2

False

Question 3

Sales discounts are granted by the seller to customers for payment at the end of the month.

Answer 3

False

Question 4

On the income statement,the merchandise inventory at the beginning of the period is added to sales to yield the cost of merchandise sold during the period.

Question 5

Operating expenses are subtracted from fees earned for a service business and from gross profit for a merchandising business.

Question 6

Interest expense is an example of an expense classified under "other expense."

Question 7

On the income statement,sales discounts are normally deducted from sales to yield the cost of merchandise sold.

Question 8

A criticism of the single-step income statement is that gross profit and income from operations are not readily available for analysis.

Question 9

On the income statement,sales returns and allowances and sales discounts are added to gross sales to yield net sales.

Question 10

The sales discount account is a contra account to Sales.

Question 11

A criticism of a single-step income statement is that net income is not available for analysis.

Question 12

Revenue from sources other than the primary operating activity of a business is called other income.

Question 13

When merchandise that was sold is returned,the seller decreases accounts payable.

Question 14

Net income or loss may appear on the income statement of both a service business and a merchandising business.

Question 15

The merchandise inventory account is found on the balance sheet.

Question 16

On the income statement in the single-step form,the total of all expenses is deducted from the total of all revenues.

Question 17

In a multiple-step income statement,sales will be reduced by sales discounts and sales returns and allowances to arrive at net sales.

Question 18

The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities.

Question 19

Sales Returns and Allowances is a contra-asset account.

Question 20

Net sales is equal to sales plus cost of merchandise sold.

Question 21

If merchandise costing $2,500,terms FOB destination,2/10,n/30,with prepaid transportation costs of $100,is paid within 10 days,the amount of the purchases discount is $48.

Question 22

If payment is due by the end of the month in which the sale is made,the invoice terms are expressed as n/eom.

Question 23

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

Question 24

Under the perpetual inventory system,the cost of merchandise sold is recorded when sales are made.

Question 25

Purchases discounts are discounts given to the seller.

Question 26

A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570.

Question 27

A buyer who acquires merchandise under credit terms of 1/10,n/30 has 10 days after the invoice date to take advantage of the cash discount.

Question 28

Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system.

Question 29

Sales to customers who use bank credit cards,such as MasterCard and VISA,are generally treated as credit sales.

Question 30

The document issued by the seller that informs the buyer of the details of sales returns is called a debit memorandum.

Question 31

When the seller offers a sales discount,even if borrowing has to be done,it is generally advantageous for the buyer to pay within the discount period.

Question 32

If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment,the terms are stated as FOB destination.

Question 33

Purchase discounts reduce sales.

Question 34

It is usual for the credit period to begin with the date the merchandise is received by the buyer.

Question 35

In a perpetual inventory system,merchandise returned to vendors reduces the merchandise inventory account.

Question 36

Merchandise is sold for $2,500,terms FOB destination,2/10,n/30,with transportation costs of $150.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 $40.

Question 37

Sales discounts is used in accounting for transactions with customers.

Question 38

A buyer who acquires merchandise under credit terms of 1/10,n/30 has 30 days after the invoice date to take advantage of the cash discount.

Question 39

The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.

Question 40

Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller.

Question 41

Which of the following statements is true?

A)The revenue activities of a service business involve providing services to customers.
B)The revenue activities of a merchandising business involve the building of a product.
C)The revenue activities of a service business involve the building of a product.
D)The revenue activities of a merchandising business involve providing services to customers.

Question 42

There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1)the direct method and (2)the indirect method.

Question 43

Gross profit is determined by subtracting the cost of merchandise sold from what?

A)The cost of merchandise purchased
B)Fees earned
C)Accounts receivable
D)Net sales

Question 44

Gross profit percent is calculated by dividing gross profit by net sales.

Question 45

Since merchandise inventory is normally sold within a year,how is it reported on the balance sheet?

A)As a revenue
B)As the cost of merchandise sold
C)It does not appear on the Balance Sheet
D)As a current asset

Question 46

If merchandise costing $2,500,terms FOB destination,2/10,n/30,with transportation costs of $100,is paid within 10 days,the amount of the purchases discount is $52.

Question 47

Merchandise inventory shrinkage will increase Merchandise Inventory.

Question 48

Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows.

Question 49

Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise.

Question 50

Generally,the revenue account for a merchandising business is entitled:

A)Sales.
B)Net Sales.
C)Gross Sales.
D)Gross Profit.

Question 51

To determine cash payments for operating expenses for the cash flow statement using the direct method,a decrease in prepaid expenses is added to operating expenses other than depreciation.

Question 52

If cash dividends of $145,000 were declared during the year and the decrease in dividends payable from the beginning to the end of the year was $7,000,the statement of cash flows would report $152,000 in the financing activities section.

Question 53

Which of the following statements is true?

A)Only cash sales are included in the Sales account.
B)Sales is the total amount charged customers,including cash sales and sales on account.
C)Both sales discounts and sales returns and allowances are added to Sales to arrive at Net Sales.
D)Sales is the revenue account typically used in service businesses.

Question 54

When the terms of sale are FOB shipping point,the buyer should pay the transportation charges.

Question 55

Merchandise inventory shrinkage will decrease Retained Earnings.

Question 56

Which of the following businesses is a merchandising business?

A)H&R Block
B)Becker Law Office
C)Little Tykes Daycare
D)Kohl's

Question 57

The difference between sales and cost of merchandise sold for a merchandising business is:

A)sales.
B)net sales.
C)gross sales.
D)gross profit.

Question 58

When someone purchases merchandise and incurs the cost of transportation,these costs of purchasing inventory are added to the cost of the inventory.

Question 59

In a transaction where purchased merchandise has been returned,the buyer will increase the Sales Returns and Allowances account and the seller will increase the Purchases Returns and Allowances account.

Question 60

Which of the following items is subtracted from sales to arrive at net sales?

A)Desired sales
B)Sales commission
C)Sales returns and allowances
D)Cost of after sales services

Question 61

Multiple-step income statements show:

A)gross profit but not income from operations.
B)neither gross profit nor income from operations.
C)both gross profit and income from operations.
D)income from operations but not gross profit.

Question 62

Which of the following is not a subsection in a multiple-step income statement?

A)Purchase discounts
B)Gross profit
C)Operating income
D)Income before taxes

Question 63

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a:

A)multiple-step statement.
B)revenue statement.
C)report-form statement.
D)single-step statement.

Question 64

Which of the following accounts is a contra account to Sales?

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

Question 65

Gross profit is equal to:

A)sales less (sales discounts and sales returns and allowances)plus cost of merchandise sold.
B)sales plus sales returns and allowances less sales discounts less cost of merchandise sold.
C)sales plus sales discounts less sales returns and allowances less cost of merchandise sold.
D)sales less (sales discounts and sales returns and allowances)less cost of merchandise sold.

Question 66

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?

A)Gross profit
B)Income from operations
C)Net income
D)Gross sales

Question 67

Which of the following would be subtracted from gross profit to determine operating income?

A)Operating expenses
B)Other expenses
C)Income taxes
D)All of these

Question 68

Office salaries,depreciation of office equipment,and office supplies are examples of what type of expense?

A)Selling expense
B)Miscellaneous expense
C)Administrative expense
D)Other expense

Question 69

Refer to X.Bonds Company.If the income statement were prepared in a multiple-step format,income from operations would be:

A)$126,000.
B)$171,000.
C)$146,000.
D)$185,000.

Question 70

Merchandise not sold at the end of the period is reported as:

A)cost of goods sold.
B)old stock.
C)merchandise inventory.
D)net purchases.

Question 71

Refer to X.Bonds Company.If the income statement were prepared in a multiple-step format,gross profit would be:

A)$240,000.
B)$126,000.
C)$260,000.
D)$185,000.

Question 72

Which of the following are subtracted from sales to arrive at net sales?

A)Sales returns
B)Merchandise inventory
C)Accounts receivable
D)Cost of merchandise sold

Question 73

Which of the following is not an administrative expense?

A)Salespersons' salaries
B)Office staff salaries
C)Depreciation of office equipment
D)Office supplies used

Question 74

Which of the following is not an example of selling expenses?

A)Salespersons' salaries
B)Office staff salaries
C)Depreciation of store equipment
D)Advertising

Question 75

Which expenses are subtracted from gross profit to arrive at income from operations?

A)All expenses
B)Cost of merchandise sold
C)Operating expenses
D)Sales discounts

Question 76

West,Inc.had beginning inventory of $30,000,purchases of $65,000,and ending inventory of $10,000.What is West's cost of merchandise sold?

A)$30,000
B)$65,000
C)$10,000
D)$85,000

Question 77

For a merchandising firm,the inventory sold is shown on the income statement as:

A)cost of merchandise sold.
B)purchases.
C)purchases returns and allowances.
D)net purchases.

Question 78

ABC Company had $100,000 in net sales,$45,000 in cost of merchandise sold,$60,000 in operating expenses,and $10,000 in other income.What is ABC Company's gross profit?

A)$55,000
B)$40,000
C)$90,000
D)$145,000

Question 79

Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as:

A)selling expenses.
B)general expenses.
C)other expenses.
D)administrative expenses.

Question 80

Galaxy,Inc.had the following merchandise transactions in October:

A)$80,000
B)$67,800
C)$83,000
D)$77,000