Deck 5: Retailing Operations

Question 1

HiLo Running Store is not registered for GST.Which of the following statements is INCORRECT?

A)The firm will charge a flat rate of GST on all goods sold.
B)The firm will not be able to claim a refund from the ATO on GST paid to suppliers.
C)Journal entries for sales and purchases will not include a GST Clearing account.
D)Purchases of inventory will be recorded at the 'gross' amount,that is,the amount including GST.

Answer 1

A

Question 2

ABC Ltd has made credit sales of $2 200,including GST.ABC Ltd will credit sales revenue with:

A)$1 800
B)$2 200
C)$2 420
D)$2 000

Answer 2

D

Question 3

GST is a flat percentage charge levied on the supply of goods and services.

Answer 3

True

Question 4

A firm uses the perpetual inventory method.Which of the following entries would be made to record a purchase of inventory on credit?

A)The accounting entry would be a debit to Accounts payable and GST clearing and a credit to Inventory.
B)The accounting entry would be a debit to Accounts payable and a credit to Purchases and GST Clearing.
C)The accounting entry would be a debit to Purchases and GST clearing and a credit to Accounts payable.
D)The accounting entry would be a debit to Inventory and GST clearing and a credit to Accounts payable.

Question 5

What is freight out?

A)Transportation costs to ship goods into the warehouse
B)Costs that are not expensed
C)Transportation costs to ship goods out of the warehouse
D)Inventory costs

Question 6

The perpetual inventory system keeps a running record of inventory and cost of sales.

Question 7

The GST payable to the ATO represents the GST the firm has paid to its suppliers.

Question 8

Under a perpetual inventory system,which of the following would NOT be required?

A)A weekly count of the inventory
B)Updating the inventory balance with each sale
C)Detailed inventory records
D)Recording cost of sales with each sale

Question 9

In a periodic system,inventory balances and the cost of sales for the current period are determined:

A)at the time of sale.
B)when a physical inventory count is taken.
C)on a frequent basis.
D)on the first day of each year.

Question 10

When a firm uses the perpetual inventory method,the inventory account should be constantly updated.

Question 11

What is a purchase return?

A)A return of inventory that is defective or damaged
B)A price reduction
C)A customer refund from the sale of inventory
D)A return of cash to the purchaser

Question 12

Which of the following assets does a retailer-but NOT a service business-need?

A)Accounts receivable
B)Equipment
C)Inventory
D)Prepaid insurance

Question 13

All else being equal,a firm that is not registered for GST is likely to report a higher profit than a registered firm.

Question 14

The accounting cycle for a retailing business begins with the purchase of inventory.

Question 15

Inventory is the:

A)equipment that was purchased.
B)goods held by a firm to be sold to customers.
C)goods purchased to run the daily operations of a business.
D)expenses of a firm that were incurred.

Question 16

A purchase return of goods purchased on credit is recorded by the purchasing firm as a debit to what account?

A)Inventory
B)Cost of sales
C)Accounts payable
D)Accounts receivable

Question 17

Which of the following assets MUST a retailing business have for daily operations?

A)Accounts receivable
B)Equipment
C)Prepaid insurance
D)Inventory

Question 18

The ATO will refund any GST a registered firm pays to a supplier.

Question 19

The periodic inventory system is normally used for relatively inexpensive goods.

Question 20

What is the first step in the operating cycle for a retailing business?

A)The firm sells inventory to customers,creating accounts receivable.
B)The firm delivers inventory to customers.
C)The firm collects cash.
D)The firm buys inventory.

Question 21

FOB shipping point means that the:

A)seller normally pays the transportation costs.
B)transportation costs are billed to the seller.
C)buyer and the seller split the transportation costs.
D)buyer normally pays the transportation costs.

Question 22

When a firm ships goods to a customer and pays for freight out,how is that cost recorded?

A)As an addition to cost of sales
B)As an operating expense
C)As a reduction of sales revenue
D)As an addition to the cost of inventory

Question 23

A firm has purchased inventory and receives an invoice that indicates that the buyer must pay the transportation costs of delivering the inventory.Which of the following will most likely be noted as the delivery terms?

A)FOB 2/10,n/30
B)FOB shipping point
C)FOB destination
D)None of the above

Question 24

A company purchased inventory for $2000 from a vendor on credit,FOB shipping point,with terms of2/10,n/30.The company paid the shipper $100 cash for freight in.The company then returned damaged goods worth $200.The invoice has been paid 8 days after the sale.Assuming that there was no beginning inventory balance,the cost of inventory would be: (Assume a perpetual inventory system. )

A)$1864.
B)$1900.
C)$1960.
D)$1764.

Question 25

Which of the following is TRUE about freight in?

A)Freight in is a selling expense.
B)Freight in is deducted from Accounts payable.
C)Freight in is added to the cost of inventory.
D)Freight in is an operating expense.

Question 26

When a firm is purchasing inventory,and there are either returns or allowances for damaged goods,those amounts are recorded as a debit to the Sales returns and allowances account.

Question 27

A company using the perpetual inventory system purchased inventory worth $510,000 on credit with terms of credit being 3/15,n/45.Defective inventory of $80,000 was returned 2 days later and the accounts were appropriately adjusted.If the company paid the invoice 20 days later,the journal entry to record the payment would be:

A)$430,000 debit to Accounts payable and $430,000 credit to Cash.
B)$510,000 debit to Accounts payable,$497,100 credit to Cash and $12,900 credit to Inventory.
C)$442,900 debit to Accounts payable,$12,900 credit to Inventory and $430,000 credit to Cash.
D)$510,000 debit to Accounts payable and $510,000 credit to Cash.

Question 28

A firm receives an invoice that indicates that title to the inventory will pass to the firm when they receive the goods.This situation is described as FOB destination.

Question 29

A company that uses the perpetual inventory system purchases inventory for $60,000 on credit,with terms of 3/10,n/30.Which of the following is the journal entry to record the payment made within 3 days?

A)a debit to Accounts payable for $60,000,a credit to Inventory for $1800 and a credit to Cash for $58,200
B)a debit to Inventory for $1800,a debit to Accounts payable for $60,000 and a credit to Cash for $61,800
C)a debit to Accounts payable for $58,200,a debit to Inventory for $1800 and a credit to Cash for $60,000
D)a debit to Accounts payable for $61,800 ,a credit to Cash for $60,000 and a debit to Inventory for $1800

Question 30

Purchase returns and allowances decrease the net amount of cash that will be paid for the inventory,and so they should reduce the cost of the inventory as recorded in the Inventory account.

Question 31

The terms on an invoice are 3/10,n/25.This means that a:

A)discount of 3% is allowed if the invoice is paid in 10 days.
B)discount of 10% is allowed if the invoice is paid in three days.
C)discount of 25% is allowed if the invoice is paid in 10 days.
D)discount of 3% is allowed if the invoice is paid after 25 days.

Question 32

Freight out is an addition to the Inventory account if the firm uses the perpetual inventory method.

Question 33

A company using the perpetual inventory system purchased inventory worth $24,000 on credit with terms of 2/10,n/30.Defective inventory of $2000 was returned 2 days later and the accounts were appropriately adjusted.If the invoice is paid within 10 days,the amount of the purchase discount that would be available to the company is:

A)$480
B)$520
C)$470
D)$440

Question 34

Freight in should be added to the inventory account if the firm uses the perpetual inventory method.

Question 35

In a perpetual inventory system,the entry to record the inventory purchased includes a credit to Cost of sales.

Question 36

Credit terms of 2/10,n/30 mean that the purchaser may deduct 2% if the invoice is paid within 10 days,with the full amount due in 30 days if the early payment option is NOT exercised.

Question 37

FOB Destination means that the:

A)seller normally pays the transportation costs.
B)transportation costs are billed to the buyer.
C)buyer normally pays the transportation costs.
D)buyer and the seller split the transportation costs.

Question 38

Using the perpetual inventory system,discounts taken on an invoice,such as 3/10,n/30,would be:

A)credited to Inventory.
B)debited to Cost of sales.
C)credited to Cost of sales.
D)debited to Inventory.

Question 39

Credit terms of 2/10,n/30 indicate that a 2% discount may be taken if the invoice is paid within 10 days,but the total invoice amount is due if paid on the 11^th to the 30^th day after the invoice date.

Question 40

Which of the following means that the shipment is free on board at the point of shipment and the buyer pays all transportation costs?

A)4/10 eom
B)FOB shipping point
C)FOB destination
D)COD

Question 41

Gross profit is equal to Sales revenue less Sales returns and allowances and Sales discounts.

Question 42

From the following details,calculate net sales revenue. $$\begin{array} { | l | l | } \hline \text { Sales revenue } & \$ 440,000 \\\hline \text { Cost of sales } & 2,900,000 \\\hline \text { Operating expenses } & 790,000 \\\hline \text { Sales discounts } & 20,000 \\\hline \text { Sales returns and allowances } & 7000 \\\hline \text { Interest revenue } & \$ 000 \\\hline\end{array}$$

A)$317,000
B)$433,000
C)$324,000
D)$413,000

Question 43

Which of the following defines Gross profit?

A)Sales revenue less Overhead expenses
B)Net sales revenue less Sales discounts
C)Net sales revenue less Cost of sales
D)Sales revenue less Sales discounts and allowances

Question 44

Which of the following is GENERALLY the major cost of inventory?

A)Salary expense
B)Advertising
C)Buildings
D)Cost of sales

Question 45

In a perpetual inventory system,goods returned by the customer for a refund is called a:

A)sales discount.
B)sales allowance.
C)sales return.
D)sales adjustment.

Question 46

A firm uses the perpetual inventory method.To record a sale of inventory on credit will require an entry to record revenue and an entry to record cost of sales.

Question 47

A sales return is recorded with a credit to Accounts receivable.

Question 48

On 1 November 2016,Everett Janitorial Supply sold inventory on credit for $5 500,including GST,FOB destination,2/10,n/30.The inventory cost Everett $3 200,net of GST.What is the journal entry that records Cost of sales?

A) $$\begin{array} { | c | r | r | } \hline \text { Inventory } & 5500 & \\\hline \text { Cost of sales } & & 5500 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Cost of sales } & 3200 & \\\hline \text { Inventory } & & 3200 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Inventory } & 3200 & \\\hline \text { Cost of sales } & & 3200 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Cost of sales } & 5500 & \\\hline \text { Inventory } & & 5500 \\\hline\end{array}$$

Question 49

Which of the following accounts is used ONLY at the end of the accounting period?

A)Sales revenue
B)Cost of sales
C)Net sales revenue
D)Income summary

Question 50

A company sold inventory worth $212 for $330 on credit.The seller uses the perpetual inventory system.The entry to record the cost of inventory sold would include:

A)a debit to Inventory for $212 and a credit to Cost of sales for $212
B)a debit to Cost of sales and a credit to Inventory for $212
C)a debit to Sales and a credit to Cash for $330
D)a debit to Cash and a credit to Sales for $330

Question 51

Michelin Jewellers completed the following transactions.Michelin Jewellers uses the perpetual inventory system.On 2 April,Michelin sold $9 900 of inventory,including GST,to a customer on credit with terms of 3/15,n/30.Michelin's cost of the inventory sold was $5 000,net of GST.Which of the following journal entries correctly records the Cost of sales?

A) $$\begin{array} { | l | r | r | } \hline \text { Inventory } & 5000 & \\\hline \text { Cost of sales } & & 5000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Sales revenue } & 5000 & \\\hline \text { Cost of sales } & & 5000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cost of sales } & 5000 & \\\hline \text { Accounts receivable } & & 5000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cost of sales } & 5000 & \\\hline \text { Inventory } & & 5000 \\\hline\end{array}$$

Question 52

A sales return is recorded with a credit to Inventory.

Question 53

Which of the following are the normal balances of Sales,Sales discounts and Sales returns and allowances,respectively?

A)Debit,credit and credit
B)Credit,debit and debit
C)Debit,debit and credit
D)Credit,credit and debit

Question 54

Which of the following describes Net sales revenue?

A)Sales less Cost of sales
B)Sales less Sales discounts
C)Sales less Sales discounts less Sales returns and allowances
D)Sales less Sales returns and allowances

Question 55

What is the difference between a sales return and a sales allowance?

A)A sales return involves an adjustment to Inventory,but a sales allowance does not.
B)A sales return requires a debit to Sales returns and allowances,but a sales allowance does not.
C)A sales return reduces the amount receivable from the customer,but an allowance does not.
D)A sales allowance is deducted from Sales revenue to calculate net sales,but a sales return is not.

Question 56

A sales allowance is recorded with a credit to Accounts receivable.

Question 57

A firm sold inventory for $350 that cost $221.The entry to record the cost of the inventory sold would be a:

A)debit to Cost of sales and a credit to Inventory for $221.
B)debit to Cash and a credit to Sales for $350.
C)debit to Sales and a credit to Cash for $350.
D)debit to Inventory for $221 and a credit to Cost of sales for $221.

Question 58

Net sales revenue is equal to Sales revenue less Cost of sales.

Question 59

Which of the following defines Net sales revenue?

A)Sales revenue less Operating expenses
B)Sales revenue less Sales discounts
C)Sales revenue less Sales returns and allowances and Sales discounts
D)Sales revenue less Cost of sales

Question 60

A company sold inventory for $24,000 on credit with terms of 3/15,n/30.The company uses a perpetual inventory system.After two days,it received defective inventory worth $2000.The journal entry to record the cash receipt for sale if the payment is received within 10 days of the invoice date would include:

A)a debit to Cash for $21,340,a debit to Sales discount for $660 and a credit to Accounts receivable for $22,000.
B)A debit to Sales for $24,000,a credit to Accounts receivable for $24,000 and a credit to Sales discount for $2000
C)a debit to Cash for $22,000,a debit to Inventory for $2000 and a credit to Accounts receivable.
D)a debit to Cash for $21,340,a credit to Inventory for $660 and a credit to Sales revenue for $22,000.

Question 61

The entry to close Sales discounts and Sales returns and allowances results in a debit to Income summary.

Question 62

A small increase in the gross profit percentage could indicate:

A)a decrease in profit.
B)a significant rise in profit.
C)lower inventory turnover.
D)a decrease in overhead expenses.

Question 63

When a company uses the perpetual inventory system,there is no need to conduct a physical count of inventory.

Question 64

Where do Inventory and Cost of sales appear?

A)On the balance sheet and income statement,respectively
B)On the income statement and cash flow statement,respectively
C)On the balance sheet and statement of changes in equity,respectively
D)On the statement of changes in equity and income statement,respectively

Question 65

Which of the following is subtracted from Gross profit to arrive at Net profit?

A)Cost of goods available for sale
B)Operating expenses
C)Cost of sales
D)Sales discounts and Sales returns and allowances

Question 66

The entry to close Cost of sales results in a debit to Income summary.

Question 67

The Inventory account balance is $50,000.An actual count of inventory reveals that actual inventory is $42,000.Which of the following would be included in the adjusting entry? (Assume a perpetual inventory system. )

A)a $8000 credit to Cost of sales
B)a $8000 credit to Inventory
C)a $42,000 credit to Inventory
D)a $50,000 debit to Cost of sales

Question 68

If a physical count of inventory indicates that the Inventory account is overstated,an additional adjusting entry is required.

Question 69

The general ledger shows a balance of $23 678 in the Inventory account at the end of the period.A physical inventory shows a count of $22 078.The adjusting entry would be a:

A)debit to Inventory and a credit to Cash.
B)debit to Cost of sales and a credit to Inventory.
C)debit to Cost of sales and a credit to Cash.
D)debit to Inventory and a credit to Cost of sales.

Question 70

Refer to the following trial balance. $\begin{array}{|l|l|l|} \hline& \text { Debit }&\text { Credit } \\\hline \text { Cash } & \$ 18,000 \\\hline \text { Accounts receivable } & 40,000 \\\hline \text { Inventory } & 63,000 \\\hline \text { Supplies } & 15,000 \\\hline \text { Land } & 300,000 \\\hline \text { Accounts payable } & & \$ 5000 \\\hline \text { Loan payable } & & 21,000 \\\hline \text { Smith, capital } & & 325,000 \\\hline \text { Drawings } & 4000 & \\\hline \text { Sales revenue } & & 460,000 \\\hline \text { Sales returns and allowances } & 7000 & \\\hline \text { Sales discounts } & 9000 \\\hline \text { Cost of sales } & 210,000 \\\hline \text { Salaries expense } & 16,000 \\\hline \text { Electricity and gas expense } & 68,000 \\\hline \text { Rent expense } & 56,000 \\\hline \text { Interest expense } & 5000 \\\hline \text { Totals } & \$ 811,000 & \$ 811,000 \\\hline\end{array}$ How much is the net sales revenue?

A)$462,000
B)$110,000
C)$444,000
D)$105,000

Question 71

In a descriptive format income statement,operating expenses are often classified into distribution,administration,marketing and finance expenses.

Question 72

Which of the following is subtracted from Sales revenue to arrive at Net sales revenue?

A)Overhead expenses
B)Sales discounts and Sales returns and allowances
C)Cost of goods available for sale
D)Cost of sales

Question 73

On a retailer's balance sheet,inventory is listed as a(n):

A)revenue.
B)expense.
C)current asset.
D)current liability.

Question 74

The Income summary account has a $25 000 credit balance after the revenue and expense accounts have been closed.To which account is this balance closed?

A)Cost of sales
B)Capital
C)Sales revenue
D)Drawings

Question 75

Cost of sales appears on both a descriptive format income statement and a functional format income statement.

Question 76

Which of the following is subtracted from Net sales revenue to arrive at Gross profit?

A)Cost of sales
B)Sales discounts and Sales returns and allowances
C)Operating expenses
D)Cost of goods available for sale

Question 77

Which of the following is the result of Cost of sales divided by Average inventory?

A)Current ratio
B)Rate of inventory turnover
C)Gross profit percentage
D)Debt ratio

Question 78

The following information relates to Nebula Ltd. $$\begin{array} { | l | l | } \hline \text { Sales revenue } & \$ 230,000 \\\hline \text { Cost of sales } & 150,000 \\\hline \text { Interest revenue } & 10,000 \\\hline \text { Operating expenses } & 40,000 \\\hline \text { Sales discounts } & 20,000 \\\hline \text { Sales returns and allowances } & 7000 \\\hline\end{array}$$ Calculate the profit.

A)$230,000
B)$13,000
C)$23,000
D)$70,000

Question 79

An adjusted trial balance is given below. $\begin{array}{|l|l|l|}\hline \text { Accounts } & {\text { Debit }}&\text { Credit } \\\hline \text { Cash } & \$ 13,000 \\\hline \text { Accounts receivable } & 4000 \\\hline \text { Prepaid rent } & 300 \\\hline \text { Inventory } & 26,000 \\\hline \text { Accounts payable } && \$ 4000 \\\hline \text { Salaries payable }& & 500 \\\hline \text { Loan payable } & &600 \\\hline \text { Smith, capital } && 12,700 \\\hline \text { Drawings } & 2000 & \\\hline \text { Sales revenue } & & 92,800 \\\hline \text { Sales returns and } & \\\text { allowances } & 1300 \\\hline \text { Sales discounts } & 500 \\\hline \text { Cost of sales } & 21,000 \\\hline \text { Salaries expense } & 21,000 \\\hline \text { Rent expense } & 12,000 \\\hline \text { Selling expense } & 3200 \\\hline \text { Supplies expense } & 300 \\\hline \text { Total } & \$ 110,600 & \$ 110,600\\\hline\end{array}$ What will be the final balance in the Smith,capital account after recording the closing entries?

A)$38,700
B)$26,000
C)$1700
D)$40,700

Question 80

The trial balance of a retailer is as follows.A physical count of inventory at the end of the accounting year reveals $27 000 of inventory on hand.(Assume a perpetual inventory system. ) $\begin{array}{lr}&\text { Debit } &\text { Credit } \\\text { Cash } & \$ 12600 \\\text { Accounts receivable } & 2400 \\\text { Prepaid rent } & 800\\\text { Inventory }\quad\quad\quad 29000 \\\text { Accounts payable }\quad\quad \$ 4200 \\\text { Salaries payable } \quad 1000 & \\\text { Loan payable } \quad 800 & \\\text { Smith, Capital } \quad 13800 &\\\text { Drawings } \quad 1000 \\\text { Sales revenue }\quad\quad95,000 \\\text { Sales returns and allowances } \quad 16000\\\text {Sales discounts} \quad 400\\\text {Cost of sales} \quad 23000\\\text {Salaries expense} \quad21000\\\text {Rent expense } \quad14000\\\text {Depreciation expense} \quad 8500\\\text {Supplies expense } \quad\quad 500\\\end{array}$
$\text { Total } \$ \$ 114800 \quad \$ 114800$
What is the journal entry to record the inventory shortfall?

A) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 27000 & \\\hline \text { Inventory } & & 27000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Inventory } & 27000 & \\\hline \text { Cost of sales } & & 27000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Cost of sales } & 2000 & \\\hline \text { Inventory } & & 2000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | l | } \hline \text { Inventory } & 2000 & \\\hline \text { Cost of sales } & & 2000 \\\hline\end{array}$$