Deck 5: Accounting for a Merchandising Business

Question 1

Under the periodic inventory method, when does the company determine the amount of inventory on hand at the end of the period?

Answer 1

The amount on inventory on hand is determined by taking a physical count.

Question 2

What is the general public also referred to as?

A) final consumers
B) service customers
C) retail customers
D) manufacturing customers
E) merchandise customers

Answer 2

final consumers

Question 3

How often are physical inventory counts performed?

Answer 3

Physical inventory counts should be performed at least once a year.

Question 4

Wholesalers purchase large quantities of product from manufacturers and then sell the product to retailers.

Question 5

What accounts are adjusted for any inventory differences that are determined after a physical count is taken?

Question 6

Which of the following would NOT be classified as a service business?

A) Karl's Lawn Mowing
B) Ty's Tax Preparation
C) Paula's Pet Walking
D) Sheila's Fashion Boutique
E) Lilly's Hair Salon

Question 7

Calculate Cost of Goods Sold with the following information:
Beginning Inventory $135,000
Purchases in the period $400,000
Ending Inventory $145,000

Question 8

Which of the following would NOT be classified as a retailer?

A) Canadian Tire
B) H & R Block
C) Walmart
D) Giant Tiger
E) Sears

Question 9

Inventory for a merchandising business is classified as a(n):

A) liability.
B) revenue.
C) part of shareholder's equity.
D) asset.
E) expense.

Question 10

Because of innovative and computerized methods of tracking inventory, most businesses today use the perpetual inventory method.

Question 11

The perpetual inventory system keeps a running record of inventory as it is bought and sold.

Question 12

Retailers may buy goods from the manufacturer and then sell the goods to consumers.

Question 13

Goods that a retailer sells to consumers are classified as inventory.

Question 14

Which financial statement does the Cost of Goods Sold account appear on?

Question 15

Most businesses today use the periodic inventory method.

Question 16

What type of internet company are Amazon.ca and Walmart.ca?

A) service businesses
B) manufacturing businesses
C) retail businesses
D) wholesalers
E) financial businesses

Question 17

The predominant types of businesses in Canada are:

A) merchandising businesses.
B) manufacturing businesses.
C) service businesses.
D) wholesale businesses.
E) retail businesses.

Question 18

When the perpetual records do not equal the physical count of the inventory, the general ledger is updated with the differences.

Question 19

A useful tool that updates inventory is the:

A) cash register.
B) bar code scanner.
C) price tag on the merchandise.
D) UPC number.
E) bar code.

Question 20

Who buys goods from retailers?

Question 21

A company pays an invoice early and takes 4% off of the original invoice price. The account to be credited for this amount under a perpetual inventory system is:

A) Inventory.
B) Accounts Payable.
C) Purchases Discount.
D) Cash.
E) Purchases Returns.

Question 22

Depending on the inventory system the merchandiser uses, the recording of the purchase and sale of inventory are accounted for differently.

Question 23

When merchandise is purchased on account under the perpetual inventory system, the journal entry is:

A) debit Purchases and credit Accounts Payable.
B) debit Accounts Payable and credit Inventory.
C) debit Inventory and credit Accounts Payable.
D) debit Accounts Payable and credit Purchases.
E) debit Purchases and credit Cash.

Question 24

The name of the supplier (vendor) is listed in the Accounts Payable subsidiary ledger:

Question 25

Calculate Cost of Goods Available for Sale with the following information`:
Beginning Inventory $125,000
Purchases in the period $360,000
Ending Inventory $114,000

Question 26

Alpha Company received an invoice from Beta Company for $5,550 with terms of 3/10, n/45 on March 8. If Alpha pays the bill on March 15, what is the journal entry in a periodic system?

Question 27

Discounts allowed for customers who pay their invoices early:

A) reduce the cost of the purchased inventory.
B) increase the cost of the purchased inventory.
C) are called manufacturers' discounts.
D) are called allowances.
E) are called cash discounts.

Question 28

If damaged goods are received by the merchandiser and are kept with a reduction in price, the account to be credited for the reduction in price under a perpetual inventory system is:

A) Inventory.
B) Accounts Payable.
C) Purchases Discount.
D) Cash.
E) Sales Discounts.

Question 29

A record to keep the amount owed to each supplier is called a(n):

A) accounts receivable subsidiary ledger.
B) accounts payable subsidiary ledger.
C) transportation ledger.
D) general ledger for accounts payable.
E) trial balance.

Question 30

A discount offered by a supplier as an inducement for prompt payment of an invoice is called a(n):

Question 31

Tayler Corporation purchased merchandise from Brandon Corporation for cash. The journal entry for Tayler Corporation under a periodic inventory system will be:

A) debit Inventory; credit Cash.
B) debit Purchases; credit Cash.
C) debit Inventory; credit Accounts Payable-Brandon Corporation.
D) debit Inventory; credit Accounts Receivable-Taylor Corporation.
E) debit Purchases, credit Accounts Payable -Brandon Corporation.

Question 32

What would be the credit terms that allows a discount of 3% if payment is made within 15 days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from the date of the invoice?

Question 33

An invoice states 5/15, n/60. What does the 15 refer to?

Question 34

Meranda Corporation purchases $3,500 of inventory on account from Ashley Corporation. The journal entry to record this purchase for Meranda under a perpetual inventory system is:

A) debit Inventory; credit Cash.
B) debit Accounts Payable-Ashley; credit Inventory.
C) debit Inventory; credit Accounts Payable-Meranda.
D) debit Inventory; credit Accounts Payable-Ashley.
E) debit Inventory, credit Shareholder's Equity.

Question 35

Under the perpetual inventory system, the purchase of inventory affects both an asset and the shareholder's equity account.

Question 36

A debit memorandum is the name of the document that supports the return of the goods to the supplier.

Question 37

Purchase returns reduce the cost of inventory.

Question 38

An invoice with the credit terms 3/10, n/30 means that the customer has 3 days to take a 10% discount off of the invoice total.

Question 39

If an invoice shows a total of $4,000 with terms 2/10, n/30, the customer may pay $3,920 within 10 days to satisfy the bill.

Question 40

Casey Company purchases goods for resale from Tim Corporation. The amount of the purchase is $12,500 with terms of 3/10, n/30. Casey returns $500 of the goods. Under the perpetual inventory method, the journal entry to record the return is:

A) debit Accounts Payable; credit Purchase Returns and Allowances.
B) debit Purchase Returns and Allowances; credit Accounts Payable.
C) debit Accounts Payable; credit Inventory.
D) debit Accounts Payable; credit Purchase Discounts.
E) debit Accounts Receivable; credit Inventory.

Question 41

A customer purchased items on account from ABC Company. After a few days, the customer returned the goods. ABC will issue a:

A) debit memorandum.
B) return receipt.
C) credit memorandum.
D) refund cheque.
E) new invoice.

Question 42

A debit memorandum acknowledges the receipt of returned goods from a customer.

Question 43

The amount of an invoice is $1,000, with terms 2/10, n30. What is the amount to be paid within the discount period?

Question 44

ABC Corporation pays an invoice for $350 in time to take a 3% discount. The journal entry to record the payment of this invoice under a periodic system is:

Question 45

Prepare the period-end adjusting entries for a periodic inventory system:
Beginning Inventory $55,000
Purchases $69,000
Purchases Discounts $4,000
Purchases Returns $6,500
Transportation-in 32,000
Ending Inventory $52,000

Question 46

ABC Company returned $750 of goods it had purchased from another company. The original invoice was for $4,200, 3/10, n/30. What is the discount if ABC pays the balance within the discount period?

Question 47

If an invoice reads n/15, what does this mean?

Question 48

A journal entry that involves more than two accounts is called a compound journal entry.

Question 49

Under a periodic inventory system, when goods are returned by a customer the inventory account is not adjusted.

Question 50

Sales Discounts and Sales Returns and Allowances are contra-accounts of the Sales account.

Question 51

ABC Corporation has received an invoice for $4,500 with terms of 3/15, n/50. If ABC pays the invoice on the seventeenth day, the Cash account will be credited for what value?

Question 52

An invoice of $237.50 is dated April 2, terms 2/10, n/30. If the invoice is paid on April 9, what is the amount to be paid?

Question 53

Journalize the following transactions using the periodic system:
Sept. 3 Purchased $1,870 worth of inventory from Sierra Company with terms 2/10 n/30.
Sept. 9 Returned $400 worth of the inventory purchased on Sept. 3 as goods were defective.
Sept.12 Paid for the Sept. 3 purchase.
Sept.19 Purchased $900 of merchandise on account from Lola Company with Terms of 3/15, n/45.

Question 54

Journalize the following transactions using the perpetual inventory method.
Aug. 6 Purchased $830 of inventory on account from Johnston with terms of 2/10, n/30.
Aug. 8 Purchased $2,611 of inventory for cash from Pillner Company.
Aug.15 Paid for August 6 purchase from Johnston.
Aug. 17 Purchased $1,743 of merchandise on account from Luis Company with Terms of 3/15, n/45.

Question 55

Debit card and credit card sales are counted as cash transactions.

Question 56

Cost of Goods Sold is the account that is matched with the Sales account to record the company's cost of the inventory that was sold under a perpetual inventory system.

Question 57

The account Sales Returns and Allowances is debited when items are returned from a customer.

Question 58

Journalize the following transactions using the perpetual inventory method.
Nov. 1 Purchased $3,600 of merchandise from Hilltop, terms 2/10, n/30.
Nov. 5 Purchased $1,750 of merchandise for cash from Owen's Supply.
Nov. 7 Purchased $3,400 of merchandise from Seaside, terms 1/15, n/30.
Nov. 10 Returned $500 of merchandise to Seaside. Credit Memo #131.
Nov. 11 Paid the invoice from Hilltop.

Question 59

Journalize the following transactions using the periodic system:
Aug. 6 Purchased $1,030 of inventory on account from Johnston with terms of 2/10, n/30.
Aug. 8 Purchased $2,001 of inventory for cash from Pillner Company.
Aug.15 Paid for August 6 purchase from Johnston.
Aug. 17 Purchased $1,700 of merchandise on account from Luis Company with Terms of 3/15, n/45.

Question 60

Calculate period end Cost of Goods Sold with the following information:
Beginning Inventory $35,000
Purchases $49,000
Purchases Discounts $3,000
Purchases Returns $4,500
Transportation-in $2,000
Ending Inventory $42,000

Question 61

Sara, a customer, purchased $500 of merchandise from Tammy's store. Under the perpetual inventory system, Tammy will record a:

A) debit to Accounts Receivable or to Cash for $500.
B) credit to Accounts Receivable or to Cash for $500.
C) credit to Cost of Goods Sold for $500.
D) debit to Sales for $500.
E) debit to Inventory for $500.

Question 62

When a retailer sells merchandise on account, the general entry for the sale would be a:

Question 63

Cary, a customer of ABC Retail, returned $45 of goods that were purchased on account. Under the perpetual inventory system, the journal entry to record the return by the customer will include a:

Question 64

Journalize the following transactions using the periodic inventory method.
Nov. 1. Sold $3,400 of inventory for $4,500 to Jany Smith with terms 2/10, n/3.0
Nov. 10 Sold $4,700 of inventory for $6,100 for Owen Corp. with terms 2/15, n/30.
Nov. 12 Received payment in full from Jany Smith for the Nov. 1 sale.
Nov. 15 Granted Owen Corp. an allowance of $800 for Nov. 10 transaction for minor
defects in the goods shipped.
Nov. 20 Received payment in full from Owen Corp. for the Nov. 10 sale.

Question 65

Jill buys $775 of merchandise on account from Toys Are Fun. Her customer terms are 3/10, n/45. What is the amount of her discount if she pays within the discount period?

A) $77.50.
B) $23.25
C) $697.50.
D) $0. 00.

Question 66

Sales returns from a customer:

A) increase Cost of Goods Sold.
B) increase Revenue.
C) decrease Cost of Goods Sold.
D) have no effect on Cost of Goods Sold.
E) increase operating expenses.

Question 67

Under a perpetual inventory system, what accounts are debited and credited when an allowance is granted to a customer by the retailer for minor defective product?

Question 68

Merchandise returned by the customer for a cash refund is called a:

A) sales return.
B) sales allowance.
C) debit memorandum.
D) credit memorandum.
E) purchases return.

Question 69

A list of credit customers is called a(n):

A) accounts payable subsidiary ledger.
B) general ledger.
C) accounts receivable subsidiary ledger.
D) general journal.
E) accounts receivable trial balance.

Question 70

Calculate Net Sales with the following information: Sales of $400,000, Sales Returns and Allowances of $45,000, and Sales Discounts of $38,000

Question 71

Sales is a(n) __________ account.

Question 72

The account in which the revenue earned from the sale of merchandise is entered is:

A) Retained Earnings.
B) Sales.
C) Cash.
D) Inventory.
E) Shareholders' Equity.

Question 73

Tammy's General Store has cash sales for the week of $5,000 and credit sales of $3,500. What are the debits and the credits to record the week's sales?

Question 74

Costs of Goods Sold includes which of the following?

A) The actual cost of the item
B) Administrative fees
C) Management salaries
D) Depreciation expense
E) Selling expense

Question 75

On what financial statement does Sales Returns and Allowances appear?

Question 76

What is the journal entry to record the company's cost of selling merchandise under a perpetual inventory system?

Question 77

Jill buys $775 of merchandise on account from Toys Are Fun. Her customer terms are 3/10, n/45. What is the amount of her discount if she pays within the discount period?

Question 78

Journalize the following transactions using the perpetual inventory method.
Aug. 10 Sold $4,100 of inventory for $5,100 for Oden Corp. with terms 2/15, n/30
Aug. 12 Received payment of $1,000 cash in full from Jany Smith for a July 1 sale
with terms 2/10 n/30
Aug. 15 Granted Oden Corp. an allowance of $400 for Aug. 10 transaction for minor
defects in the goods shipped
Aug. 23 Received payment in full from Oden Corp. for the Aug. 10 sale

Question 79

Journalize the following transactions for Jill Company using the perpetual inventory method.
June 8 Jill Co. sold $3,500 of merchandise, costing $2,850 on account to Betty, terms 3/10, n/30.
June 12 Betty returned $350 of the merchandise, costing $190 to Jill Company for credit on her account.
June 16 Betty paid her balance.

Question 80

Journalize the following transactions for Jill Company using the periodic inventory system.
June 8 Jacob Co. sold $5,500 of merchandise, costing $4,150 on account to Breanne, terms 2/10, n/30.
June 12 Breanne returned $550 of the merchandise, costing $410 to Jacob Company for credit on her account.
June 16 Breanne paid her balance.