Deck 5: Merchandising Operations

Question 1

Merchandising consists of buying and selling products.

Answer 1

True

Question 2

and managers generally strive to sell inventory quickly.

Answer 2

True

Question 3

three types of inventory systems are the periodic, the perpetual, and the merchandising inventory systems.

Answer 3

False

Question 4

accounting cycle for a service company begins with the purchase of inventory.

Question 5

What is inventory?

A) Items purchased to run the daily operations of a business
B) Items purchased to be sold to customers
C) Expenses of a company
D) Equipment purchased

Question 6

Merchandise inventory and the cost of goods sold for the current period using periodic inventory is determined:

A) once a year.
B) on a quarterly basis.
C) on a weekly basis.
D) when a physical inventory is taken.

Question 7

Which of the following is the correct order of the steps in the accounting cycle for a merchandising company?
I. The company sells inventory to customers, creating Accounts receivable.
II. The company collects cash.
III. The company buys inventory.

A) III, I, II
B) I, II, III
C) II, I, III
D) III, II, I

Question 8

a purchase discount, the larger the quantity of merchandise purchased, the higher the price per item.

Question 9

Purchase returns and allowances decrease the net amount of revenue earned on sales.

Question 10

Purchase returns and allowances increase the net amount of revenue earned on sales.

Question 11

Which of the following statements concerning the Inventory account is true?

A) The Inventory account is used only for goods purchased for resale.
B) Inventory is an asset until it is sold.
C) The Inventory account is used for goods purchased for resale and for supplies to be used by the business.
D) Both A and B are true.

Question 12

A company uses the perpetual inventory method. Which of the following entries would be made to record a return of $200 of inventory purchased on account?

A) The accounting entry would be a $200 debit to Purchases and a $200 credit to Accounts payable.
B) The accounting entry would be a $200 debit to Accounts payable and a $200 credit to Inventory.
C) The accounting entry would be a $200 debit to Inventory and a $200 credit to Accounts payable.
D) The accounting entry would be a $200 debit to Accounts payable and a $200 credit to Purchases.

Question 13

Which of the following is Freight in?

A) Freight in is part of Merchandise Inventory.
B) Freight in is a selling expense.
C) Freight in is an operating expense.
D) None of the above are correct.

Question 14

A company that uses the perpetual inventory method purchases inventory of $1,000 on account with terms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of the following entries would be made to record payment for the inventory if the payment is made within 10 days?

A) The accounting entry would be an $800 debit to Accounts payable and an $800 credit to Cash.
B) The accounting entry would be a $784 debit to Accounts payable, a $16 debit to Inventory and an $800 credit to Cash.
C) The accounting entry would be a $16 debit to Inventory, an $800 debit to Accounts payable and an $816 credit to Cash.
D) The accounting entry would be an $800 debit to Accounts payable, a $16 credit to Inventory and a $784 credit to Cash.

Question 15

An invoice in the amount of $600.00 for merchandise purchased is shown with a 4/10, n30 discount. The amount to pay on or before the tenth day is:

A) $552.50.
B) $540.25.
C) $576.00.
D) some other amount.

Question 16

A company that uses the perpetual inventory method purchases inventory of $2,000 on account FOB shipping point, with terms of 2/10 net/30. The seller prepays $100 of transportation costs and bills the company. Which of the following entries would be made to record full payment to the seller if the payment is made within 10 days?

A) The accounting entry would be a $2,100 debit to Accounts payable and a $2,100 credit to Cash.
B) The accounting entry would be a $2,100 debit to Accounts payable, a $42 credit to Inventory and a $2,058 credit to Cash.
C) The accounting entry would be a $2,100 debit to Accounts payable, a $40 credit to Inventory and a $2,060 credit to Cash.
D) The accounting entry would be a $2,060 debit to Accounts payable, a $40 debit to Inventory and a $2,100 credit to Cash.

Question 17

Purchases returns and allowances and Purchases discounts are classified as _________ accounts on the income statement.

A) expense
B) revenue
C) contra-expense
D) contra-revenue

Question 18

A company that uses the perpetual inventory method purchases inventory of $2,000 on account FOB shipping point with terms of 2/10 net/30. The seller prepays $100 of transportation costs and bills the company. Which of the following entries would be made to record full payment to the seller the payment is made 20 days later?

A) The accounting entry would be a $2,100 debit to Accounts payable and a $2,100 credit to Cash.
B) The accounting entry would be a $2,100 debit to Accounts payable, a $42 credit to Inventory and a $2,058 credit to Cash.
C) The accounting entry would be a $2,100 debit to Accounts payable, a $40 credit to Inventory and a $2,060 credit to Cash.
D) The accounting entry would be a $2,060 debit to Accounts payable, a $40 debit to Inventory and a $2,100 credit to Cash.

Question 19

A company receives an invoice that indicates that title to the merchandise will pass to the company when they receive the goods. Which of the following will be noted as the delivery terms?

A) FOB destination
B) FOB shipping point
C) FOB 2/10 n/30
D) FOB UPS

Question 20

Which of the following describes Freight out?

A) Freight Out is part of Merchandise Inventory.
B) Freight Out is an operating expense.
C) Both A and B are correct.
D) None of the above are correct.

Question 21

recording of cost of goods sold along with sales revenue is an example of the matching principle.

Question 22

cost of goods sold account keeps a current balance throughout the period if a company uses the perpetual inventory method.

Question 23

sales allowance is recorded with a debit to Accounts receivable.

Question 24

sales return and a sales allowance:

A) differ in that a sales return gives credit or money back to the purchaser.
B) differ in that an allowance is a deduction given in price for an inconvenience (like a floor model).
C) are both considered the same thing.
D) are none of the above.

Question 25

of the following describes a sales discount?

A) A discount given to customers if the customer pays within a certain period of time
B) A discount given by vendors of the company pays within a certain period of time
C) A discount given to customers for buying the floor model
D) A discount given to customers for their loyalty

Question 26

Which one of the following describes a sales return?

A) A discount given to customers if the customer pays within a certain period of time
B) A discount given by vendors of the company pays within a certain period of time
C) A customer returns goods
D) A discount given to customers for their loyalty

Question 27

Which one of the following is the basis of Cost of Goods Sold?

A) Cost of Goods Sold is based on the value of the merchandise when it is sold.
B) Cost of Goods Sold is based on the entity's cost.
C) Cost of Goods Sold is based on the selling price of the merchandise.
D) Cost of Goods Sold is based on the net realizable value of the merchandise.

Question 28

A company uses the perpetual inventory method. Which of the following entries would be made to record a sale of merchandise on account?

A) The accounting entry would be a debit to Accounts receivable and a credit to Sales revenue.
B) The accounting entry would be a debit to Sales revenue and a credit to Accounts receivable.
C) The accounting entry would be a debit to Cost of goods sold and a credit to Inventory.
D) Both A and C would be necessary to record the sale.

Question 29

A company uses the perpetual inventory method. Which of the following entries would be made to record a $1,200 sale of merchandise on account? The merchandise cost the company $800.

A) The accounting entry would be a $1,200 debit to Cost of goods sold and a $1,200 credit to Sales revenue.
B) The accounting entry would be a $800 debit to Cost of goods sold and a $800 credit to Inventory.
C) The accounting entry would be a $1,200 debit to Accounts receivable and a $1,200 credit to Sales revenue.
D) Both B and C would be necessary to record the sale.

Question 30

A company sells merchandise for $2,000 on account FOB shipping point with terms of 2/10 net/30 and prepays $100 of transportation costs for the buyer. Which of the following entries would be made to record receipt of full payment from the buyer if the payment is received within 10 days?

A) The accounting entry would be a $2,100 debit to Cash and a $2,100 credit to Accounts receivable.
B) The accounting entry would be a $2,100 debit to Cash, a $42 credit to Sales discounts and a $2,058 credit to Accounts receivable.
C) The accounting entry would be a $2,100 debit to Cash, a $40 credit to Sales discounts and a $2,060 credit to Accounts receivable.
D) The accounting entry would be a $2,060 debit to Cash, a $40 debit to Sales discounts and a $2,100 credit to Accounts receivable.

Question 31

A company sells merchandise for $2,000 on account FOB shipping point with terms of 2/10 net/30 and prepays $100 of transportation costs for the buyer. Which of the following entries would be made to record receipt of full payment from the buyer if the payment is received 20 days later?

A) The accounting entry would be a $2,100 debit to Cash and a $2,100 credit to Accounts receivable.
B) The accounting entry would be a $2,100 debit to Cash, a $42 credit to Sales discounts and a $2,058 credit to Accounts receivable.
C) The accounting entry would be a $2,100 debit to Cash, a $40 credit to Sales discounts and a $2,060 credit to Accounts receivable.
D) The accounting entry would be a $2,060 debit to Cash, a $40 debit to Sales discounts and a $2,100 credit to Accounts receivable.

Question 32

Which of the following are the respective normal balances of Sales, Sales discounts, and Sales returns and allowances?

A) Debit, credit, and credit
B) Debit, debit, and credit
C) Credit, debit, and debit
D) Credit, credit, and debit

Question 33

The entry to record the sale of merchandise in a perpetual system is:

A) a debit to Cost of goods sold and a credit to Sales revenue.
B) a debit to Cash or accounts receivable and a credit to Cost of goods sold.
C) a debit to Sales revenue and a credit to Cost of goods sold.
D) none of the above.

Question 34

Referring to the following table, what is Gross profit?
$$\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 460,000 \\\hline \text { Cost of goods sold } & 300,000 \\\hline \text { Operating expenses } & 85,000 \\\hline \text { Sales discounts } & 20,000 \\\hline \text { Sales returns and allowances } & 15,000 \\\hline \text { Interest revenue } & 5,000 \\\hline\end{array}$$

A) $ 90,000
B) $125,000
C) $140,000
D) $160,000

Question 35

Referring to the following table, what is operating income?
$$\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 460,000 \\\hline \text { Cost of goods sold } & 300,000 \\\hline \text { Operating expenses } & 85,000 \\\hline \text { Sales discounts } & 20,000 \\\hline \text { Sales returns and allowances } & 15,000 \\\hline \text { Interest revenue } & 5,000 \\\hline\end{array}$$

A) $ 40,000
B) $ 55,000
C) $160,000
D) $190,000

Question 36

Referring to the following table, what is the Net income?
$$\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 460,000 \\\hline \text { Cost of goods sold } & 300,000 \\\hline \text { Operating expenses } & 85,000 \\\hline \text { Sales discounts } & 20,000 \\\hline \text { Sales returns and allowances } & 15,000 \\\hline \text { Interest revenue } & 5,000 \\\hline\end{array}$$

A) $ 35,000
B) $ 45,000
C) $ 60,000
D) $180,000

Question 37

extending the work sheet amounts for a merchandising concern, what account would have the total extended to both the debit and credit columns?

A) Merchandise inventory
B) Income summary
C) Sales
D) Cost of goods sold

Question 38

Which of the following accounts gets closed with a credit?

A) Sales revenue
B) Cost of goods sold
C) Inventory
D) Ticket revenue

Question 39

Which of the following accounts are closed in the closing entries?

A) Operating income and Cost of goods sold
B) Cost of goods sold, Sales returns and allowances, and Sales discounts
C) Gross profit, Sales returns and allowances, and Sales discounts
D) Operating expenses, Sales revenue, and Gross profit

Question 40

Which of the following accounts are credited by the closing entries if a company is using the perpetual inventory system?

A) Sales discounts, Sales returns and allowances, and Cost of goods sold
B) Sales returns and allowances, Sales revenue, and Inventory
C) Sales revenue and Cost of goods sold
D) Sales discounts and Sales revenue

Question 41

The Income summary account has a $25,000 debit balance after the revenue and expenses accounts have been closed. What does this balance represent?

A) Additional owner investments
B) Owner withdrawals
C) Net income
D) A net loss

Question 42

The Income Summary account has a $25,000 credit balance after the revenue and expenses accounts have been closed. What does this balance represent?

A) A net loss
B) Net income
C) Additional owner investments
D) Owner withdrawals

Question 43

The Income Summary account has a $25,000 credit balance after the revenue and expenses accounts have been closed. To which account is this balance closed?

A) Owner's withdrawals
B) Sales revenue
C) Cost of goods sold
D) Retained earnings

Question 44

a periodic inventory method, Cost of goods sold is computed by adding ending inventory to cost of goods available for sale.

Question 45

of goods sold is an operating expense on a merchandising company's income statement.

Question 46

Purchase discounts appear on the income statement of a company that uses the perpetual inventory method.

Question 47

of the following are shown on a multi-step income statement?

A) Net sales revenue and Cost of goods sold
B) Net sales revenue, but not Operating expenses
C) Gross profit, but not Cost of goods sold
D) Interest revenue as part of Net sales revenue

Question 48

Which of the following would NOT be included in Operating expenses?

A) Executive salaries
B) Purchase discounts
C) Rent on the home office building
D) Office employee salaries

Question 49

Which of the following financial statements would include Cost of goods sold?

A) Classified balance sheet
B) Single-step income statement
C) Multiple-step income statement
D) Both B and C

Question 50

On which of the following does Operating income appear?

A) Classified balance sheet
B) Single-step income statement
C) Multiple-step income statement
D) Both B and C

Question 51

Which of the following describes a single-step income statement?

A) It is a format that contains subtotals to highlight significant relationships.
B) It is a format that groups all revenues together and then lists and deducts all expenses together without subtotals.
C) Both of the above describe a single-step income statement.
D) Neither of the above describes a single-step income statement.

Question 52

On an income statement, Freight in is added to:

A) Net sales.
B) Net purchases.
C) Goods available for sale.
D) Purchase discounts.

Question 53

Which of the following describes a multiple-step income statement?

A) It is a format that contains subtotals to highlight significant relationships.
B) It is a format that groups all revenues together and then lists and deducts all expenses together without subtotals.
C) Both of the above describe a multiple-step income statement.
D) Neither of the above describes a multiple-step income statement.

Question 54

A company that uses the periodic inventory method purchases inventory of $1,000 on account with terms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of the following entries would be made to record the payment for the inventory if the payment is made within 10 days?

A) The accounting entry would be an $800 debit to Accounts payable and an $800 credit to Cash.
B) The accounting entry would be a $784 debit to Accounts payable, a $16 debit to Purchase discounts and an $800 credit to Cash.
C) The accounting entry would be a $16 debit to Purchase discounts, an $800 debit to Accounts payable and an $816 credit to Cash.
D) The accounting entry would be an $800 debit to Accounts payable, a $16 credit to Purchase discounts and a $784 credit to Cash.

Question 55

A company that uses the periodic inventory method purchases inventory of $1,000 on account with terms of 2/10 net/30. Defective inventory of $200 is returned 2 days later. Which of the following entries would be made to record the payment for the inventory if the payment is made 20 days later?

A) The accounting entry would be an $800 debit to Accounts payable and an $800 credit to Cash.
B) The accounting entry would be a $784 debit to Accounts payable, a $16 debit to Purchase discounts and an $800 credit to Cash.
C) The accounting entry would be a $16 debit to Purchase discounts, an $800 debit to Accounts payable and an $816 credit to Cash.
D) The accounting entry would be an $800 debit to Accounts payable, a $16 credit to Purchase discounts and a $784 credit to Cash.

Question 56

Which of the following would be closed with a debit?

A) Inventory
B) Sales revenue
C) Cost of goods sold
D) Purchases

Question 57

small decrease in the gross profit percentage generally signals a rise in income.

Question 58

and managers generally prefer a high gross profit percentage, rather than a low gross profit percentage.

Question 59

the periodic inventory method, cost of goods sold is computed by subtracting ending inventory from cost of goods available for sale.

Question 60

Which of the following is represented by the inventory account on the balance sheet?

A) Beginning inventory
B) Cost of merchandise available for sale
C) Cost of goods sold
D) Ending inventory

Question 61

If a company uses the periodic inventory method, which of the following is subtracted from cost of goods available for sale to arrive at cost of goods sold?

A) Beginning inventory
B) Ending inventory
C) Purchase discounts and purchase returns and allowances
D) Net purchases

Question 62

If a company uses the periodic inventory method, which of the following is added to beginning inventory to arrive at cost of goods available for sale?

A) Purchases
B) Ending inventory
C) Purchase discounts and purchase returns and allowances
D) Net purchases and freight in

Question 63

A company uses the periodic inventory method. Which of the following will result in an increase in inventory?

A) Cost of goods sold exceeds cost of goods available for sale.
B) Net purchases are less than cost of goods available for sale.
C) Net purchases exceed the cost of goods sold.
D) It is impossible to determine with this information.

Question 64

Andy Company had gross sales of $35,500 and sales returns of $450. The cost of goods sold is 35% of gross sales. Gross profit percentage would be:

A) 35%.
B) 65%.
C) based on $35,050.
D) based on $35,950.

Question 65

If a company has a cost of goods sold of 23% of gross sales, the gross profit percentage would be:

A) 23%.
B) 77%.
C) 67%.
D) based on the operating expenses.

Question 66

The ability of a business to sell its inventory may be determined by the:

A) current ratio.
B) gross profit percentage.
C) inventory turnover.
D) accounts receivable turnover.