Question 1

In a periodic inventory system, the cost of merchandise purchased includes the cost of freight-in.

Accepted Answer

In periodic inventory system, the cost of merchandise purchased includes the actual cost of the merchandise as well as any additional costs such as transportation, handling, and freight-in.

Question 2

Net sales is equal to sales minus cost of merchandise sold.

Accepted Answer

Net sales is equal to sales minus any returns, discounts, and allowances. Cost of merchandise sold is a separate expense item that represents the cost of the products sold by a company.

Question 3

In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.

Accepted Answer

In a perpetual inventory system, the Merchandise Inventory account is used to continuously track and record the purchases and sales of inventory, not just the beginning inventory.

Question 4

Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.

Accepted Answer

The answer of Cost of merchandise sold is the amount...

Question 5

In many retail businesses, inventory is the largest current asset.

Accepted Answer

Inventory is often the largest current asset for retail businesses as they hold a significant amount of merchandise for sale.

Question 6

On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.

Accepted Answer

In the single-step income statement, all expenses are deducted from all revenues to arrive at the net income or loss.

Question 7

When a merchandising business is compared to a service business, the financial statement that is not affected by that change is the Statement of Owner's Equity.

Accepted Answer

The answer of When a merchandising business is compared to...

Question 8

One of the most important differences between a service business and a retail business is in what is sold.

Accepted Answer

A service business provides intangible products such as expertise, advice, and assistance, while a retail business sells tangible products such as goods and merchandise.

Question 9

As we compare a merchandise business to a service business, the financial statement that changes the most is the Balance Sheet.

Accepted Answer

The financial statement that changes the most when comparing a merchandise business to a service business is the Income Statement. This is because the type of business affects the types of expenses and revenue that are recorded. In a merchandise business, there will be expenses related to inventory and cost of goods sold, while in a service business, there may be expenses related to labor or specialized equipment. Similarly, revenue streams may differ between the two types of businesses.

Question 10

The ending merchandise inventory for 2010 is the same as the beginning merchandise inventory for 2011.

Accepted Answer

The ending merchandise inventory for a year becomes the beginning merchandise inventory for the following year, so they should be the same.

Question 11

Income that cannot  be associated definitely with operations, such as a gain from the sale of a fixed asset, is listed as Other Income on the multiple-step income statement.

Accepted Answer

This statement is true. Other Income refers to any income that is not derived from a company's main operations, such as gains from the sale of assets or investments, or one-time non-recurring items. These items are listed separately from the company's main sources of revenue on the multiple-step income statement.

Question 12

Service businesses provide services for income, while a merchandising business sells merchandise.

Accepted Answer

Service businesses earn income by providing services, while merchandising businesses earn income by selling merchandise.

Question 13

In a multiple-step income statement the dollar amount for income from operations is always the same as net income.

Accepted Answer

The dollar amount for income from operations is not always the same as net income in a multiple-step income statement. Income from operations is calculated by subtracting operating expenses from gross profit, while net income is calculated by subtracting all expenses, including taxes and interest, from total revenues. Therefore, there may be other items, such as non-operating expenses or gains, that will affect the final net income.

Question 14

In a merchandise business, sales minus operating expenses equals net income.

Accepted Answer

In a merchandise business, sales minus cost of goods sold minus operating expenses equals net income.

Question 15

The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a downward sequence is called the report form.

Accepted Answer

The report form of a balance sheet presents assets at the top, followed by liabilities and owner's equity below, in a vertical sequence, resembling a report.

Question 16

In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.

Accepted Answer

In periodic inventory system, purchases of merchandise for resale are debited to the Purchases account. The cost of goods sold is calculated at the end of the accounting period by subtracting the ending inventory from the sum of beginning inventory and purchases.

Question 17

Under the periodic inventory system, the cost of merchandise sold is equal to the beginning merchandise inventory plus the cost of merchandise purchased plus the ending merchandise inventory.

Accepted Answer

Under the periodic inventory system, the cost of merchandise sold is calculated as beginning merchandise inventory plus the cost of merchandise purchased minus the ending merchandise inventory.

Question 18

Gross profit minus selling expenses equals net income.

Accepted Answer

Gross profit minus selling expenses equals gross margin. Net income is calculated by subtracting all expenses (not just selling expenses) from gross margin.

Question 19

The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.

Accepted Answer

The single-step income statement does not provide a separate line item for gross profit or income from operations, making it more difficult to identify these important financial metrics.

Question 20

Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a physical count of the inventory.

Accepted Answer

Under a periodic inventory system, inventory is not continuously tracked throughout the year and the ending inventory is determined through a physical count at the end of the year.

Quiz 5: Accounting for Merchandising Businesses