Question 1

Use this balance sheet and income statement to answer the following question.   The current ratio for Abner Systems is (after rounding to two decimal places
A) .67.
B) 1.25.
C) 1.13.
D) 1.50.

Accepted Answer

The answer of Use this balance sheet and income statement...

Question 2

Under the perpetual inventory system,which of the following accounts would not be used?
A) Cost of Gods Sold
B) Sales Returns and Allowances
C) Accounts Receivable
D) Purchases

Accepted Answer

Under the perpetual inventory system, the "Purchases" account is not used because inventory purchases are directly recorded in the "Inventory" account.

Question 3

Merchandise inventory becomes part of cost of goods sold when a company
A) receives payment from the customer.
B) pays for the inventory.
C) purchases the inventory.
D) sells the inventory.

Accepted Answer

Merchandise inventory is a current asset on the balance sheet, and it becomes cost of goods sold (COGS) when the inventory is sold to the customer. The cost of the inventory is matched with the revenue from the sale to determine the gross profit of the company. Therefore, when a company sells the inventory, it becomes part of COGS.

Question 4

Which of the following goods would not be included in merchandise inventory for a purchasing company?
A) Goods in transit shipped FOB shipping point
B) Goods on hand in the showroom
C) Goods in transit shipped FOB destination
D) Goods ordered and received from the supplier

Accepted Answer

Goods in transit shipped FOB destination are still the responsibility of the seller until they reach their destination. Therefore, they are not yet owned by the purchasing company and should not be included in merchandise inventory.

Question 5

The collection of a $2,000 account beyond the 2 percent discount period would result in a(n)
A) increase to Cash for $1,960.
B) decrease to Accounts Receivable for $2,000.
C) decrease to Cash for $2,000.
D) increase to Sales Discounts for $40.

Accepted Answer

Collecting a $2,000 account beyond the 2 percent discount period means the full amount is paid, so Accounts Receivable decreases by the full $2,000, as the account is settled.

Question 6

A sale on June 21 with terms of n/10 eom is due to be collected by
A) June 30.
B) July 31.
C) July 10.
D) July 21.

Accepted Answer

The term "n/10 eom" means that if the invoice is paid within n days, the buyer will receive a 10% discount. EOM stands for end of month, which means that the discount period ends at the end of the month in which the invoice was issued. 
In this case, the sale was made on June 21, so the end of the month (EOM) is June 30. Therefore, the discount period ends on June 30 and the payment is due by July 10 (n days after June 30). Hence, the best choice is C.

Question 7

Use this information to answer the following question.  The total amount of working capital is
A) $370,000.
B) $40,000.
C) $140,000.
D) $60,000.

Accepted Answer

According to the provided information, working capital can be calculated by subtracting current liabilities from current assets. 
Current Assets = $510,000 
Current Liabilities = $370,000 
Therefore, Working Capital = $510,000 - $370,000 = $140,000. Hence, option C, $140,000, is the correct choice.

Question 8

Goods totaling $56,000 purchased August 2 on terms of 2/10,n/30 and on which returns of $2,000 were made on August 10 would be subject to which of the following discounts if paid for on August 12?
A) $1,080
B) $1,120
C) $1,160
D) $40

Accepted Answer

The discount is 2% of the net amount after returns. The net amount is $56,000 - $2,000 = $54,000. The discount is 2% of $54,000, which is $1,080.

Question 9

The entry to record a $750 sale with terms of 2/10,n/30 would include a(n)
A) decrease to Accounts Receivable for $750.
B) increase to Sales for $750.
C) increase to Sales Discounts for $15.
D) decrease to Sales for $735.

Accepted Answer

When recording a sale with terms of 2/10,n/30, we first account for the full amount of the sale as an increase to Sales for $750. We do not decrease Accounts Receivable until the payment is received, so option A is incorrect. Option C is also incorrect because the sale qualifies for a 2% discount ($750 x 0.02 = $15), but this amount would be recorded as a decrease to Accounts Receivable if the customer takes the discount. Option D is incorrect because it suggests a decrease to Sales, which is not accurate. Therefore, the correct answer is B, an increase to Sales for $750.

Question 10

Which of the following does not represent a sale?
A) Merchandise placed aside for a customer who plans to come in next week and pay with cash
B) Purchase of merchandise by a customer who pays cash
C) Sale of merchandise to a customer who uses a credit card
D) Purchase of merchandise by a customer who uses a debit card

Accepted Answer

The merchandise has not been paid for yet, so it is not considered a sale until payment is received.

Question 11

Use this information to answer the following question.  The total amount of working capital is
A) $70,000.
B) $180,000.
C) $124,000.
D) $500,000.

Accepted Answer

The answer of Use this information to answer the following...

Question 12

The entry to record payment of a $1,500 purchase within the 2 percent discount period would include a(n)
A) decrease to Accounts Payable for $1,470.
B) increase to Purchases Discounts for $30.
C) increase to Accounts Payable for $1,500.
D) increase to Cash for $1,500.

Accepted Answer

The entry would include an increase to Purchases Discounts for $30, as the discount is 2% of $1,500, which equals $30.

Question 13

Use this information to answer the following question.  The current ratio is
A) 3.18.
B) 2.75.
C) 1.45.
D) .36

Accepted Answer

The answer of Use this information to answer the following...

Question 14

A purchase on account with an invoice price of $1,500 has been made.The entry to record the payment after the 2 percent discount period would include a(n)
A) decrease to Accounts Payable for $1,500.
B) decrease to Purchases Discounts for $30.
C) increase to Accounts Payable for $1,470.
D) decrease to Cash for $1,470.

Accepted Answer

DWhen paying after the discount period, the full invoice amount is paid, so Accounts Payable decreases by $1,500 (A), and Cash decreases by $1,500, but since the question specifies a payment of $1,470, which would be incorrect after the discount period, option D is technically incorrect based on the question's premise. However, understanding the intent, if the payment was made within the discount period, Cash would decrease by the discounted amount ($1,470), but since the scenario specifies payment after the discount period, the correct understanding is that Cash decreases by the full invoice amount ($1,500), making A the most accurate choice under normal circumstances.

Question 15

A discount that buyers take for early payment of merchandise is called a
A) customer discount.
B) purchases discount.
C) sales discount.
D) trade discount.

Accepted Answer

The discount that buyers take for early payment of merchandise is called a purchases discount. This is because the buyer is receiving a discount for paying for their purchases early, which is an incentive for them to continue making purchases from the seller. The other options are not accurate descriptions of this type of discount. A customer discount is a discount given to a customer for various reasons such as loyalty or good behavior. A sales discount is a discount given by the seller for various reasons such as seasonal sales or to reduce inventory. A trade discount is a discount applied to the list price of a product or service for specific groups such as wholesalers or retailers.

Question 16

A retailer accepted Visa charge sales totaling $1,500 and deposited the charge slips in the bank.Assuming a credit card discount expense of 4 percent,what would be the increase to Cash and the increase to Sales,respectively?
A) $1,500 and $1,440
B) $1,440 and $1,500
C) $1,440 and $1,440
D) $1,500 and $1,500

Accepted Answer

The increase to Sales is the total amount of sales, which is $1,500. The increase to Cash is the sales amount minus the credit card discount expense (4% of $1,500), which is $1,440.

Question 17

Use this information to answer the following question. Alfalfa Company experienced the following events during the period:
 The entry to record transaction 2 would include a(n)
A) increase in Accounts Receivable for $800.
B) increase in Sales for $800.
C) decrease in Credit Card Expense for $32.
D) decrease in Cash for $768.

Accepted Answer

Transaction 2 represents the sale of $800 of merchandise on credit. This event increases the company's Sales by $800. Therefore, the entry to record transaction 2 would include an increase in Sales for $800. None of the other answer choices are correct.

Question 18

The collection of a $400 account within the 2 percent discount period would result in a(n)
A) increase to Accounts Receivable for $392.
B) decrease to Cash for $392.
C) increase to Sales Discounts for $8.
D) decrease to Accounts Receivable for $392.

Accepted Answer

The collection of a $400 account within the 2 percent discount period would result in an increase to Sales Discounts for $8, as the discount amount is recorded as a sales discount.

Question 19

Use this information to answer the following question. Alfalfa Company experienced the following events during the period:
 The entry to record transaction 1 would include an increase in
A) Credit Card Expense for $80.
B) Sales for $1,520.
C) Cash for $1,600.
D) Accounts Receivable for $1,520.

Accepted Answer

The answer of Use this information to answer the following...

Question 20

Under the perpetual inventory system,in addition to making the entry to record a sale,a company would
A) record an increase in inventory corresponding to the amount of the sale.
B) record a decrease in inventory and an increase in cost of goods sold for the cost of the merchandise sold.
C) record an increase in inventory corresponding to the cost of the inventory.
D) make no additional entry until the end of the period.

Accepted Answer

Under the perpetual inventory system, a company continuously updates its inventory records. Therefore, along with recording the sale, the company will also record a decrease in inventory and an increase in cost of goods sold for the cost of the merchandise sold. This ensures that the inventory and cost of goods sold accounts are always accurate and up to date. Option A is incorrect as there is no increase in inventory when a sale is made. Option C is incorrect as the increase in inventory would be recorded at the time of purchase. Option D is incorrect as daily updates are necessary under the perpetual inventory system.

Quiz 6: The Operating Cycle and Merchandising Operations

Use this balance sheet and income statement to answer the following question. The current ratio for Abner Systems is (after rounding to two decimal places

Under the perpetual inventory system,which of the following accounts would not be used?

Merchandise inventory becomes part of cost of goods sold when a company

Which of the following goods would not be included in merchandise inventory for a purchasing company?

The collection of a $2,000 account beyond the 2 percent discount period would result in a(n)

A sale on June 21 with terms of n/10 eom is due to be collected by

Use this information to answer the following question. The total amount of working capital is

Goods totaling $56,000 purchased August 2 on terms of 2/10,n/30 and on which returns of $2,000 were made on August 10 would be subject to which of the following discounts if paid for on August 12?

The entry to record a $750 sale with terms of 2/10,n/30 would include a(n)

Which of the following does not represent a sale?

Use this information to answer the following question. The total amount of working capital is

The entry to record payment of a $1,500 purchase within the 2 percent discount period would include a(n)

Use this information to answer the following question. The current ratio is

A purchase on account with an invoice price of $1,500 has been made.The entry to record the payment after the 2 percent discount period would include a(n)

A discount that buyers take for early payment of merchandise is called a

A retailer accepted Visa charge sales totaling $1,500 and deposited the charge slips in the bank.Assuming a credit card discount expense of 4 percent,what would be the increase to Cash and the increase to Sales,respectively?

Use this information to answer the following question. Alfalfa Company experienced the following events during the period: The entry to record transaction 2 would include a(n)

The collection of a $400 account within the 2 percent discount period would result in a(n)

Use this information to answer the following question. Alfalfa Company experienced the following events during the period: The entry to record transaction 1 would include an increase in

Under the perpetual inventory system,in addition to making the entry to record a sale,a company would