Deck 5: Merchandising Operations

Question 1

Both wholesalers and retailers are merchandisers.

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 then sells the inventory to a customer.

Answer 2

False

Question 3

Operating expenses include ________.

A) cost of goods sold
B) expenses that occur in an entity's major line of business
C) cost of goods sold, selling expenses, and administrative expenses
D) loss on sale of plant asset

Answer 3

B

Question 4

A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to retailers.

Question 5

On the balance sheet,Merchandise Inventory is listed above Accounts Receivable.

Question 6

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

A) purchase expense
B) cost of goods sold
C) cost of merchandise inventory
D) operating expenses

Question 7

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

Question 8

For a merchandiser,the term "inventory" 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 9

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

Question 10

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

Question 11

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

Question 12

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

A) retailer
B) wholesaler
C) manufacturer
D) producer

Question 13

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 14

Gross profit is the excess of cost of goods sold over net sales revenue.

Question 15

Merchandise inventory is included in a merchandising company's current assets.

Question 16

Value Electronics Company started its operations on January 1,2019.Value 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 17

On the balance sheet of a retailer,the Merchandise Inventory account ________.

A) is not included because it is an income statement account
B) is included in the current assets section
C) is listed after prepaid assets
D) represents the value of inventory that has been sold during the period

Question 18

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

Question 19

The largest expense of a merchandiser is usually ________.

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

Question 20

A retailer can buy merchandise either from a manufacturer or a wholesaler.

Question 21

Even in a perpetual inventory system,the business must count its inventory at least once in a year.

Question 22

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

A) units purchased and cost amounts
B) units sold and sales and cost amounts
C) timeliness of vendor deliveries
D) the quantity of merchandise inventory on hand and its cost

Question 23

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

Question 24

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

Question 25

City Market,a small-scale grocer,wants to introduce an inventory system to track its inventory.The cash registers are not computer terminals.The perpetual inventory system is most suitable for its operations.

Question 26

Provide definitions for the following:
$$\begin{array} { | l | l | } \hline \text { Item } & \text { Definition } \\\hline \text { Cost of Goods Sold } & \\\hline \text { Gross Profit } & \\\hline \text { Operating Expenses } & \\\hline\end{array}$$

Question 27

In a perpetual inventory system,the physical count of inventory ________,

A) serves as a check of the perpetual records
B) captures transactions that are not recorded by the electronic system
C) establishes the correct amount of ending inventory for the financial statements
D) All the above statements are correct.

Question 28

An invoice can be either a sales invoice or a purchase invoice.

Question 29

An invoice is a request for payment from the purchaser.

Question 30

An invoice is also known as a bill.

Question 31

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 32

In a periodic inventory system,the "cash register" at the store is a computer terminal that records sales and updates inventory records.

Question 33

List,and briefly discuss,two differences between the income statement of a service company and the income statement of a merchandise company.

Question 34

For each of the following statements,state whether it applies to a periodic inventory system (periodic)or a perpetual inventory system (perpetual).
$$\begin{array} { |l | l |} \hline \text { Statement } & \text { Periodic or Perpetual } \\\hline \text { Merchandise inventory and } & \\\text { purchasing systems are integrated } & \\\text { with the records for Accounts } & \\\text { Receivable and Sales Revenue. } & \\\hline \text { This system is often used by } & \\\text { restaurants and small retail stores. } & \\\text { The physical count captures } & \\\text { inventory transactions that are not } & \\\text { recorded by the electronic system. } & \\\hline\end{array}$$

Question 35

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

Question 36

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 37

In a periodic inventory system,merchandise inventory and purchasing systems are integrated with the records for Accounts Receivable and Sales Revenue.

Question 38

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

Question 39

A modern perpetual inventory system ________.

A) records the quantity, but not the cost, of merchandise inventory on hand
B) achieves better control over inventory
C) eliminates the need for a physical count of inventory
D) is required by U.S. GAAP.

Question 40

Regarding a periodic inventory system,which of the following statements is incorrect?

A) The periodic inventory system is normally used for relatively expensive goods.
B) Restaurants and small retail stores normally use the periodic inventory system.
C) Periodic inventory systems are becoming less and less popular.
D) The physical count of inventory is required in order to determine the quantities on hand.

Question 41

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 42

An invoice of $1,000 for merchandise purchased is showing 3/15,n/30 as terms of credit.If the invoice is paid on or before the fifteenth day after the invoice date,the amount to be paid is ________.

A) $970
B) $1,000
C) $1,030
D) $1,033

Question 43

When a company uses the perpetual inventory system ________.

A) purchases of Office Supplies and Equipment that will be used in the day-to-day operations of the business are recorded as debits to Merchandise Inventory.
B) the purchase of merchandise inventory on account is recorded as a debit to Accounts Payable and a credit to Merchandise Inventory.
C) the Merchandise Inventory account is reported as an expense on the income statement.
D) the Merchandise Inventory account is debited for purchases of goods that the company intends to resell to customers.

Question 44

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

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

Question 45

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

Question 46

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 47

A company that uses the perpetual inventory system purchases inventory for $64,000 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 $64,000, a credit to Cash for $1,280, and a credit to Merchandise Inventory for $62,720
B) a debit to Accounts Payable for $64,000, a credit to Merchandise Inventory for $1,280, and a credit to Cash for $62,720
C) a debit to Merchandise Inventory for $1,280, a debit to Accounts Payable for $64,000, and a credit to Cash for $65,280
D) a debit to Accounts Payable for $62,720, a debit to Merchandise Inventory for $1,280, and a credit to Cash for $64,000

Question 48

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 49

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 50

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

Question 51

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 purchases of office supplies and equipment.

Question 52

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 53

A company that uses the perpetual inventory system purchased inventory for $1,080,000 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) $$\begin{array} { | l | c | c | } \hline \text { Cash } & 1,080,000 & \\\hline \text { Accounts Payable } & & 1,080,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | c | c | } \hline \text { Accounts Payable } & 1,080,000 & \\\hline \text { Merchandise Inventory } & & 1,080,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | c | c | } \hline \text { Accounts Payable } & 1,080,000 & \\\hline \text { Cash } & & 1,080,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Accounts Payable } & 1,080,000 & \\\hline \text { Merchandise Inventory } & & 43,200 \\\hline \text { Cash } & & 1,036,800 \\\hline\end{array}$$

Question 54

List four items from an invoice that are needed to record a purchase of merchandise inventory.

Question 55

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

Question 56

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

Question 57

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

Question 58

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 59

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 60

An invoice ________.

A) is the bill that the purchaser receives from the vendor
B) is the purchaser's request for payment from the seller
C) is a demand for immediate payment
D) must be paid within 10 days from the date of the invoice

Question 61

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

Question 62

Maddy's Gifts received an allowance from the vendor for an amount of $400.Prepare the journal entry for this transaction.Maddy's uses a perpetual inventory system and purchased the goods on account.Omit explanation.

Question 63

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

Question 64

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

Question 65

An invoice,with payment terms of 5/10,n/30,was issued on April 28 for $250.00.If the payment was made on May 12,the amount of payment will be ________.(Round your answer to the nearest cent.)

A) $250.00
B) $225.00
C) $237.50
D) $245.00

Question 66

A company using the perpetual inventory system purchased inventory worth $20,000 on account with terms of 3/10,n/30.Defective inventory of $2,000 was returned two days later,and the accounts were appropriately adjusted.If the invoice is paid 10 days after the invoice date,the amount of the purchase discount that would be available to the company is ________.

A) $540
B) $660
C) $600
D) $590

Question 67

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 68

FOB destination represents a situation in which the buyer takes title to the goods after the goods leave the seller's place of business.

Question 69

Cafeteria Supply returned 2 cases of defective warming trays to the vendor for an amount of $600.Prepare the journal entry for this transaction.Cafeteria Supply uses a perpetual inventory system and purchased the cases on account.Omit explanation.

Question 70

A company purchased inventory for $100,000 on account and recorded it as follows:
$$\begin{array} { | c | c | c | } \hline \text { Merchandise Inventory } & 100,000 & \\\hline \text { Accounts Payable } & & 100,000 \\\hline\end{array}$$ The vendor's invoice showed terms of 3/10,net 30.Prepare the journal entry for the purchaser for the payment of the invoice seven days after the invoice date,assuming that the purchaser uses the perpetual inventory system.

Question 71

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

Question 72

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

Question 73

A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $600 to the vendor.Which of the following would be the correct journal entry to record these returns?

A) $$\begin{array} { | c | r | r | } \hline \text { Purchase Returns } & 600 & \\\hline \text { Accounts Payable } & & 600 \\\hline\end{array}$$
B) $$\begin{array} { | c | r | r | } \hline \text { Accounts Payable } & 600 & \\\hline \text { Purchase Returns } & & 600 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Merchandise Inventory } & 600 & \\\hline \text { Accounts Payable } & & 600 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Accounts Payable } & 600 & \\\hline \text { Merchandise Inventory } & & 600 \\\hline\end{array}$$

Question 74

There is a discount on freight in,thus purchase discounts are computed on transportation costs.

Question 75

Freight out is the freight on purchased goods.

Question 76

On January 21,2019,Cressent Company received merchandise from Neptune Company.On that date,Cressent found a few of these goods to be damaged.On January 22,Cressent returned the damaged goods to the seller.Such returns will be treated as ________ by Cressent.

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

Question 77

A company purchased inventory for $2,200 on account,and recorded the following journal entry:
$\begin{array}{|l|r|r|}\hline \text { Merchandise Inventory } & 2,200 \\\hline \text { Accounts Payable } & & 2,200\\\hline \end{array}$
The vendor's invoice showed terms of 3/10,n/30.Prepare the journal entry for the purchaser for the payment of the invoice 17 days after the invoice date.Omit explanation.

Question 78

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 $60,000 was returned 3 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) $550,000 debit to Accounts Payable and $550,000 credit to Cash
B) $490,000 debit to Accounts Payable and $490,000 credit to Cash
C) $550,000 debit to Accounts Payable, $540,200 credit to Cash, and $9,800 credit to Merchandise Inventory
D) $499,800 debit to Accounts Payable, $9,800 credit to Merchandise Inventory, and $490,000 credit to Cash

Question 79

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

Question 80

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