Deck 6: Accounting for Merchandising Businesses

Question 1

Most retailers record all credit card sales as credit sales.

Answer 1

True

Question 2

Under a perpetual inventory system,the cost of merchandise on hand at the end of the year can only be determined by reviewing the ledger.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

Sales to customers who use bank credit cards,such as MasterCard and VISA,are generally treated as credit sales.

Question 6

The cost of merchandise inventory is limited to the purchase price less any purchase discounts.

Question 7

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

Question 8

In retail businesses,inventory is reported as a current asset.

Question 9

When merchandise that was sold is returned,a credit to sales returns and allowances is made.

Question 10

Customer Refunds Payable is an account used to record merchandise returns from customers.

Question 11

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

Question 12

Freight is considered a cost of inventory under FOB shipping point.

Question 13

Estimated Returns Inventory is an account used when adjusting for expected merchandise sales in the next period.

Question 14

Under the perpetual inventory system,when a sale is made,both the sale and cost of merchandise sold are recorded.

Question 15

Large businesses that make sales to customers who use credit cards,such as American Express,generally treat these sales as credit sales.

Question 16

If payment is due by the end of the month in which the sale is made,the invoice terms are expressed as n/30.

Question 17

The fees associated with credit card sales are periodically recorded as expenses.

Question 18

In a perpetual inventory system,when merchandise is returned to the supplier,Cost of Merchandise Sold is debited as part of the transaction.

Question 19

The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements.

Question 20

Freight is the amount paid by the seller to deliver merchandise sold to a customer under FOB shipping point.

Question 21

A sales discount encourages customers to pay accounts more quickly than if a discount were not available.

Question 22

Merchandise is sold for $3,600,terms FOB destination,2/10,n/30,with prepaid freight costs of $150.The amount of the sales recorded is $3,528.

Question 23

When the terms of sale are FOB shipping point,the buyer should pay the freight charges.

Question 24

Buyers and sellers do not normally record the list prices of merchandise and the trade discounts in accounts.

Question 25

If the ownership of merchandise passes to the buyer when the seller delivers the merchandise to the carrier,the terms are stated as FOB destination.

Question 26

In a perpetual inventory system,merchandise returned to vendors reduces the merchandise inventory account.

Question 27

When merchandise is sold for $600 plus a 6% sales tax,the sales account should be credited for $636.

Question 28

Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.

Question 29

When the seller offers a sales discount,even if borrowing has to be done,it is generally advantageous for the buyer to pay within the discount period.

Question 30

If merchandise costing $3,500,terms FOB destination,2/10,n/30,with prepaid freight costs of $125,is paid within 10 days,the amount of the purchases discount is $70.

Question 31

The abbreviation FOB stands for "free on board."

Question 32

Sellers and buyers are required to record trade discounts.

Question 33

A seller may grant a buyer a reduction in selling price and this is called a customer discount.

Question 34

A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called a cash discount.

Question 35

A buyer who acquires merchandise under credit terms of 1/10,n/30 has 30 days after the invoice date to take advantage of the sales discount.

Question 36

If the buyer bears the freight costs related to a purchase,the terms are said to be FOB destination.

Question 37

Under the perpetual inventory system,a company purchases merchandise on terms 2/10,n/30.The entry to record the purchase will include a debit to Cash and a credit to Sales.

Question 38

Merchandise Inventory normally has a debit balance.

Question 39

A sale of $750 on account subject to a sales tax of 6% would be recorded as an account receivable of $750.

Question 40

When a large quantity of merchandise is purchased,a reduction allowed on the sale price is called a trade discount.

Question 41

Most companies will not take a purchase discount,because 1% or 2% discounts are insignificant.

Question 42

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.

Question 43

The seller records the sales tax as part of the sales amount.

Question 44

There is no difference between the recording of cash sales and the recording of MasterCard or VISA sales.

Question 45

Sales is equal to the cost of merchandise sold less the gross profit.

Question 46

When companies use a perpetual inventory system,the recording of the purchase of inventory will include a debit to Purchases.

Question 47

Gross profit minus selling expenses equals net income.

Question 48

If the perpetual inventory system is used,an account entitled Cost of Merchandise Sold is included in the general ledger.

Question 49

The seller may prepay the freight costs even though the terms are FOB shipping point.

Question 50

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

Question 51

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

Question 52

Purchased goods in transit,shipped FOB destination,should be excluded from ending inventory of the buyer.

Question 53

The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.

Question 54

A business using the perpetual inventory system,with its detailed subsidiary records,does not need to take a physical inventory.

Question 55

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.

Question 56

The chart of accounts for a merchandising business would include an account called Delivery Expense.

Question 57

Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped FOB shipping point.

Question 58

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.

Question 59

Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business.

Question 60

Because many companies use computerized accounting systems,periodic inventory is widely used.

Question 61

Closing entries for a merchandising business are not similar to those for a service business.

Question 62

Cost of merchandise sold is often the largest expense on a merchandising company income statement.

Question 63

The accounts Purchases,Purchases Returns and Allowances,Purchases Discounts,and Freight In are found on the balance sheet.

Question 64

Other income and expenses are items that are not related to the primary operating activity.

Question 65

In a merchandising business,operating income plus operating expenses is equal to

A)cost of merchandise sold
B)cost of merchandise available for sale
C)sales
D)gross profit

Question 66

Under the periodic inventory system,the cost of merchandise sold is recorded when sales are made.

Question 67

Which of the following is not a difference between a retail business and a service business?

A)in what is sold
B)the inclusion of gross profit on the income statement
C)accounting equation
D)merchandise inventory included on the balance sheet

Question 68

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.

Question 69

Gross profit is equal to

A)sales plus cost of merchandise sold
B)sales plus selling expenses
C)sales less selling expenses
D)sales less cost of merchandise sold

Question 70

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

Question 71

Calculate income from operations for Jonas Company based on the following data:

A)$485,500
B)$711,500
C)$173,500
D)$226,000

Question 72

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.

Question 73

In the merchandising income statement,sales will be reduced by administrative expenses to arrive at operating income.

Question 74

The account form of the balance sheet is presented in a downward sequence in three sections.

Question 75

Merchandise inventory is classified on the balance sheet as a

A)current liability
B)current asset
C)long-term asset
D)long-term liability

Question 76

The ratio of sales to assets measures how effectively a business is using its assets to generate sales.

Question 77

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

Question 78

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

Question 79

When comparing a retail business to a service business,the financial statement that changes the most is the

A)balance sheet
B)income statement
C)statement of owner's equity
D)statement of cash flows

Question 80

What is the term applied to the excess of revenue from sales over the cost of merchandise sold?

A)gross profit
B)income from operations
C)net income
D)gross sales