Deck 6: Merchandising Activities

Question 1

When using a perpetual inventory system,the Inventory account is credited when a sale is made.

Answer 1

True

Question 2

If ending inventory and cost of goods sold are added together,they should equal gross profit.

Answer 2

False

Question 3

In a perpetual inventory system,the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Answer 3

True

Question 4

Inventory shrinkage refers to unrecorded decreases in inventory resulting from breakage, theft, and shoplifting.

Question 5

If a company has 240 credit customers,there are 480 individual customer accounts in the accounts receivable subsidiary ledger (one for sales for each customer,one for receipts from each customer).

Question 6

Cost of goods sold is an expense shown separately from other expenses in an income statement.

Question 7

A perpetual inventory system requires the capability of recording the cost of the goods sold for individual sales transaction.

Question 8

Wholesalers buy from retailers and sell to the general public.

Question 9

In a periodic inventory system,the Cost of Goods Sold account may be created during the closing process by debiting Cost of Goods Sold and crediting the Beginning Inventory and the Purchases account.

Question 10

Inventory is a relatively liquid asset and usually appears above Accounts Receivable on the balance sheet.

Question 11

In a perpetual inventory system,when merchandise is purchased,it is debited to an account called Purchases.

Question 12

In a periodic inventory system,when a sale is made there is no entry made to record the cost of goods sold.

Question 13

In a periodic inventory system,a complete physical inventory must be taken at year-end in order to compute the amount of purchases made during the period.

Question 14

The operating cycle of a merchandising company consists of (1)purchases of merchandise; (2)sales of the merchandise; and (3)collection of accounts receivable.

Question 15

In a periodic inventory system,the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Question 16

When an adjusting entry is made to record inventory shrinkage,the Inventory account is debited and the Cost of Goods Sold account is credited.

Question 17

If gross profit and cost of goods sold are added together,they should equal sales.

Question 18

In a periodic inventory system,cost of goods sold is the cost of goods available for sale less ending inventory.

Question 19

The operating cycle of a merchandiser is longer and more complex than the operating cycle of a manufacturer.

Question 20

General ledgers contain information about specific control accounts in the company's subsidiary ledger.

Question 21

The terms "sales discount" "purchase discount" and "cash discount" all

Question 22

If a transaction takes place with terms 2/10,n/30,the "10"

Question 23

In preparing monthly bills to be sent to individual credit customers,the billing department will use the accounts payable subsidiary ledger,rather than the general ledger.

Question 24

Instead of paying for merchandise purchased on account,Olympic Corp.returned this merchandise to the supplier.Olympic should record this transaction by debiting Accounts Payable and crediting Sales Returns and Allowances.

Question 25

Purchase Discounts Lost is shown as a reduction of cost of goods sold in the income statement.

Question 26

Under the periodic inventory system,no effort is made to keep up-to-date records of either Inventory or Cost of Goods Sold as transactions occur.

Question 27

If a company records a purchase at the net cost and then fails to take advantage of the discount,the discount not taken is recorded in the Interest Expense account.

Question 28

In a periodic inventory system,the cost of goods sold is determined by the following end-of-period computation: Beginning Inventory + Purchases - Ending inventory = Cost of Goods Sold.

Question 29

If a company records a purchase at the gross invoice price and then takes advantage of the discount,the discount is treated as a reduction in the cost of goods sold.

Question 30

A factor that might suggest that a perpetual inventory system is appropriate is that inventory includes many different kinds of low-cost items.

Question 31

A large company with many different kinds of low-cost items would tend to use a perpetual inventory system.

Question 32

Regardless of the number of special journals used,every business needs a general journal.

Question 33

A factor that might suggest that a periodic inventory system is appropriate is that all merchandise is stored at the sales site.

Question 34

Today,most large merchandising companies use a perpetual inventory system.

Question 35

Sales returns and allowances is an expense account,and on the income statement it is added to cost of goods sold.

Question 36

The contra-revenue accounts,Sales Returns and Allowances and Sales Discounts,should be closed by crediting these accounts and debiting Income Summary for each account.

Question 37

In a retail department store with an efficient perpetual inventory system,the quantities of goods actually on hand are probably somewhat more than the quantities indicated in the accounting records.

Question 38

Gross profit margin is the dollar amount of gross profit expressed as a percentage of gross sales.

Question 39

Net Sales is computed as total sales revenue less sales returns and allowances less sales discounts.

Question 40

In a periodic inventory system,the ending inventory can be determined from the accounting records,and a physical count of the merchandise on hand will confirm the amount.

Question 41

Under the perpetual inventory system which journal entry would indicate a purchase of merchandise?

A)Debit,Inventory and credit,Cash.
B)Debit,Purchases and credit,Cash.
C)Debit,Costs of Goods Sold and credit,Inventory.
D)Debit,Inventory and credit,Cost of Goods Sold.

Question 42

Which of the following businesses is likely to have the shortest operating cycle?

A)A food store.
B)A department store.
C)An art store.
D)A car store.

Question 43

Merchandising companies:

A)Include both wholesalers and retailers.
B)Do not sell directly to the public.
C)Manufacture their own products and then sell them to the public.
D)Include companies such as General Motors,IBM,and Boeing Aircraft.

Question 44

In a perpetual inventory system,two entries usually are made to record each sales transaction.The purposes of these entries are best described as follows:

A)One entry recognizes the sales revenue,and the other recognizes the cost of goods sold.
B)One entry records the purchase of the merchandise,and the other records the sale.
C)One entry records the cost of goods sold,and the other reduces the balance in the Inventory account.
D)One entry updates the general ledger,and the other updates the subsidiary ledgers.

Question 45

Parkside Pool reports net sales of $625,000,gross profit of $275,000,and net income of $15,000.The company's cost of goods sold is:

A)$335,000.
B)$350,000.
C)$340,000.
D)$325,000.

Question 46

Which of the following appears in the income statement of a merchandising business,but not in the income statement of a business that renders only services?

A)Interest revenue.
B)Gross profit.
C)Advertising expense.
D)Income tax expense.

Question 47

Gross profit is the difference between:

A)Net sales and the cost of goods sold.
B)The cost of merchandise purchased and the cost of merchandise sold.
C)Net sales and net income.
D)Net sales and all expenses.

Question 48

Sutton Supplies reports net sales of $3,750,000,net income of $375,000,and gross profit of $900,000.The company's cost of goods sold is:

A)$1,700,000.
B)$1,900,000.
C)$3,375,000.
D)$2,850,000.

Question 49

The operating cycle:

A)Is repeated once per year for manufacturers and merchandisers.
B)Has seven steps.
C)Starts with using cash to purchase merchandise and ends with collecting the cash back from customers.
D)Is longer for a retailer than for a manufacturer.

Question 50

Which of the following should not be classified as inventory in the balance sheet of a large automobile dealership?

A)Pickup trucks offered for sale.
B)Used cars taken in trade and offered for sale on the company's used-car lot.
C)Spark plugs,oil filters,and other parts which are intended for use by the service department in repairing and servicing customers' cars.
D)"Company cars" provided to specific company executives for their personal use.

Question 51

Berg Tooling reports net sales of $325,000,gross profit of $175,000,and net income of $15,000.The company's cost of goods sold is:

A)$135,000.
B)$150,000.
C)$140,000.
D)$125,000.

Question 52

VanRoy Supplies reports net sales of $1,750,000,net income of $175,000,and gross profit of $300,000.The company's cost of goods sold is:

A)$1,400,000.
B)$475,000.
C)$1,575,000.
D)$1,450,000.

Question 53

The purchasing agent of Superb Service Co.wants to know the dollar amount of inventory purchased on account during the year from a particular supplier.This information can be found most easily in Superb Service's:

A)Inventory subsidiary ledger.
B)Accounts payable controlling account.
C)Inventory controlling account.
D)Accounts payable subsidiary ledger.

Question 54

The basic purpose of a subsidiary ledger is to:

A)Provide a chronological record of all business transactions.
B)Provide details about the individual items comprising the balance of a general ledger account.
C)Enable accountants to prepare financial statements.
D)Provide persons outside of the organization with detailed information about the company's operations.

Question 55

Hicksville's Department Store uses a perpetual inventory system.At year-end,the balance in the Inventory control account is $1,200,000.Assuming that the inventory records have been maintained properly,a year-end physical inventory:

A)Is unnecessary.
B)Is needed to establish the ending inventory,as the $1,200,000 balance in the Inventory control account represents the beginning inventory.
C)Probably will indicate more than $1,200,000 in merchandise on hand.
D)Probably will indicate less than $1,200,000 in merchandise on hand.

Question 56

The Cost of Goods Sold account is closed by:

A)Debiting Cost of Goods Sold and crediting Income Summary.
B)Debiting Cost of Goods Sold and crediting Retained Earnings.
C)Debiting Income Summary and crediting Cost of Goods Sold.
D)Debiting Retained Earnings and crediting Cost of Goods Sold.

Question 57

Cumberland,Inc.has applied to its bank for a loan.The bank asks Cumberland's controller about the total amount of the company's accounts receivable.Assuming that all accounting records are up-to-date,the controller can best answer this question by

A)The Income Statement.
B)The Accounts Receivable control account.
C)The Accounts Receivable subsidiary ledger.
D)Last year's Balance Sheet.

Question 58

Sales revenue is recognized in the period in which:

A)Merchandise is delivered to the customer.
B)The customer orders the merchandise.
C)Cash payment is received by the seller.
D)Purchases are made to replace the merchandise sold.

Question 59

The average gross profit margin is a measure of relative profitability.

Question 60

In a perpetual inventory system:

A)Merchandising transactions are recorded as they occur.
B)No effort is made to record the Cost of Goods Sold until year-end.
C)Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold.
D)The need for ever taking physical inventory is eliminated.

Question 61

The following information is available: Calculate the gross profit:

A)$0.
B)$1,500.
C)$450.
D)$900.

Question 62

Which of the following companies would be more likely to use a perpetual inventory system?

A)Corner deli.
B)Home Depot.
C)James Dean,CPA.
D)A manufacturer of custom sailboats.

Question 63

Sales discounts and allowances:

A)When properly recorded will reduce net profit.
B)When properly recorded will increase net profit.
C)Will not affect net profit.
D)Are always immaterial and need not be recorded.

Question 64

Periodic inventory systems are used primarily by:

A)Small businesses with manual accounting systems.
B)Large manufacturing companies.
C)Small businesses that sell a low volume of high-priced items.
D)Companies that sell a high volume of low-priced items and record sales transactions on point-of-sale terminals.

Question 65

Which of the following statements about a periodic inventory system is not correct?

A)These systems are used primarily by small businesses with manual accounting systems.
B)The system does not include an up-to-date inventory ledger.
C)The balance in the Inventory account remains unchanged until the end of the period.
D)The Cost of Goods Sold account is updated as sales transactions occur.

Question 66

Merchandising companies that are small and do not use a perpetual inventory system may elect to use:

A)A physical inventory system.
B)A periodic inventory system.
C)An inventory shrinkage method.
D)An inventory subsidiary ledger system.

Question 67

Which of the following would not tend to make a manufacturer choose a perpetual inventory system?

A)Management wants information about quantities of specific products.
B)A low volume of sales transactions and a computerized accounting system.
C)A high volume of sales transactions and a manual accounting system.
D)Items in inventory with high per unit costs.

Question 68

Which of the following factors would suggest the use of a periodic inventory system?

A)A small company.
B)A high volume of sales and a manual accounting system.
C)Neither a small company nor a high volume of sales and a manual accounting system.
D)Both a small company and a high volume of sales and a manual accounting system.

Question 69

Which of the following companies would be more likely to use a periodic inventory system?

A)IBM.
B)1^st Bank of New York.
C)Sears.
D)A newspaper stand.

Question 70

Which of the following factors would suggest the use of a perpetual inventory system?

A)A small company.
B)Inventory items with a high per-unit cost.
C)A desire to minimize record-keeping requirements.
D)Only annual reporting is required.

Question 71

During the year 2015,the inventory of Debra's Gift Shop decreased by $50,000.If the income statement for the year 2015 reported cost of goods sold of $350,000,purchases during the year must have amounted to:

A)$400,000.
B)$310,000.
C)$300,000.
D)$350,000.

Question 72

In comparing a perpetual inventory system with a periodic inventory system,which of the following statements is not correct?

A)Most large companies use perpetual inventory systems.
B)A periodic system does not include an inventory subsidiary ledger.
C)The perpetual method is easier to apply in a manual accounting system.
D)Regardless of the system in use,most businesses take a physical inventory at least once a year.

Question 73

In a periodic inventory system,the formula used in computing the cost of goods sold may be summarized as follows:

A)Beginning inventory + purchases - ending inventory.
B)Beginning inventory + purchases - net sales.
C)Ending inventory + purchases - net sales.
D)Balance in the Cost of Goods Sold account,less the balance in the Inventory Shrinkage account.

Question 74

In a periodic inventory system,which of the following accounts may be closed by debiting Cost of Goods Sold?

A)Sales,Inventory (beginning),and Gross Profit.
B)Inventory (beginning)and Purchases.
C)Purchases and Inventory (ending).
D)Sales,Inventory (beginning),and Cost of Goods Available for Sale.

Question 75

Jayson Products uses a perpetual inventory system.At year-end,the Inventory account had a balance of $280,000,but a complete year-end physical inventory indicated goods on hand costing only $273,000.Jayson should:

A)Reduce its cost of goods sold by $7,000.
B)Record a $7,000 current liability.
C)Reduce the balance in its Inventory control account and inventory subsidiary ledger by $7,000.
D)Reduce the balance in the Inventory control account and record a current liability,both in the amount of $7,000.

Question 76

Which account listed below is classified as a contra-revenue account?

A)Cost of Goods Sold.
B)Gross profit.
C)Sales Discounts.
D)Purchases.

Question 77

Inventory shrinkage is not caused by:

A)Shoplifting.
B)Breakage.
C)Price reductions by competitors.
D)Spoilage.

Question 78

In a periodic inventory system,the cost of goods sold is:

A)Recorded as sales transactions occur.
B)Determined by a computation which is performed at year-end,after the taking of a complete physical inventory.
C)Equal to the beginning inventory,plus purchases made during the period,less sales revenue for the period.
D)Determined by subtracting the balance in the Gross Profit account from the amount of net sales.

Question 79

The credit term 2/10,n/30 means:

A)That after 10 days 2% interest is charged.
B)That there is a 10% discount if payment is received within 30 days.
C)That there is a 2% discount if payment is received within 10 days,otherwise,full payment is due within 30 days.
D)There is a 10% discount if paid immediately and 2% if paid within 30 days.

Question 80

Which of the following credit terms is the most advantageous to the purchaser of merchandise?

A)1/10,n/30.
B)5/10,n/60.
C)2/10,n/30.
D)5/10,n/20.