Question 1

During the year, Sarah's Pet Shop's merchandise inventory decreased by $40,000. If the company's cost of goods sold for the year was $600,000, purchases would have been

Accepted Answer

The purchases can be calculated using the formula:
Purchases = Beginning inventory + purchases - ending inventory
Since we do not have the beginning inventory, we cannot use this formula directly. However, we can use an alternative formula:
Cost of goods sold = Beginning inventory + Purchases - Ending inventory
We are given that the inventory decreased by $40,000. We can assume that the beginning inventory was higher by the same amount. Let's say the beginning inventory was X. Then, the ending inventory would be X - $40,000.
Using the formula above, we get:
$600,000 = X + Purchases - (X - $40,000)
Simplifying this equation, we get:
$600,000 = Purchases + $40,000
Purchases = $560,000.
Therefore, the answer is B, $560,000.

Question 2

All of the following statements are true regarding the periodic inventory system except

Accepted Answer

The answer of All of the following statements are true...

Question 3

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount?

Accepted Answer

The gross profit rate provides a meaningful relationship between gross profit and net sales, which is a more useful metric for comparing companies or industries. The gross profit amount, while a dollar amount, does not provide that context.

Question 4

Haverty Industries increased its gross profit rate from 18.4% in 2013 to 23.7% in 2014. Which of the following would be a possible explanation for this change?

Accepted Answer

Haverty Industries' increased gross profit rate from 18.4% in 2013 to 23.7% in 2014 may be due to their global sourcing efforts at the beginning of 2014, resulting in a lower cost of merchandise sold. This will lead to an increase in gross profit as the company is spending less money to acquire the goods it sells.

Question 5

Which of the following is not considered in computing net cost of purchases?

Accepted Answer

The net cost of purchases is specifically concerned with the cost of inventory purchased by a business, and any expenses necessary to bring that inventory from the supplier to the business. Freight paid on goods shipped to customers is not a cost related to purchasing inventory and therefore is not included in the computation of net cost of purchases.

Question 6

Sampson Company's accounting records show the following at the year ending on December 31, 2014.  Using the periodic system, the cost of goods sold is

Accepted Answer

The answer of Sampson Company's accounting records show the following...

Question 7

Assume Grammar Company uses the periodic inventory system and has a beginning inventory balance of $5,000, purchases of $75,000, and sales of $125,000. Grammar closes its records once a year on December 31. In the accounting records, the inventory account would be expected to have a balance on December 31 prior to adjusting and closing entries that was

Accepted Answer

The answer of Assume Grammar Company uses the periodic inventory...

Question 8

Sampson Company's accounting records show the following for the year ending on December 31, 2014.  Using the periodic system, the cost of goods purchased is

Accepted Answer

The answer of Sampson Company's accounting records show the following...

Question 9

A decline in a company's gross profit could be caused by all of the following except

Accepted Answer

Paying lower prices to suppliers would actually increase the company's gross profit, as it would result in a higher profit margin. Therefore, A, B, and D are all possible factors that could cause a decline in gross profit.

Question 10

What is a difference between the profit margin and the gross profit rate?

Accepted Answer

The answer of What is a difference between the profit...

Question 11

A company shows the following balances:  What is the gross profit rate?

Accepted Answer

The answer of A company shows the following balances: ...

Question 12

Bolton Company's gross profit rate last year was 32.0% and this year it is 28.4%. Which of the following would not be a possible cause for this decline in the gross profit rate?

Accepted Answer

If Bolton began selling products with a higher markup, it would result in a higher gross profit rate, not a decline. Therefore, option B would not be a possible cause for the decline in the gross profit rate. Option A, C and D could all be possible reasons for a decline in gross profit rate.

Question 13

Which of the following statements is true regarding profit margin?

Accepted Answer

Profit margin is calculated as net income divided by revenue. If the profit margin has a higher value, it means that the company is making more profit per dollar of sales, which is favorable. Choice A is incorrect because decreasing the gross profit rate would decrease the profit margin, not improve it. Choice B is incorrect because profit margin varies across industries based on factors such as competition and cost structure. Choice C is also incorrect because high merchandise turnover does not necessarily indicate higher profit margins; it depends on the specific costs and pricing strategies of the store.

Question 14

If Indiana Ink, Inc. has net sales of $400,000 and cost of goods sold of $300,000, Indiana Ink's gross profit rate is

Accepted Answer

Gross Profit Rate = (Net Sales - Cost of Goods Sold) / Net Sales
Therefore, Gross Profit Rate = ($400,000 - $300,000) / $400,000 = 0.25 or 25%.

Question 15

If Hostell Company has net sales of $500,000 and cost of goods sold of $325,000, Hostell's gross profit rate is

Accepted Answer

Gross profit rate is the percentage of net sales that remain after deducting the cost of goods sold.

Gross profit rate = ((Net sales – Cost of goods sold) / Net sales) x 100%
              
Substituting the values, we get:

Gross profit rate = ((500,000 – 325,000) / 500,000) x 100%
              
                  = (175,000 / 500,000) x 100%
              
                  = 35%

Therefore, the answer is B, and the gross profit rate is 35%.

Question 16

The gross profit rate is computed by dividing gross profit by

Accepted Answer

The answer of The gross profit rate is computed by...

Question 17

A company shows the following balances:  What is the gross profit rate?

Accepted Answer

The answer of A company shows the following balances: ...

Question 18

Betty's Fabrics sold merchandise for $114,000 cash during the month of July. Returns that month totaled $2,400. If the company's gross profit rate is 40%, Betty will report monthly net sales revenue and cost of goods sold of

Accepted Answer

The answer of Betty's Fabrics sold merchandise for $114,000 cash...

Question 19

Andrea's Fashions sold merchandise for $95,000 cash during the month of July. Returns that month totaled $2,000. If the company's gross profit rate is 40%, Andrea's will report monthly net sales revenue and cost of goods sold of

Accepted Answer

Net sales revenue = $95,000 - $2,000 = $93,000 (returns are subtracted from total sales)
Cost of goods sold = Net sales revenue x Gross profit rate = $93,000 x 40% = $37,200
Therefore, the correct answer is option C.

Question 20

The amount of cost of good available for sale during the year depends on the amounts of

Accepted Answer

The answer of The amount of cost of good available...

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