Deck 5: Accounting for Merchandising Businesses

Question 1

Freight-in is considered a cost of purchasing inventory.

Answer 1

True

Question 2

When merchandise that was sold is returned,a credit to Customer Refunds Payable is made.

Answer 2

False

Question 3

Estimated Returns Inventory is an account used when adjusting for expected merchandise sales in the next period.

Answer 3

False

Question 4

Buyers and sellers do not normally record the list prices of merchandise and the trade discounts in accounts.

Question 5

In a perpetual inventory system,when merchandise is returned to the supplier,Cost of Goods Sold is debited as part of the transaction.

Question 6

The fees associated with credit card sales are periodically recorded as expenses.

Question 7

Under a periodic inventory system,the cost of inventory on hand at the end of the accounting period is determined by a physical count of the inventory.

Question 8

Service businesses provide services for income,while a merchandising business sells merchandise.

Question 9

In a perpetual inventory system,the Inventory account is only used to reflect the beginning inventory.

Question 10

In a merchandising business,sales minus operating expenses equals net income.

Question 11

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

Question 12

Customer Refunds Payable is an account used to record merchandise returns from customers.

Question 13

The cost of inventory is limited to the purchase price less any purchase discounts.

Question 14

In retail businesses,inventory is reported as a current asset.

Question 15

Cost of goods sold is the amount that the merchandising company pays for the merchandise it intends to sell.

Question 16

If payment is due by the end of the month in which the sale is made,the invoice terms are expressed as n / 30.

Question 17

The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements.

Question 18

Under the perpetual inventory system,when a sale is made,both the sale and cost of goods sold are recorded.

Question 19

Most retailers record all credit card sales as credit sales.

Question 20

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

Question 21

When merchandise is sold for $600 plus 6% sales tax,the Sales account should be credited for $636.

Question 22

The abbreviation FOB stands for "free on board."

Question 23

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

Question 24

When the terms of sale are FOB shipping point,the buyer pays the freight charges.

Question 25

Purchases of merchandise are typically credited to the inventory account under the perpetual inventory system.

Question 26

Merchandise is sold for $3,600,terms FOB destination,2 / 10,n / 30,with prepaid freight costs of $150.The sales amount recorded is $3,528.

Question 27

If the buyer bears the freight costs related to a purchase,the terms are said to be FOB destination.

Question 28

When a large quantity of merchandise is purchased,a reduction allowed on the sale price is called a trade discount.

Question 29

Under the perpetual inventory system,a company purchases merchandise on terms 2 / 10,n / 30.The entry to record the purchase will include a debit to Cash and a credit to Sales.

Question 30

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 31

The chart of accounts for a merchandising business would include an account called Delivery Expense.

Question 32

A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.

Question 33

Sellers and buyers are required to record trade discounts.

Question 34

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 35

A sale of $750 on account subject to a sales tax of 6% would be recorded as an account receivable of $750.

Question 36

If merchandise costing $3,500,terms FOB destination,2 / 10,n / 30,with prepaid freight costs of $125,is paid within 10 days,the amount of the purchases discount is $70.

Question 37

A sales discount encourages customers to pay accounts more quickly than if a discount were not available.

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 sales discount.

Question 39

A seller may grant a buyer a reduction in selling price and this is called a customer discount.

Question 40

Inventory normally has a debit balance.

Question 41

In the merchandising income statement,sales will be reduced by administrative expenses to arrive at operating income.

Question 42

Sales is equal to the cost of goods sold less the gross profit.

Question 43

The seller records the sales tax as part of the sales amount.

Question 44

Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped FOB shipping point.

Question 45

If the perpetual inventory system is used,an account entitled Cost of Goods Sold is included in the general ledger.

Question 46

A business using the perpetual inventory system,with its detailed subsidiary records,does not need to take a physical inventory.

Question 47

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

Question 48

Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business.

Question 49

In a multiple-step income statement,the dollar amount for income from operations is always the same as net income.

Question 50

The seller may prepay the freight costs even though the terms are FOB shipping point.

Question 51

The form of the balance sheet in which assets,liabilities,and stockholders' equity are presented in a downward sequence is called the report form.

Question 52

As we compare a merchandising business to a service business,the financial statement that changes the most is the balance sheet.

Question 53

Because many companies use computerized accounting systems,periodic inventory is widely used.

Question 54

Income that cannot be associated definitely with operations,such as a gain from the sale of a fixed asset,is listed as Other Revenue on the multiple-step income statement.

Question 55

The single-step income statement is easier to prepare,but a criticism of this format is that gross profit and income from operations are not readily available.

Question 56

When companies use a perpetual inventory system,the recording of the purchase of inventory will include a debit to Purchases.

Question 57

Gross profit minus selling expenses equals net income.

Question 58

Most companies will not take a purchase discount,because 1% or 2% discounts are insignificant.

Question 59

The account form of the balance sheet is presented in a downward sequence in three sections.

Question 60

Purchased goods in transit,shipped FOB destination,should be excluded from ending inventory of the buyer.

Question 61

Under the periodic inventory system,the cost of goods sold is recorded when sales are made.

Question 62

Gross profit is equal to

A) sales plus cost of goods sold
B) sales plus selling expenses
C) sales less selling expenses
D) sales less cost of goods sold

Question 63

When comparing a retail business to a service business,the financial statement that changes the most is the

A) balance sheet
B) income statement
C) retained earnings statement
D) statement of cash flows

Question 64

Calculate income from operations for Jonas Company based on the following data:

A) $485,500
B) $711,500
C) $173,500
D) $226,000

Question 65

When a merchandising business is compared to a service business,the financial statement that is not affected by that change is the retained earnings statement.

Question 66

Inventory is classified on the balance sheet as a

A) current liability
B) current asset
C) long-term asset
D) long-term liability

Question 67

Under the periodic inventory system,the cost of goods sold is equal to the beginning inventory plus the cost of merchandise purchased plus the ending inventory.

Question 68

The inventory system employing accounting records that continuously disclose the amount of inventory is called

A) retail
B) periodic
C) physical
D) perpetual

Question 69

In a periodic inventory system,the cost of merchandise purchased includes the cost of freight in.

Question 70

The asset turnover ratio measures how effectively a business is using its assets to generate sales.

Question 71

Other revenue and expenses are items that are not related to the primary operating activity.

Question 72

Closing entries for a merchandising business are not similar to those for a service business.

Question 73

Which of the following is not a difference between a retail business and a service business?

A) in what is sold
B) the inclusion of gross profit on the income statement
C) accounting equation
D) inventory included on the balance sheet

Question 74

Cost of goods sold is often the largest expense on a merchandising company income statement.

Question 75

In the periodic inventory system,purchases of merchandise for resale are debited to the Purchases account.

Question 76

What is the term applied to the excess of sales over the cost of goods sold?

A) gross profit
B) operations
C) net income
D) gross sales

Question 77

Net income plus operating expenses is equal to

A) cost of goods sold
B) cost of merchandise
C) sales
D) gross profit

Question 78

Dollar Co.sold merchandise to Pound Co.on account,$25,500,terms 2 / 15,net 45.Pound Co.paid the invoice within the discount period.What is the sales amount to be recorded in the above transactions?

A) $25,500
B) $26,010
C) $24,990
D) $16,000

Question 79

Under a periodic inventory system,the accounts Purchases,Purchases Returns and Allowances,Purchases Discounts,and Freight In are found on the balance sheet.

Question 80

Calculate the gross profit for Jefferson Company based on the following:

A) $495,500
B) $183,500
C) $721,500
D) $226,000