Question 1

Over a two-year period,Orchid Co.'s gross profit percentage went from 70.4% to 69.7%.Which of the following could not have been the cause of this change?
A)Reduced selling prices
B)Rising product cost as a percentage of sales
C)Increased competition from a competitor
D)An increase in selling price

Accepted Answer

Gross profit percentage = [(Net sales − Cost of goods sold)÷ Net sales] × 100
If gross profit percentage decreases,there must have been a decrease in the selling price,an increase in the cost of the product,or some combination of the two.

Question 2

Hazelwood Company had beginning inventory of $54,000.During the period the company purchased $109,800 of merchandise.At the end of the period,Hazelwood's inventory was $39,600.If the gross profit percentage was 40%,what was Hazelwood's sales revenue?
A)$82,800
B)$32,400
C)$135,000
D)$207,000

Accepted Answer

Cost of goods sold = Beginning inventory + Purchases − Ending inventory
= $54,000 + $109,800 − $39,600 = $124,200
Net sales percentage = Cost of goods sold percentage + Gross profit percentage
Cost of goods sold percentage = 100% − Gross profit percentage
= 100% − 40% = 60% (or 0.60)
Cost of goods sold ÷ Net sales = Cost of goods sold percentage
Net sales = Cost of goods sold ÷ Cost of goods sold percentage
= $124,200 ÷ 0.60 = $207,000

Question 3

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance. $\begin{array}{lr}
\text { Accounts Payable } & \$ 30,000 \
\text { Accounts Receivable } & 33,000 \
\text { Inventory } & 60,000 \
\text { Advertising Expense } & 36,000 \
\text { Cost of Goods Sold } & 267,000 \
\text { Delivery Expense } & 18,000 \
\text { Income Tax Expense } & 6,000 \
\text { Insurance Expense } & 3,000 \
\text { Rent Expense } & 36,000 \
\text { Sales Revenue } & 480,000 \
\text { Sales Discounts } & 33,000 \
\text { Sales Returns \& Allowances } & 57,000
\end{array}$ Gross profit would be:
A)$105,000.
B)$111,000.
C)$123,000.
D)$213,000.

Accepted Answer

Gross profit is calculated as Sales Revenue minus Cost of Goods Sold (COGS) after adjusting for Sales Returns & Allowances and Sales Discounts. Here, adjusted Sales Revenue = $480,000 - $33,000 (Sales Discounts) - $57,000 (Sales Returns & Allowances) = $390,000. Gross Profit = $390,000 - $267,000 (COGS) = $123,000.

Question 4

Under the gross method,purchase and sales discounts are recorded:
A)when the cash is paid or received.
B)at the time of initial purchase or sale.
C)as an increase to the purchase or sales price.
D)as an increase to Cost of Goods Sold or to Inventory.

Accepted Answer

Purchase and sales discounts are recorded when the cash is paid or received when the "gross method" is used.

Question 5

If a company achieves a small increase in its gross profit percentage from one year to the next,the company:
A)will have a higher net income.
B)must have had a sales volume increase.
C)must have decreased its operating expenses.
D)might be obtaining products at a lower cost per unit.

Accepted Answer

The gross profit percentage is not tied to sales volume.An increase in the gross profit percentage would result from an increase in the selling price and/or a decrease in the cost of the product.
An increase in the gross profit percentage will not necessarily result in a higher net income.Other factors,such as an increase in operating expenses,could cause net income to remain unchanged or decrease.

Question 6

Gross profit equals:
A)Net sales minus cost of goods sold.
B)Revenues minus expenses.
C)Revenues minus inventory.
D)Beginning inventory plus purchases minus ending inventory.

Accepted Answer

Gross profit = Net sales − Cost of goods sold

Question 7

A retail store that increases all of its product prices by 25% will experience a(n)________ in its overall gross profit percentage but may experience a(n)________ in sales volume.
A)increase,increase
B)decrease,decrease
C)decrease,increase
D)increase,decrease

Accepted Answer

All else being equal,a higher sales price will experience an increase in its overall gross profit percentage but may result in an decrease in sales volume.

Question 8

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance. $\begin{array}{lr}
\text { Accounts Payable } & \$ 30,000 \
\text { Accounts Receivable } & 33,000 \
\text { Inventory } & 60,000 \
\text { Advertising Expense } & 36,000 \
\text { Cost of Goods Sold } & 267,000 \
\text { Delivery Expense } & 18,000 \
\text { Income Tax Expense } & 6,000 \
\text { Insurance Expense } & 3,000 \
\text { Rent Expense } & 36,000 \
\text { Sales Revenue } & 480,000 \
\text { Sales Discounts } & 33,000 \
\text { Sales Returns \& Allowances } & 57,000
\end{array}$ Net sales would be:
A)$90,000.
B)$372,000.
C)$390,000.
D)$480,000.

Accepted Answer

Net sales are calculated by subtracting sales discounts and sales returns & allowances from sales revenue. Therefore, net sales = $480,000 - $33,000 - $57,000 = $390,000.

Question 9

Lansing Company has a gross profit percentage of 61%,while Arbor Company has a gross profit percentage of 37%.Which of the following statements is correct?
A)Lansing Company will report a higher net income than Arbor Company.
B)Arbor Company must have a greater sales volume than Lansing Company.
C)Lansing Company is more efficient at controlling selling,general,and administrative expenses than Arbor Company.
D)Lansing Company and Arbor Company both earn enough on each sale to make a contribution to their operating costs.

Accepted Answer

The gross profit percentage is the amount of profit generated by a dollar of sales to cover operating expenses of the company.Both companies have a positive amount of gross profit or contribution toward covering the operating expenses of the company.A higher gross profit percentage does not necessarily mean higher net income,because Arbor Company could have more gross profit and/or lower operating expenses.Selling,general,and administrative expenses do not affect gross profit.

Question 10

Hayward Co.reported net sales revenues of $23.76 billion and cost of goods sold of $7.2 billion.Its gross profit percentage was:
A)30.3%.
B)69.7%.
C)3.3%.
D)2.3%.

Accepted Answer

Gross profit percentage = [(Net sales − Cost of goods sold)÷ Net sales] × 100
= [($23.76 − $7.2)÷ $23.76] × 100 = 69.7%

Question 11

Belmont Industries announces that its gross profit rose 5% but its income before income taxes fell.Which of the following statements is correct?
A)This is not possible given that net income is determined by gross profit.
B)This must mean that selling,general,and administrative expenses increased by more than 5%.
C)This must mean that sales revenue rose more than expenses.
D)This must mean that cost of goods sold decreased.

Accepted Answer

Income before income taxes = Net sales − Cost of goods sold − Operating expenses
Income before income taxes = Gross profit − Operating expenses
If gross profit increases,income before income taxes will decrease if operating expenses increase by a greater amount

Question 12

Which of the following statements about gross profit percentages is correct?
A)Because gross profit percentages are so consistent from period to period,they are not very useful for analyzing one company over time.
B)Because gross profit percentages are so variable across industries,they are most useful in comparing companies from different industries.
C)Because gross profit percentages are so variable across industries,they are more useful in analyzing one company over time.
D)Because gross profit percentages are so consistent across industries,they are most useful in comparing companies from different industries.

Accepted Answer

Gross profit percentages can be compared for a single company over time or to other companies within the same industry.

Question 13

Pixie Products reported net sales revenue of $18.8 billion and cost of goods sold of $5.6 billion,while Stardust Inc.reported net sales revenue of $22.3 billion and cost of goods sold of $9.3 billion.Which of the following statements is correct?
A)While Stardust Inc.generated more revenue than Pixie Inc. ,Stardust Inc.generated a lower gross profit percentage.
B)Pixie Inc.generated a lower gross profit percentage because its sales revenue was lower.
C)Stardust Inc.did a better job of controlling product costs as a percentage of sales than did Pixie Inc.
D)The selling price of the products sold by Pixie Inc.must have been higher than the price of products sold by Stardust Inc.

Accepted Answer

Gross profit percentage = [(Net sales − Cost of goods sold)÷ Net sales] × 100
Pixie:
= [($18.8 − $5.6)÷ $18.8] × 100 = 70.2%
Stardust:
= [($22.3 − $9.3)÷ $22.3] × 100 = 58.3%
While Stardust Inc.generated more revenue than Pixie Inc. ,Stardust Inc.generated a lower gross profit percentage.Differences in gross profit percentages are due to differences in the selling prices and/or differences in product costs.

Question 14

An account used in the periodic inventory system that is not used in the perpetual inventory system is:
A)Inventory
B)Sales Revenue
C)Sales Returns & Allowances
D)Purchases

Accepted Answer

When inventory is purchased,it is debited to Purchases when a periodic inventory system is in use.It would be debited to Inventory when a perpetual system is in use.

Question 15

The gross profit percentage is the ratio to watch if you are worried about increased competition.If the company lowers its prices to retain market share without lowering its cost of goods sold,its gross profit percentage will:
A)increase.
B)decrease.
C)stay the same.
D)equal zero.

Accepted Answer

Gross profit percentage = ((Net sales − Cost of goods sold)÷ Net sales)× 100
If the selling price per unit decreases and cost of goods sold per unit stays the same,the gross profit percentage will decrease.

Question 16

Assuming that all else is equal,which of the following companies is most profitable?
A)A company with low gross profit percentage and low sales volume
B)A company with high gross profit percentage and high sales volume
C)A company with low gross profit percentage and high cost of goods sold
D)A company with low sales volume and high cost of goods sold

Accepted Answer

A higher gross profit ratio means that greater profit is available to cover operating and other expenses.A higher sales volume would increase the amount of gross profit.

Question 17

A company reported a gross profit percentage of 20% with net sales of $347,800.What is the amount of cost of goods sold?
A)$69,560
B)$278,240
C)$260,850
D)$86,950

Accepted Answer

Gross profit = Net sales × Gross profit percentage
= $347,800 × 0.20 = $69,560
Net sales − Cost of goods sold = Gross profit
Cost of goods sold = Net sales − Gross profit
= $347,800 − $69,560 = $278,240

Question 18

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance. $\begin{array}{lr}
\text { Accounts Payable } & \$ 30,000 \
\text { Accounts Receivable } & 33,000 \
\text { Inventory } & 60,000 \
\text { Advertising Expense } & 36,000 \
\text { Cost of Goods Sold } & 267,000 \
\text { Delivery Expense } & 18,000 \
\text { Income Tax Expense } & 6,000 \
\text { Insurance Expense } & 3,000 \
\text { Rent Expense } & 36,000 \
\text { Sales Revenue } & 480,000 \
\text { Sales Discounts } & 33,000 \
\text { Sales Returns \& Allowances } & 57,000
\end{array}$ Net income would be:
A)$24,000.
B)$27,000.
C)$30,000.
D)$42,000.

Accepted Answer

The answer of The following is a listing of some...

Question 19

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance. $\begin{array}{lr}
\text { Accounts Payable } & \$ 30,000 \
\text { Accounts Receivable } & 33,000 \
\text { Inventory } & 60,000 \
\text { Advertising Expense } & 36,000 \
\text { Cost of Goods Sold } & 267,000 \
\text { Delivery Expense } & 18,000 \
\text { Income Tax Expense } & 6,000 \
\text { Insurance Expense } & 3,000 \
\text { Rent Expense } & 36,000 \
\text { Sales Revenue } & 480,000 \
\text { Sales Discounts } & 33,000 \
\text { Sales Returns \& Allowances } & 57,000
\end{array}$ Income from operations would be:
A)$18,000.
B)$30,000.
C)$33,000.
D)$36,000.

Accepted Answer

Income from operations is calculated by subtracting the total operating expenses from the net sales (Sales Revenue - Sales Discounts - Sales Returns & Allowances). Net sales = $480,000 - $33,000 - $57,000 = $390,000. Total operating expenses = Advertising Expense + Cost of Goods Sold + Delivery Expense + Insurance Expense + Rent Expense = $36,000 + $267,000 + $18,000 + $3,000 + $36,000 = $360,000. Therefore, income from operations = $390,000 - $360,000 = $30,000.

Question 20

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance. $\begin{array}{lr}
\text { Accounts Payable } & \$ 30,000 \
\text { Accounts Receivable } & 33,000 \
\text { Inventory } & 60,000 \
\text { Advertising Expense } & 36,000 \
\text { Cost of Goods Sold } & 267,000 \
\text { Delivery Expense } & 18,000 \
\text { Income Tax Expense } & 6,000 \
\text { Insurance Expense } & 3,000 \
\text { Rent Expense } & 36,000 \
\text { Sales Revenue } & 480,000 \
\text { Sales Discounts } & 33,000 \
\text { Sales Returns \& Allowances } & 57,000
\end{array}$ The gross profit percentage would be closest to:
A)25.6%.
B)31.5%.
C)55.6%.
D)68.5%.

Accepted Answer

The answer of The following is a listing of some...

Quiz 6: Merchandising Operations and the Multistep Income Statement

Over a two-year period,Orchid Co.'s gross profit percentage went from 70.4% to 69.7%.Which of the following could not have been the cause of this change?

Hazelwood Company had beginning inventory of $54,000.During the period the company purchased $109,800 of merchandise.At the end of the period,Hazelwood's inventory was $39,600.If the gross profit percentage was 40%,what was Hazelwood's sales revenue?

Under the gross method,purchase and sales discounts are recorded:

If a company achieves a small increase in its gross profit percentage from one year to the next,the company:

Gross profit equals:

A retail store that increases all of its product prices by 25% will experience a(n) in its overall gross profit percentage but may experience a(n) in sales volume.

Lansing Company has a gross profit percentage of 61%,while Arbor Company has a gross profit percentage of 37%.Which of the following statements is correct?

Hayward Co.reported net sales revenues of $23.76 billion and cost of goods sold of $7.2 billion.Its gross profit percentage was:

Belmont Industries announces that its gross profit rose 5% but its income before income taxes fell.Which of the following statements is correct?

Which of the following statements about gross profit percentages is correct?

Pixie Products reported net sales revenue of $18.8 billion and cost of goods sold of $5.6 billion,while Stardust Inc.reported net sales revenue of $22.3 billion and cost of goods sold of $9.3 billion.Which of the following statements is correct?

An account used in the periodic inventory system that is not used in the perpetual inventory system is:

The gross profit percentage is the ratio to watch if you are worried about increased competition.If the company lowers its prices to retain market share without lowering its cost of goods sold,its gross profit percentage will:

Assuming that all else is equal,which of the following companies is most profitable?

A company reported a gross profit percentage of 20% with net sales of $347,800.What is the amount of cost of goods sold?