Question 1

Cost of goods available for sale is considered an operating expense for a merchandising company.

Accepted Answer

Cost of goods available for sale is not considered an expense, but rather a part of the calculation for cost of goods sold.

Question 2

If merchandise costing $2,500, terms 2/10 n/30, is paid within 10 days, the amount of the purchase discount is $250.

Accepted Answer

The purchase discount is 2% of $2,500, which is $50, not $250.

Question 3

Freight terms will specify the point at which ownership of the goods is transferred from the seller to the buyer.

Accepted Answer

Freight terms such as FOB (Free on Board) or EXW (Ex Works) specify the point at which ownership of the goods is transferred from the seller to the buyer.

Question 4

When the terms of sale are FOB shipping point, the seller is responsible for any damages to the goods during shipping.

Accepted Answer

When the terms of sale are FOB shipping point, the buyer is responsible for any damages to the goods during shipping.

Question 5

Operating expenses are subtracted from revenue for a service company and from gross profit for a merchandising company.

Accepted Answer

This statement is true as operating expenses are subtracted from revenue for a service company and from gross profit for a merchandising company.

Question 6

Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Merchandise Inventory account.

Accepted Answer

Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Merchandise Inventory account, along with all other costs associated with acquiring or producing the inventory, such as freight, taxes, and other fees. This allows for real-time monitoring of inventory levels and cost of goods sold.

Question 7

Cost of Goods Sold is considered an operating expense for a merchandising company.

Accepted Answer

Cost of Goods Sold (COGS) is a direct cost associated with the production of goods sold by a company, separate from operating expenses which are the costs related to the day-to-day operations of a business.

Question 8

Discounts taken for early payment of an invoice are called sales discounts by the buyer.

Accepted Answer

Discounts taken for early payment of an invoice are referred to as "purchase discounts" by the buyer and "sales discounts" by the seller.

Question 9

Under a perpetual inventory system, freight costs incurred by the buyer are added to the Merchandise Inventory account.

Accepted Answer

In a perpetual inventory system, all costs related to bringing the inventory to its location are added to the Merchandise Inventory account, including freight costs incurred by the buyer.

Question 10

Sales less operating expenses equal gross profit.

Accepted Answer

Gross profit is calculated as sales minus the cost of goods sold (COGS), not operating expenses. Operating expenses are subtracted from gross profit to determine operating profit.

Question 11

The operating cycle of a merchandising company is generally shorter than that of a service company.

Accepted Answer

The operating cycle of a merchandising company is generally longer than that of a service company because it includes additional steps such as buying and holding inventory before making sales, whereas service companies typically do not have inventory.

Question 12

Freight costs incurred on incoming merchandise are an operating expense to the buyer.

Accepted Answer

Freight costs incurred on incoming merchandise are considered part of the cost of the merchandise and are included in inventory costs until the merchandise is sold, at which point they become part of the cost of goods sold.

Question 13

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Accepted Answer

In a perpetual inventory system, inventory levels are continuously updated, so the cost of goods sold can be determined immediately upon a sale.

Question 14

A physical inventory count should be done at least once a year regardless of whether a perpetual or periodic inventory system is being used.

Accepted Answer

A physical inventory count helps to ensure accurate accounting and valuation of inventory, which is important for financial reporting and decision-making. Regardless of the inventory system being used, a physical count is a standard practice to identify any discrepancies between inventory records and actual inventory on hand.

Question 15

The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 days but within the credit period.

Accepted Answer

The terms 2/10, n/30 mean that a 2% discount is allowed on payments made within 10 days, and the net (full) amount is due within 30 days.

Question 16

Prepare entries for purchases under a perpetual inventory system.

Accepted Answer

The answer of Prepare entries for purchases under a perpetual...

Question 17

Gross sales less cost of goods sold is called gross profit.

Accepted Answer

The answer of Gross sales less cost of goods sold...

Question 18

Inventory is usually the largest current asset for a merchandiser.

Accepted Answer

Inventory refers to the goods that a merchandiser has in stock to sell to customers. It is usually the largest current asset on the balance sheet of a merchandiser.

Question 19

Prepare entries for sales under a perpetual inventory system.

Accepted Answer

The answer of Prepare entries for sales under a perpetual...

Question 20

Identify the differences between service and merchandising companies.

Accepted Answer

The answer of Identify the differences between service and merchandising...

Quiz 5: Merchandising Operations and the Multiple-Step Income Statement