Question 1

Your store buys ice cream for $1.50 a half litre (not including general and administrative expenses of $0.75)and sells it for $4 a half litre.Which of the following statements is true?
A)Your gross profit per half litre is $2.50.
B)Your gross profit per half litre is $1.75.
C)$2.50 is recorded in an account titled Gross Profit.
D)$1.75 is recorded in an account titled Gross Profit.

Accepted Answer

Net sales - COGS = Gross profit $4.00 - $1.50 = $2.50.

Question 2

Which of the following is not an advantage of perpetual inventory system?
A)It helps reduce expenses and costs.
B)It helps increase productivity of the economy.
C)It is simple and less costly to maintain.
D)It provides up to date information on inventory and cost of goods sold instantly.

Accepted Answer

Perpetual inventory system is not always simple and less costly to maintain, especially for large businesses with complex inventory systems. It requires accurate and frequent record-keeping, which can be time-consuming and costly. However, the other options (A, B, and D) are advantages of perpetual inventory system.

Question 3

BetterBuy sells $50,000 of TVs to a customer.The terms include a 2% discount if paid in 7 days and a 1% discount if paid in 8-14 days.BetterBuy receives the money in 12 days.How would the transaction be recorded by BetterBuy?
A)Debit Inventory for $500 and credit Accounts Payable for $500.
B)Debit Cash for $49,500,credit Accounts receivable for $50,000,and debit sales discounts for $500.
C)Debit Accounts receivable for $50,000,credit Cash for $49,500,and credit sales discounts for $500.
D)Debit Accounts Payable for $500 and credit Inventory for $500.

Accepted Answer

The discount would be $500 (.01 * 50,000).The customer would pay $49,500 in cash.The discount is debited to Sales Discount and Account Receivable is credited for $50,000 (the original amount of the sale).

Question 4

Sales discounts where a company offers to give a discount on price if the customer pays earlier are usually given in following types of transactions:
A)Business to Business (B2B)
B)Business to consumers
C)To retail customers
D)To long and frequent customers

Accepted Answer

Sales discounts offered on early payment are more common in B2B transactions, where there is often a longer payment cycle and the supplier may request faster payment in order to improve cash flow. Retail customers and long/frequent customers may also receive discounts, but these are usually based on loyalty programs or seasonal promotions rather than early payment.

Question 5

Purrfect Pets announces that its gross profit rose 5% and its net income fell.Which of the following statements is true?
A)This is not possible given that net income is determined by gross profit.
B)This must mean that other expenses have risen more than 5%.
C)This must mean that other expenses fell.
D)This must mean that sales revenue fell.

Accepted Answer

If the gross profit rose by 5% and the net income fell, it means that the expenses increased more than the rise in gross profit. Therefore, option B is the correct answer. Option A is incorrect because net income is not solely determined by gross profit, as there are other factors such as expenses and taxes that affect it. Option C is unlikely because if other expenses fell, the net income should have increased rather than decreased. Option D is not necessarily true as sales revenue might have remained the same or even increased, but the increase in expenses led to a decrease in net income.

Question 6

Your company purchases $50,000 of inventory from a wholesaler that allows you 45 days to pay.In addition,the wholesaler offers a 3% discount if payment is made within 12 days.These payment terms would be expressed as:
A)03/12,n/45.
B)n/45,3/12.
C)n/45,.03/12.
D)3/12,n/45.

Accepted Answer

The payment terms are expressed as 3/12, n/45. The 3/12 means that if payment is made within 12 days, a 3% discount will be given. The n/45 means that the full payment is due within 45 days. Therefore, option D correctly represents these terms.

Question 7

Merchandise was sold on credit for $3,000,terms 1/10,n/30.The correct entry to record the cash collection should be:
A)Debit Cash,$3,000,and credit Accounts Receivable,$3,000,if collected within the discount period.
B)Debit Cash,$3,000,and credit Accounts Receivable,$2,970,and Sales Discount,$30,if collected within the discount period.
C)Debit Cash,$3,000,and credit Accounts Receivable,$2,970,and Sales Discount,$30,if collected after the discount period.
D)Debit Cash,$3,000,and credit Accounts Receivable,$3,000,if collected after the discount period.

Accepted Answer

Sales Discounts is 1% discount ($3,000 * .01 = $30)will be debited when payment is received within the discounted period.If payment is received after the discount period,the gross sales amount ($3,000)is collected.

Question 8

Which is the best form of inventory control for inventory?
A)Establish responsibility.
B)Use a periodic inventory system.
C)Use a perpetual inventory system.
D)Document procedures.

Accepted Answer

A perpetual inventory system provides the most accurate and up-to-date information about inventory levels, allowing businesses to quickly identify and address any issues with stock levels. This system tracks inventory in real-time through the use of technology and software, making it the best form of inventory control. Establishing responsibility, documenting procedures, and using a periodic inventory system are all important components of inventory control, but a perpetual inventory system provides the most effective management of inventory.

Question 9

If a customer returns an item to the retailer,the retailer will record the return as:
A)sales returns and allowances.
B)shrinkage.
C)sales discounts.
D)purchase returns and allowances.

Accepted Answer

Sales returns and allowances refer to the merchandise that is returned by customers. These returns are reflected in the sales returns and allowances account in the general ledger of the retailer.

Question 10

Sales revenue is $367,810 while sales returns and allowances and sales discounts total $24,180.The cost of goods sold is $216,490,operating and other expenses are $28,500,and the company pays $31,640 in income tax.Which of the following is true?
A)Net sales is $127,140 and gross profit is $98,640.
B)Net sales is $67,000 and gross profit is $98,640.
C)Net sales is $343,630 and gross profit is $127,140.
D)Net sales is $367,810 and gross profit is $67,000.

Accepted Answer

Net sales = Sales revenue - (Sales returns and allowances + Sales discounts)
Net sales = $367,810 - ($24,180)
Net sales = $343,630

Gross profit = Net sales - Cost of goods sold
Gross profit = $343,630 - $216,490
Gross profit = $127,140

Question 11

BetterBuy sells a computer from inventory for $599 on credit.BetterBuy originally bought the computer from IBM for $395.What are the journal entries Betterbuy would record?
A)Debit Cash for $599,credit Sales for $599; debit Inventory for $395 and credit Cost of Goods Sold for $395.
B)Debit Accounts Receivable for $599,credit Inventory for $395,and credit Retained Earnings for $204.
C)Debit Accounts Receivable for $599,credit Sales for $599; debit Cost of Goods Sold for $395 and credit Inventory for $395.
D)Debit Inventory for $395,debit Cost of Goods Sold for $204,and credit Accounts Receivable for $599.

Accepted Answer

- Debit Accounts Receivable for $599: This represents the amount owed to BetterBuy by the customer who purchased the computer on credit.
- Credit Sales for $599: This represents the revenue earned by BetterBuy from the sale of the computer.
- Debit Cost of Goods Sold for $395: This represents the cost of the computer sold, which reduces BetterBuy's gross profit.
- Credit Inventory for $395: This reduces the value of BetterBuy's inventory because one computer has been sold.

Question 12

Which of the following is a true statement for a company using a perpetual inventory system?
A)Purchase returns and allowances is a contra-account to revenue.
B)Sales returns and allowances is a contra-account to revenue.
C)Purchase returns and allowances is a contra-account to accounts receivable.
D)Sales returns and allowances is a contra-account to inventory.

Accepted Answer

Sales returns and allowances is a contra-revenue account, which means it is used to record the sales that were either returned by customers or allowed a reduction in price, thereby reducing the total revenue from sales.

Question 13

A company has gross profit of $58,300 and a gross profit percentage of 25%.What is the company's net sales?
A)$233,200.
B)$14,575.
C)$72,825.
D)none of the answers are acceptable.

Accepted Answer

Gross Profit% = Gross Profit/Net Sales $58,300/Net Sales = .25
Net Sales = $233,200.

Question 14

A company had the following partial list of account balances at year-end:

$\begin{array}{c}
\begin{array}{|l}
  \hline\text {Gales Returns and Allowarices  }\
  \hline\text {Accourt Receivable  }\
 \hline \text {  Bales Discouts}\
 \hline \text {  Bales Reverue}\
 \hline \text { 
Bellirg ard Adrniristrative Expenses }\
 \hline
\end{array}
\begin{array}{|r|}
 \hline\$500\
 \hline9,000\
 \hline700\
 \hline57,200\
 \hline300\
 \hline
\end{array}
\end{array}$
 The amount of net sales reported on the income statement would be:
A)$57,200.
B)$64,200.
C)$56,000.
D)$55,700.

Accepted Answer

The answer of A company had the following partial list...

Question 15

Contra-revenue accounts:
A)are liabilities.
B)are recorded with a credit.
C)are recorded with a debit.
D)are expenses.

Accepted Answer

Contra-revenue accounts are recorded with a debit to reduce the total revenue figures on the income statement. They are not liabilities, not recorded with a credit, and are not expenses, but rather adjustments to revenue.

Question 16

Central Company sold goods for $5,000 to Western Company on March 12 on credit.Terms of the sale were 2/10,n/30.At the time of the sale,Central recorded the transaction by debiting accounts receivable for $5,000 and crediting sales revenue for $5,000.Western paid the balance due,less the discount,on March 21.To record the March 21 transaction,Central would debit:
A)Cash for $4,900.
B)Accounts Receivable for $4,900.
C)Cash for $5,000.
D)Accounts Receivable for $5,000.

Accepted Answer

If received within the discount period the new amount is 98% of the invoice amount.$5,000(.98)= $4,900.

Question 17

When a company makes a sale and accepts a credit card payment from a customer,the company:
A)debits Cash.
B)credits Accounts Receivable.
C)credits Cash.
D)debits Accounts Receivable.

Accepted Answer

The answer of When a company makes a sale and...

Question 18

When sales discounts in the current year exceed sales discounts in the prior year,assuming all else remains unchanged,what is the effect on the gross profit percentage?
A)The percentage will not change or it will increase.
B)The percentage will not change or it will decrease.
C)The percentage will decrease.
D)None of the answers are acceptable.

Accepted Answer

When sales discounts increase, net sales decrease, leading to a lower gross profit percentage if cost of goods sold remains unchanged.

Question 19

Which of the following is a true statement for a company using a perpetual inventory system?
A)Sales discounts is a contra-account to revenue.
B)Purchase discounts is a contra-account to revenue.
C)Purchase discounts is a contra-account to accounts receivable
D)Sales discounts is a contra-account to inventory.

Accepted Answer

Sales discounts reduce the amount of revenue recognized from sales, acting as a contra-revenue account, which is correct for a company using a perpetual inventory system.

Question 20

When goods are sold to a customer with credit terms of 2/15,n/30,the customer will:
A)receive a 15% discount if they pay within 2 days.
B)receive a 2% discount if they pay 15% of the amount due within 30 days.
C)receive a 15% discount if they pay within 30 days.
D)receive a 2% discount if they pay within 15 days.

Accepted Answer

The credit terms,2/15,n/30 means that 2% of the invoice amount may be deducted if the invoice is paid in 15 days.Otherwise,the gross amount is due in 30 days.

Quiz 6: Merchandising Operations and the Multi-Step Income Statement

Your store buys ice cream for $1.50 a half litre (not including general and administrative expenses of $0.75) and sells it for $4 a half litre.Which of the following statements is true?

Which of the following is not an advantage of perpetual inventory system?

BetterBuy sells $50,000 of TVs to a customer.The terms include a 2% discount if paid in 7 days and a 1% discount if paid in 8-14 days.BetterBuy receives the money in 12 days.How would the transaction be recorded by BetterBuy?

Sales discounts where a company offers to give a discount on price if the customer pays earlier are usually given in following types of transactions:

Purrfect Pets announces that its gross profit rose 5% and its net income fell.Which of the following statements is true?

Your company purchases $50,000 of inventory from a wholesaler that allows you 45 days to pay.In addition,the wholesaler offers a 3% discount if payment is made within 12 days.These payment terms would be expressed as:

Merchandise was sold on credit for $3,000,terms 1/10,n/30.The correct entry to record the cash collection should be:

Which is the best form of inventory control for inventory?

If a customer returns an item to the retailer,the retailer will record the return as:

Sales revenue is $367,810 while sales returns and allowances and sales discounts total $24,180.The cost of goods sold is $216,490,operating and other expenses are $28,500,and the company pays $31,640 in income tax.Which of the following is true?

BetterBuy sells a computer from inventory for $599 on credit.BetterBuy originally bought the computer from IBM for $395.What are the journal entries Betterbuy would record?

Which of the following is a true statement for a company using a perpetual inventory system?

A company has gross profit of $58,300 and a gross profit percentage of 25%.What is the company's net sales?

Contra-revenue accounts:

When a company makes a sale and accepts a credit card payment from a customer,the company:

When sales discounts in the current year exceed sales discounts in the prior year,assuming all else remains unchanged,what is the effect on the gross profit percentage?

Which of the following is a true statement for a company using a perpetual inventory system?

When goods are sold to a customer with credit terms of 2/15,n/30,the customer will: