Deck 5: Merchandising Operations

Question 1

A retailer purchases goods from a manufacturer and sells them to customers.

Answer 1

True

Question 2

The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company collects cash from customers.

Answer 2

True

Question 3

An entity that buys goods and sells them to customers at a markup is a ________.

A)merchandiser
B)service provider
C)manufacturer
D)producer

Answer 3

A

Question 4

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

Question 5

The main expense of a merchandiser is usually ________.

A)cost of goods sold
B)current assets
C)selling and administrative expenses
D)production overhead

Question 6

G-mart,a small-scale grocer,wants to introduce an inventory system to track its inventory.G-mart does not currently use optical scanning registers and computer systems.The perpetual inventory system is most suitable for its operations.

Question 7

Even in a perpetual inventory system that updates the inventory account as and when transactions occur,the business must count its inventory at least once in a year.

Question 8

Gross profit is the extra amount the company receives from the customer for merchandise sold over what the company paid to the vendor.

Question 9

Gross profit is calculated as the difference between net sales revenue and ________.

A)purchases
B)cost of goods sold
C)cost of merchandise inventory
D)selling and administrative expenses

Question 10

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

A)Salaries Expense
B)Depreciation Expense
C)Cost of Goods Sold
D)Supplies Inventory

Question 11

Best Value,Inc.started its operations on January 1,2017.It engages in buying and selling different types of electronic gadgets.The first step in its operating cycle would be to ________.

A)collect cash from customers
B)sell goods to customers
C)purchase inventory from vendors
D)record the sales in accounts

Question 12

When a company uses a perpetual inventory system,all merchandise transactions are updated as and when they occur.However,the inventory account may not show the current balance at all times.

Question 13

On the income statement,a merchandising company reports the cost of merchandise inventory that has been sold to customers.

Question 14

List the three steps,in order of occurrence,of the operating cycle of a merchandising business.

Question 15

A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer.

Question 16

In a periodic inventory system,the Cost of Goods Sold account is continuously updated as and when sales occur.

Question 17

On the income statement,a service company reports the cost of merchandise inventory that has been sold to customers.

Question 18

The term "inventory," for a merchandiser,refers to ________.

A)raw materials that are used for production
B)equipment that are used in production process
C)the cost of goods sold
D)goods held for sale to customers

Question 19

________ are the expenses that occur in an entity's major line of business.

A)Interest expense
B)Interest revenue
C)Operating expenses
D)Loss on sale of plant asset

Question 20

The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company then sells the inventory to a customer.

Question 21

Purchase discounts are calculated on the amount of the merchandise purchased including freight costs.

Question 22

Which of the following entries would be made to record the purchase of inventory on account,if a company uses the perpetual inventory system?

A)a debit to Purchases and a credit to Accounts Payable
B)a debit to Accounts Payable and a credit to Purchases
C)a debit to Merchandise Inventory and a credit to Accounts Payable
D)a debit to Accounts Payable and a credit to Merchandise Inventory

Question 23

Under the perpetual inventory system,when a purchaser makes payment within the discount period,the amount of discount will be credited to the Merchandise Inventory account.

Question 24

A company using the perpetual inventory system purchased merchandise on account for $5,000.Give the journal entry to record this transaction.

Question 25

The Merchandise Inventory account is an expense account that is used for goods purchased that the business owns and intends to resell to customers,as well as for purchase of office supplies and equipment.

Question 26

A purchase discount is the amount offered to the purchaser for delaying the payment to the seller.

Question 27

What does "2/10" mean,with respect to "credit terms of 2/10,n/30"?

A)A discount of 2 percent will be allowed if the invoice is paid within 10 days of the invoice date.
B)Interest of 2 percent will be charged if the invoice is paid after 10 days from the date on the invoice.
C)A discount of 10 percent will be allowed if the invoice is paid within two days of the invoice date.
D)Interest of 10 percent will be charged if invoice is paid after two days.

Question 28

A company that uses the perpetual inventory system purchases inventory for $63,000 on account,with terms of 2/10,n/30.Which of the following is the journal entry to record the payment made within 10 days?

A)a debit to Accounts Payable for $63,000,a credit to Cash for $61,740,and a debit to Merchandise Inventory for $1,260
B)a debit to Accounts Payable for $63,000,a credit to Merchandise Inventory for $1,260,and a credit to Cash for $61,740
C)a debit to Merchandise Inventory for $1,260,a debit to Accounts Payable for $63,000,and a credit to Cash for $64,260
D)a debit to Accounts Payable for $61,740,a debit to Merchandise Inventory for $1,260,and a credit to Cash for $63,000

Question 29

The Merchandise Inventory account is an asset account that is used only for goods purchased that the business owns and intends to resell to customers.

Question 30

Which of the following statements is not correct?

A)In a perpetual inventory system,the "cash register" at the store is a computer terminal that records sales and updates inventory records.
B)Even in a perpetual inventory system,a business must count inventory at least one a year.
C)Restaurants and small retail stores often use the periodic inventory system.
D)In a periodic inventory system,merchandise inventory and purchasing systems are integrated with the records for Accounts Receivable and Sales Revenue.

Question 31

The purchase discount amount is calculated on the amount of the invoice minus the returns and allowances.

Question 32

Nurix,Inc.sold goods on credit terms n/20 to Jelly Harper,Inc.This means no discounts are offered,and the amount of the invoice is due 20 days after the invoice date.

Question 33

A company that uses the perpetual inventory system purchased inventory for $900,000 on account with terms of 4/7,n/20.Which of the following correctly records the payment made 15 days after the date of invoice?

A) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 900,000 & \\\hline \text { Accounts Payable } & & 900,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Accounts Payable } & 900,000 & \\\hline \text { Merchandise Inventory } & & 900,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Accounts Payable } & 900,000 & \\\hline \text { Cash } & & 900,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Accounts Payable } & 900,000 & \\\hline \text { Merchandise Inventory } & & 36,000 \\\hline \text { Cash } & & 864,000 \\\hline\end{array}$$

Question 34

Which of the following is not recorded in a modern perpetual inventory system?

A)units purchased and cost amount
B)units sold and sales and cost amounts
C)customer account numbers and balances owed from the sale of merchandise inventory
D)the quantity of merchandise inventory on hand and its cost

Question 35

Credit terms of a merchandising company are 1/15,net 40.This means that the buyer can receive a discount of 1% if the invoice is paid within 40 days of the invoice date.

Question 36

The Merchandise Inventory account is an expense account that is used only for goods purchased that the business owns and intends to resell to customers.

Question 37

Merchandise inventory accounting systems can be broadly categorized into two types.They are ________.

A)FIFO and LIFO
B)perpetual and periodic
C)wholesale and retail
D)manufacturer and producer

Question 38

An invoice is a request by the seller for payment from the purchaser.

Question 39

An invoice is also known as a bill.

Question 40

Credit terms of 2/10,n/30 indicate that a discount of 2% will be given if payment is made within 10 days of the invoice date.Otherwise,the total invoice amount is due within 30 days of the invoice date.

Question 41

An invoice,with payment terms of 2/10,n/30,was issued on April 28 for $235.00.If the payment was made on May 12,the amount of payment will be ________.(Round your answer to the nearest cent. )

A)$235.00
B)$211.50
C)$230.30
D)$233.00

Question 42

A company using the perpetual inventory system purchased inventory worth $20,000 on account with terms of 2/10,n/30.Defective inventory of $3,000 was returned two 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)$340
B)$460
C)$400
D)$390

Question 43

If goods are sold on terms FOB shipping point,the ________.

A)seller normally pays the transportation costs
B)buyer normally pays the transportation costs
C)buyer and the seller split the transportation costs
D)shipping company bears the transportation cost

Question 44

An invoice of $600 for merchandise purchased is showing 3/15,n/30 as terms of credit.If the invoice is paid on or before the fifteenth day,the amount to be paid is ________.

A)$582
B)$600
C)$618
D)$621

Question 45

Complete the following table to show how FOB terms apply to merchandise inventory purchased by a merchandiser.

Question 46

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

A)discount of 10 percent is allowed if the invoice is paid within three days
B)discount of 3 percent is allowed if the invoice is paid within 10 days
C)discount of 25 percent is allowed if the invoice is paid within 10 days
D)discount of 3 percent is allowed if the invoice is paid after 25 days

Question 47

A company purchased inventory for $2,000 from a vendor on account,FOB shipping point,with terms of 2/10,n/30.The company paid $100 cash for freight in.Prepare the journal entry to record payment of the invoice within 10 days by the purchaser.(Assume a perpetual inventory system. )

Question 48

Defective,damaged,or otherwise unsuitable merchandise that is returned to the seller is referred to as purchase allowances by the purchaser.

Question 49

A company purchased inventory for $2,200 on account,and recorded the following journal entry:
The vendor's invoice showed terms of 3/10,n/30.Give the journal entry for the payment of the invoice 17 days after the invoice date.

Question 50

Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.

Question 51

A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $500 to the vendor.Which of the following would be the correct journal entry to record these returns?

A) $$\begin{array} { | c | r | r | } \hline \text { Purchase Returns } & 500 & \\\hline \text { Accounts Payable } & & 500 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Accounts Payable } & 500 & \\\hline \text { Purchase Returns } & & 500 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 500 & \\\hline \text { Accounts Payable } & & 500 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Accounts Payable } & 500 & \\\hline \text { Merchandise Inventory } & & 500 \\\hline\end{array}$$

Question 52

Under the perpetual inventory system,purchase returns or allowances are debited to the Merchandise Inventory account by the purchaser.

Question 53

A company purchased inventory for $100,000 on account and recorded it as follows:
The vendor's invoice showed terms of 3/10,net 30.Give the journal entry for the payment of the invoice seven days after the invoice date,assuming that the vendor uses the perpetual inventory system.

Question 54

A company using the perpetual inventory system purchased inventory worth $550,000 on account with credit terms of 2/15,n/45.Defective inventory of $70,000 was returned 3 days later,and the accounts were appropriately adjusted.If the company paid the invoice 25 days later,the journal entry to record the payment would be ________.

A)$550,000 debit to Accounts Payable and $550,000 credit to Cash
B)$480,000 debit to Accounts Payable and $480,000 credit to Cash
C)$550,000 debit to Accounts Payable,$540,400 credit to Cash,and $9,600 credit to Merchandise Inventory
D)$540,400 debit to Accounts Payable,$9,600 credit to Merchandise Inventory,and $480,000 credit to Cash

Question 55

Under the terms FOB destination,title to the merchandise will pass to the purchaser when the goods are received by the purchaser.

Question 56

If purchase allowances are granted,the buyer need not return the goods to the seller.

Question 57

Under the perpetual inventory system,when a wholesaler returns the goods purchased on account,the ________ account is credited.

A)Accounts Receivable
B)Merchandise Inventory
C)Cost of Goods Sold
D)Accounts Payable

Question 58

Oscar Packers received an allowance from the vendor for an amount of $400.Give the journal entry for this transaction.The company uses a perpetual inventory system.

Question 59

On January 21,2016,Bessant,Inc.received merchandise from Mullies,Inc.On that date,it found a few of these goods to be damaged.On January 22,it returned the damaged goods to the seller.Such returns will be treated as ________ by Bessant.

A)purchase returns
B)sales returns
C)purchase allowances
D)sales allowances

Question 60

Under the perpetual inventory system,discounts taken on an invoice by the buyer would be ________.

A)debited to Merchandise Inventory
B)credited to Merchandise Inventory
C)debited to Cost of Goods Sold
D)credited to Cost of Goods Sold

Question 61

An amount that a merchandiser earns by selling its inventory is known as sales revenue or sales.

Question 62

Under the perpetual inventory system,the journal entry to record cost of goods sold:

A) $$\begin{array} { | l | r | l | } \hline \text { Cost of Goods Sold } & \chi \chi & \\\hline \text { Sales } & & \chi \chi \\\hline\end{array}$$
B) $$\begin{array} { | l | r | l | } \hline \text { Merchandise Inventory } & \chi \chi & \\\hline \text { Sales } & & \chi \chi \\\hline\end{array}$$
C) $$\begin{array} { | c | r | l | } \hline \text { Cost of Goods Sold } & \chi \chi & \\\hline \text { Merchandise Inventory } & & \chi \chi \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Sales } & \chi \chi & \\\hline \text { Merchandise Inventory } & & \chi \chi \\\hline\end{array}$$

Question 63

Under the perpetual inventory system,two journal entries are used to record the sales of merchandise.One entry records the Sales Revenue and another entry records the Cost of Goods Sold.

Question 64

Which of the following is true of freight in?

A)It is an administrative expense.
B)It is a selling expense.
C)It is the transportation cost on purchases.
D)It is the transportation cost on sales.

Question 65

Portian Merchandisers has purchased merchandise on account and paid $450 for freight in.Give the journal entry for freight paid.(Assume a perpetual inventory system. )

Question 66

Landon Jewelers uses the perpetual inventory system.On April 2,Landon sold merchandise with a cost of $3,500 for $8,000 to a customer on account with terms of 1/15,n/30.The journal entry to record the cost of goods sold would be:

A) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 3,500 & \\\hline \text { Accounts Receivable } & & 3,500 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Sales Revenue } & 3,500 & \\\hline \text { Cost of Goods Sold } & & 3,500 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cost of Goods Sold } & 3,500 & \\\hline \text { Merchandise Inventory } & & 3,500 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 3,500 & \\\hline \text { Cost of Goods Sold } & & 3,500 \\\hline\end{array}$$

Question 67

VB Specialty Foods,a grocery merchandiser,purchased goods and paid transportation to bring them to the company warehouse.The transportation cost is known as ________.

A)freight out
B)selling expense
C)freight in
D)cost of goods sold

Question 68

Freight out is an addition to the Merchandise Inventory account if the seller uses the perpetual inventory system.

Question 69

A company purchased inventory for $73,000 from a vendor on account,FOB shipping point,with terms of 4/10,n/30.The company paid the shipper $1,500 cash for freight in.The company paid the vendor nine days after the sale.If there was no beginning inventory,the cost of inventory would be ________.(Assume a perpetual inventory system. )

A)$71,580
B)$74,500
C)$68,580
D)$71,500

Question 70

A company purchased inventory for $4,000 from a vendor on account,FOB shipping point,with terms of 3/15,n/30.The company paid $100 cash for freight in.The entry to record payment of invoice within 3 days by the purchaser would include ________.(Assume a perpetual inventory system. )

A)a debit to Accounts Payable for $3,880 and a credit to Cash for $3,880
B)a debit to Accounts Payable for $4,000,a debit to Merchandise Inventory for $100,and a credit to Cash for $3,880
C)a debit to Accounts Payable for $4,000,a credit to Merchandise Inventory for $120,and a credit to Cash for $3,880
D)a debit to Accounts Payable for $3,880,a debit to Merchandise Inventory for $120,and a credit to Cash for $4,000

Question 71

A company sold merchandise with a cost of $231 for $480 on account.The seller uses the perpetual inventory system.The entry to record the cost of merchandise sold would include ________.

A)a debit to Sales Revenue and a credit to Cash for $480
B)a debit to Cash and a credit to Sales Revenue for $480
C)a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $231
D)a debit to Merchandise Inventory for $231 and a credit to Cost of Goods Sold for $231

Question 72

The term "freight out" refers to ________.

A)transportation costs on purchases
B)cost of inventory purchased
C)costs that are not actually paid in cash
D)transportation costs on sales

Question 73

WAXS-D,merchandisers of musical instruments,has provided the following details: $$\begin{array} { | l | l | r | } \hline \text { Mar. 5 } & \text { Inventory purchased on account } & \$ 725,000 \\\hline \text { Mar. 8 } & \text { Freight in } & 40,000 \\\hline \text { Mar. 13 } & \text { Purchase returns } & 65,000 \\\hline \text { Mar. 14 } & \text { Allowances by vendor } & 10,000 \\\hline \text { Mar. 20 } & \text { Payment made to vendor for purchases on March 5 } & ? \\\hline\end{array}$$ Credit terms are: 4/20,n/45,FOB shipping point.Calculate the net cost of inventory purchased assuming that there are no other inventory-related transactions during the month.

A)$715,000
B)$662,400
C)$650,000
D)$664,000

Question 74

Owens Jewelers uses the perpetual inventory system.On April 2,Owens sold merchandise with a cost of $2,500 for $7,000 to a customer on account with terms of 2/15,n/30.Which of the following journal entries correctly records the sales revenue?

A) $$\begin{array} { | c | r | r | } \hline \text { Sales Revenue } & 7,000 & \\\hline \text { Accounts Receivable } & & 7,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Sales Revenue } & 7,000 & \\\hline \text { Cost of Goods Sold } & & 7,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 2,500 & \\\hline \text { Sales Revenue } & & 2,500 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 7,000 & \\\hline \text { Sales Revenue } & & 7,000 \\\hline\end{array}$$

Question 75

Reid Art Supply Company uses a perpetual inventory system.The company had the following transactions during August 2017:
Aug.5: Purchased $2,900 of merchandise on account.Freight and credit terms were FOB shipping point,3/15,n/60.
Aug.9: Paid transportation costs of $440 for the Aug.5 purchase.
Aug.10: Returned $600 of defective merchandise that had been purchased on Aug.5.
Aug.15: Paid for the merchandise purchased on Aug.5.
Give journal entries for August 10 and 15.

Question 76

FOB destination refers to a situation where title to goods while in transit belongs to the ________.

A)buyer
B)seller
C)transport agency
D)insurance agency

Question 77

A company has purchased inventory and received an invoice that requires the buyer to pay the transportation costs for delivering the merchandise.The terms are ________.

A)FOB destination
B)FOB shipping point
C)FOB,2/10,n/30
D)FOB in transit

Question 78

A merchandiser,following the perpetual inventory system,has the following transactions during August,2017:
$\begin{array}{lll}\text { Date } & \text { Transaction } & \text { Amount } \\\text { Aug. 5 } & \text { Purchased inventory on account } & \$ 300,000 \\\text { Aug. } 9 & \text { Paid for transportation of goods purchased } & 25,000 \\\text { Aug. 10 } & \text { Returned defective merchandise to the seller } & 20,000 \\\text { Aug. 15 } & \text { Paid for goods purchased on August 5 } & ?\end{array}$
Credit terms of invoice are 2/15,n/45.Give journal entries for the above transactions.

Question 79

A company purchased inventory for $3,000 from a vendor on account,FOB shipping point,with terms of 3/10,n/30.The company paid the shipper $300 cash for freight in.The company then returned damaged goods worth $300.The invoice was then paid eight days after the purchase.Assuming that there was no beginning inventory balance,the cost of inventory would be ________.(Assume a perpetual inventory system. )

A)$2,619
B)$2,919
C)$2,700
D)$2,910

Question 80

Under which of the following terms will the buyer be required to pay transportation costs?

A)FOB destination
B)FOB shipping point
C)freight out
D)freight in