Question 1

All of the following statements regarding inventory shrinkage are true except:

Accepted Answer

Inventory shrinkage is recognized by debiting Cost of Goods Sold, not an operating expense. The other statements are true: inventory shrinkage refers to the loss of inventory, it is determined by comparing physical count with recorded amounts, and it can be caused by theft or deterioration.

Question 2

Multiple-step income statements:

Accepted Answer

Multiple-step income statements contain more detail than a simple listing of revenues and expenses, and are commonly used to provide investors and creditors with a clearer picture of a company's net income and operating performance. They are not required by the FASB, nor are they limited to use in perpetual inventory systems. Cost of goods sold is typically listed separately from operating expenses in a multiple-step income statement.

Question 3

On October 1,Whaley Company sold merchandise in the amount of $5,800 to Lee Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Whaley uses the perpetual inventory system.Lee pays the invoice on October 8,and takes the appropriate discount.The journal entry that Whaley makes on October 8 is:

Accepted Answer

Sales Discounts = $5,800 * .02 = $116
Cash = $5,800 - $116 = $5,684

Question 4

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

Accepted Answer

Purchases is an account used only in the periodic inventory system. In the perpetual inventory system, the Purchases account is replaced by the Inventory account, which is continually adjusted as inventory is bought and sold.

Question 5

Which of the following accounts would be closed with a debit?

Accepted Answer

Sales is a revenue account, and since revenues increase with credits, they are closed with a debit to zero out the account at the end of the accounting period.

Question 6

On October 1,Courtland Company sold merchandise in the amount of $5,800 to Carter Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Courtland uses the periodic inventory system.The journal entry or entries that Courtland will make on October 1 is:

Accepted Answer

The answer of On October 1,Courtland Company sold merchandise in...

Question 7

A company records the following journal entry: debit Cash $1,470,debit Sales Discounts $30,and credit Accounts Receivable $1,500.This means that a customer has taken a ___ cash discount for early payment.

Accepted Answer

Discount = $30/$1,500 = 2%

Question 8

On October 1,Courtland Company sold merchandise in the amount of $5,800 to Carter Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Courtland uses the periodic inventory system.Carter pays the invoice on October 8,and takes the appropriate discount.The journal entry that Courtland makes on October 8 is:

Accepted Answer

Sales Discounts = $5,800 * .02 = $116
Cash = $5,800 - $116 = $5,684

Question 9

Brig Company had $800,000 in sales,sales discounts of $12,000,sales returns and allowances of $18,000,cost of goods sold of $380,000,and $275,000 in operating expenses.Net income equals:

Accepted Answer

Net Income = $800,000 - $12,000 - $18,000 - $380,000 - $275,000 = $115,000

Question 10

When preparing an unadjusted trial balance using a periodic inventory system,the amount shown for Merchandise Inventory is:

Accepted Answer

When preparing an unadjusted trial balance using a periodic inventory system, the Merchandise Inventory account will reflect the beginning inventory amount. This is because periodic inventory systems do not track inventory on a real-time basis, so the ending inventory balance cannot be determined until a physical count is taken at the end of the period. Therefore, the Merchandise Inventory balance on the unadjusted trial balance will reflect the beginning inventory amount from the previous period.

Question 11

Brig Company had $800,000 in net sales,$350,000 in gross profit,and $200,000 in operating expenses.Cost of goods sold equals:

Accepted Answer

Cost of Goods Sold = Net Sales - Gross Profit; $800,000 - $350,000 = $450,000

Question 12

On October 1,Courtland Company sold merchandise in the amount of $5,800 to Carter Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Courtland uses the periodic inventory system.On October 4,Carter returns some of the merchandise.The selling price of the merchandise is $500 and the cost of the merchandise returned is $350.Carter pays the invoice on October 8,and takes the appropriate discount.The journal entry that Courtland makes on October 8 is:

Accepted Answer

Accounts Receivable = $5,800 - $500 = $5,300
Sales Discounts = $5,300 * .02 = $106
Cash = $5,300 - $106 = $5,194

Question 13

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Accepted Answer

A single-step income statement lists all revenues and gains in one section and all expenses and losses in another section, without calculating any subtotals such as gross profit or operating income. This type of income statement is simpler than a multiple-step income statement, which shows multiple subtotals and categories of revenue and expenses. The inclusion of cost of goods sold as an expense in the single-step income statement distinguishes it from the simplified income statement, which typically does not include this detail.

Question 14

Expenses of promoting sales by displaying and advertising merchandise,making sales,and delivering goods to customers are:

Accepted Answer

These expenses are considered selling expenses, which are costs incurred specifically to promote sales and include displaying and advertising merchandise, making sales, and delivering goods to customers. Choice A, general and administrative expenses, includes expenses such as salaries, rent, and utilities not directly related to sales. Choice B, cost of goods sold, refers to the direct costs associated with producing the goods being sold. Choice D, purchasing expenses, includes costs associated with buying goods for resale, such as ordering and processing purchase orders. Choice E, non-operating activities, pertains to income and expenses that are not related to the company's primary operations, such as interest income or losses from investments.

Question 15

Benson Company had cash sales of $94,275,credit sales of $83,450,sales returns and allowances of $1,700,and sales discounts of $3,475.Benson's net sales for this period equal:

Accepted Answer

Net Sales = $94,275 + $83,450 - $1,700 - $3,475 = $172,550

Question 16

A company has net sales and cost of goods sold of $752,000 and $543,000,respectively.Its net income is $17,530.The company's gross margin and operating expenses are ________ and ____________,respectively.

Accepted Answer

Gross Margin = Net Sales - Cost of Goods Sold; $752,000 - $543,000 = $209,000
Operating Expenses = Gross Margin - Net Income; $209,000 - $17,530 = $191,470

Question 17

On October 1,Courtland Company sold merchandise in the amount of $5,800 to Carter Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Courtland uses the periodic inventory system.On October 4,Carter returns some of the merchandise.The selling price of the merchandise is $500 and the cost of the merchandise returned is $350.The entry or entries that Courtland must make on October 4 is:

Accepted Answer

When the merchandise is returned by Carter, Courtland needs to issue a credit memorandum to Carter. The entry should reduce both accounts receivable and sales revenue by the same amount, $500. Additionally, the cost of goods sold needs to be reduced by the cost of the merchandise returned, $350, which is recorded as an increase in inventory. Therefore, the entry required is:
Accounts receivable - $500
Sales revenue - $500
Inventory - $350
Cost of goods sold - $350

The correct option is B.

Question 18

Expenses that support the overall operations of a business and include the expenses relating to accounting,human resource management,and financial management are called:

Accepted Answer

General and administrative expenses are expenses incurred in support of the overall operations of a business. These may include expenses related to accounting, human resource management, and financial management. Cost of goods sold, selling expenses, and purchasing expenses are all specific types of expenses that relate to the production, marketing, and procurement of goods or services. Non-operating activities are activities that are not directly related to the core operations of the business, such as investment income or gains from the sale of assets.

Question 19

On October 1,Mutch Company sold merchandise in the amount of $5,800 to Carr Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Mutch uses the perpetual inventory system.On October 4,Carr returns some of the merchandise.The selling price of the merchandise is $500 and the cost of the merchandise returned is $350.The entry or entries that Mutch must make on October 4 is:

Accepted Answer

The answer of On October 1,Mutch Company sold merchandise in...

Question 20

Brig Company had $800,000 in sales,sales discounts of $12,000,sales returns and allowances of $18,000,cost of goods sold of $380,000,and $275,000 in operating expenses.Gross profit equals:

Accepted Answer

Gross Profit (Margin) = $800,000 - $12,000 - $18,000 - $380,000 = $390,000

Quiz 5: Accounting for Merchandising Operations