Deck 5: Accounting for Merchandising Businesses

Question 1

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

Answer 1

False

Question 2

Most retailers record all credit card sales as credit sales.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

Freight-in is considered a cost of purchasing inventory.

Question 8

Freight-in is the amount paid by the company to deliver merchandise sold to a customer.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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 21

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

Question 22

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 23

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

Question 24

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

Question 25

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

Question 26

Merchandise Inventory normally has a debit balance.

Question 27

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

Question 28

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

Question 29

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

Question 30

The abbreviation FOB stands for "free on board."

Question 31

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 32

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

Question 33

Sellers and buyers are required to record trade discounts.

Question 34

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

Question 35

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

Question 36

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 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

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

Gross profit minus selling expenses equals net income.

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

Under a periodic inventory system,the accounts Purchases,Purchases Returns and Allowances,Purchases Discounts,and Freight-In are found on the balance sheet.

Question 62

The inventory system employing accounting records that continuously disclose the amount of inventory is called

A)retail
B)periodic
C)physical
D)perpetual

Question 63

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

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

Question 64

Net 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 65

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

Question 66

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 67

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

Question 68

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

Question 69

When a merchandising business is compared to a service business,the financial statement that is not affected by that change is the retained earnings statement.

Question 70

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 71

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

Question 72

Calculate income from operations for Jonas Company based on the following data: 11ea83a5_c2a7_2e0f_908c_3f2c1ff647b7

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

Question 73

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

Question 74

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)retained earnings statement
D)statement of cash flows

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

Calculate the gross profit for Jefferson Company based on the following: 11ea83a5_c2a7_06fe_908c_e5ac1b54e012

A)$495,500
B)$183,500
C)$721,500
D)$226,000

Question 77

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

Question 78

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 79

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

Question 80

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