Question 1

Which of the following statements about a periodic inventory system is not correct?

Accepted Answer

In a periodic inventory system, the Cost of Goods Sold (COGS) account is not updated as sales transactions occur. Instead, COGS is calculated at the end of the accounting period by taking the beginning inventory, adding purchases, and subtracting the ending inventory.

Question 2

The basic purpose of offering customers cash discounts such as 2/10, n/30 is to:

Accepted Answer

The purpose of offering cash discounts such as 2/10, n/30 is to speed up the collection of accounts receivable. This means that customers who pay within the discount period (10 days in this case) will receive a lower price, but the seller will receive the cash sooner, which improves cash flow and reduces the risk of bad debts.

Question 3

When making sales, the sales taxes received are:

Accepted Answer

Sales taxes received are considered a liability because the company has an obligation to remit those taxes to the appropriate government agency.

Question 4

Emerald Co. uses a perpetual inventory system and records purchases of merchandise at net cost. The company recently purchased 200 compact discs at an invoice price of $6,000 and terms of 2/10, n/30. Half of these discs had been mislabeled and were returned immediately to the supplier. The journal entry to record payment of this invoice after the discount period has expired will include a:

Accepted Answer

Since the company returned half of the compact discs, the amount owed would be half of the original $6,000 invoice, which is $3,000. Since the payment is made after the discount period, no discount applies, and the full amount of $3,000 is paid. Therefore, the journal entry to record the payment would include a credit to Cash for $3,000, reflecting the cash outflow to settle the invoice.

Question 5

The Sales Returns and Allowances account is debited when:

Accepted Answer

The Sales Returns and Allowances account is debited when merchandise is returned by a customer. This account is used to record the reductions in sales revenue due to returned or damaged items, or when a customer receives an allowance for a defective or incorrect product.

Question 6

The gross profit margin:

Accepted Answer

The gross profit margin is a percentage that indicates how much of each dollar of revenue is left after the cost of goods sold is subtracted. It is an important metric for analyzing a company's financial performance and may indicate popular products and successful marketing strategies. Option A is incorrect as it defines gross profit, not the gross profit margin. Option C is incorrect as the gross profit margin can be computed for specific sales departments. Option D is incorrect as it adds gross operating expenses to the cost of goods sold, which is not how gross profit margin is calculated.

Question 7

As a retailer, which of the following percentages is the least attractive to you?

Accepted Answer

A sales markup of 30% over cost results in a lower gross margin compared to the other options, making it the least attractive for a retailer.

Question 8

During the year 2010, the inventory of Debra's Gift Shop decreased by $50,000. If the income statement for the year 2010 reported cost of goods sold of $350,000, purchases during the year must have amounted to:

Accepted Answer

The decrease in inventory of $50,000 indicates that less inventory was purchased during the year than was sold. To find the actual amount of purchases, we need to add the cost of goods sold to the decrease in inventory:
Purchases = Cost of goods sold + Decrease in inventory
Purchases = $350,000 - $50,000
Purchases = $300,000

Therefore, the correct answer is C) $300,000.

Question 9

Inventory shrinkage is not caused by:

Accepted Answer

Inventory shrinkage is caused by theft (shoplifting), breakage, spoilage and administrative errors. Price reductions by competitors do not affect the physical inventory of a store and therefore do not cause shrinkage.

Question 10

All of the following accounts normally have debit balances except:

Accepted Answer

Purchase Returns & Allowances is a contra account to Purchases and normally has a credit balance, unlike the other options which are expense or expense-related accounts that typically have debit balances.

Question 11

Periodic inventory systems are used primarily by:

Accepted Answer

The answer of Periodic inventory systems are used primarily by:
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Question 12

Regal Artworks Co. records purchases net of all available purchase discounts. If the company makes payment after the discount has expired, the entry to record the payment should include a:

Accepted Answer

Since Regal Artworks Co. records purchases net of all available purchase discounts, if they make payment after the discount has expired, they will have lost the benefit of the discount. The entry to record the payment should include a debit to Purchase Discounts Lost to reflect this cost.

Question 13

The following information is available: Calculate the gross profit:

Accepted Answer

The answer of The following information is available: Calculate the...

Question 14

Parkside Pool reports net sales of $625,000, gross profit of $275,000, and net income of $15,000. The company's cost of goods sold is:

Accepted Answer

Cost of goods sold can be calculated using the following formula:

Cost of Goods Sold = Net Sales - Gross Profit

Thus, Cost of Goods Sold = $625,000 - $275,000 = $350,000.

Therefore, the correct answer is option B.

Question 15

If sales discounts are shown as a separate item in financial statements, they should be shown as a (n):

Accepted Answer

Sales discounts are deducted from gross sales revenue, as they represent a reduction in the amount of revenue earned. They are not a deduction from accounts receivable, as the discount is applied at the time of sale and not to outstanding receivables. They are also not an operating expense or current liability.

Question 16

To arrive at net sales:

Accepted Answer

To arrive at net sales, one must account for any sales returns and sales discounts. These amounts are subtracted from the total sales in order to get the actual revenue earned.

Question 17

In a periodic inventory system, the formula used in computing the cost of goods sold may be summarized as follows:

Accepted Answer

In a periodic inventory system, the cost of goods sold is calculated by adding the beginning inventory to the purchases made during the period and subtracting the ending inventory. This formula assumes that all purchases made during the period have been sold and that any inventory remaining at the end of the period represents unsold goods. Hence, option A, Beginning inventory + purchases - ending inventory, is the best choice.

Question 18

Bernice Beverages is not satisfied with the quality of merchandise purchased from Reade Supplies. If American Supplies agrees to settle this matter by granting Bernice Beverages a sales allowance, Bernice Beverages will:

Accepted Answer

A sales allowance means Bernice Beverages will keep the merchandise but will pay a reduced purchase price due to the dissatisfaction with the quality.

Question 19

A company's gross profit rate is computed by dividing:

Accepted Answer

Gross profit rate is computed by dividing Gross profit by Net sales. Gross profit is the excess of net sales over the cost of goods sold, which represents the amount available to cover operating expenses and provide a profit. Therefore option D is the correct answer.

Question 20

The cost of the transportation of inventory purchased:

Accepted Answer

Transportation costs incurred to acquire inventory should be added to the cost of the inventory and not expensed in the current period. It becomes part of the cost of inventory and is added to other costs associated with the purchase, such as the purchase price and any applicable taxes, to determine the cost that will be used to value the inventory on the balance sheet.

Quiz 6: Merchandising Activities