Question 1

Merchandise Inventory has a normal debit balance.

Accepted Answer

Merchandise Inventory is an asset account and therefore has a normal debit balance.

Question 2

Unearned Revenue is a liability account.

Accepted Answer

Unearned Revenue represents money received in advance for goods or services that have not yet been delivered or performed. It creates an obligation for the business to provide those goods or services in the future, making it a liability account.

Question 3

After adjustments are made to the merchandise inventory account and posting is completed, the income summary account will reflect both the amount of beginning and ending inventory.

Accepted Answer

True

Question 4

Under the accrual basis of accounting, revenue is recorded when earned regardless of when cash is received.

Accepted Answer

Under the accrual basis of accounting, revenue is recognized and recorded when earned, not when cash is received. This means that even if a company has not yet received payment for a product or service, they will still recognize the revenue earned in their financial statements.

Question 5

The merchandise inventory account always reflects the current inventory on hand.

Accepted Answer

The answer of The merchandise inventory account always reflects the...

Question 6

If the ending inventory is overstated for any reason, net income will also be overstated.

Accepted Answer

Ending inventory is subtracted from cost of goods sold to determine gross profit, and then other expenses are subtracted from gross profit to determine net income. If ending inventory is overstated, cost of goods sold will be understated, and therefore gross profit and net income will be overstated.

Question 7

If beginning inventory is $80,000 and ending inventory is $10,000, the balance of the merchandise inventory account after adjustments will be $70,000.

Accepted Answer

The balance of the merchandise inventory account after adjustments will be the same as the ending inventory, which in this case is $10,000. The difference between beginning and ending inventory is used to calculate the cost of goods sold.

Question 8

If beginning inventory is $12,000 and ending inventory is $9,000, the first step in the adjusting process is to credit Merchandise Inventory for $9,000.

Accepted Answer

The first step in the adjusting process for inventory is to perform a physical count to determine the actual ending inventory. Once the ending inventory is determined, the next step is to compare it with the beginning inventory and make any necessary adjustments. In this case, since the ending inventory is lower than the beginning inventory, a debit entry would be made to the Merchandise Inventory account for the amount of the adjustment, which is $3,000 ($12,000 - $9,000).

Question 9

If beginning inventory is $30,000 and ending inventory is $25,000, the cost of the inventory on hand at the end of the accounting period is $25,000.

Accepted Answer

The ending inventory value represents the cost of the inventory on hand at the end of the accounting period.

Question 10

The amount of inventory on hand is determined by physically counting the goods on hand and determining the cost of those goods.

Accepted Answer

Physically counting the goods on hand is a common way to determine the amount of inventory, and the cost of the goods can be determined through various methods such as FIFO, LIFO, or weighted average cost.

Question 11

Two adjustments are made to the merchandise inventory account on the work sheet.

Accepted Answer

Two adjustments are typically made to the merchandise inventory account on a work sheet: the adjustment for merchandise inventory at the beginning of the accounting period and the adjustment for merchandise inventory at the end of the accounting period.

Question 12

The transaction to record unearned revenue results in an increase to an asset account.

Accepted Answer

Unearned revenue represents payment received in advance for goods or services that have not yet been provided. As a result, it is treated as a liability until the goods or services are delivered. When the revenue is earned, the liability is reduced and the corresponding amount is recorded as revenue. Therefore, recording unearned revenue initially results in an increase to an asset account (cash or accounts receivable) and a corresponding increase to a liability account (such as unearned revenue).

Question 13

The credit amount for Income Summary in the Adjusted Trial Balance column reflects the inventory on hand at the end of the accounting period.

Accepted Answer

The answer of The credit amount for Income Summary in...

Question 14

The credit to the merchandise inventory account when making adjustments at the end of the accounting period will be the same amount as was debited at the end of the previous accounting period.

Accepted Answer

The answer of The credit to the merchandise inventory account...

Question 15

The merchandise inventory account is never debited or credited during the year using the periodic method.

Accepted Answer

The answer of The merchandise inventory account is never debited...

Question 16

Cash received in advance for performing a service or delivering a product is called unearned revenue.

Accepted Answer

Unearned revenue is also known as deferred revenue and refers to the cash received in advance for a service or product that has not yet been delivered or provided. Examples include prepayment for subscriptions, rent, or insurance policies.

Question 17

Both the debit and credit amounts in the merchandise inventory account at the end of an accounting period are used to calculate the cost of goods sold.

Accepted Answer

The answer of Both the debit and credit amounts in...

Question 18

The income summary account will always reflect the same balance as the merchandise inventory account at the end of the accounting period.

Accepted Answer

The income summary account and merchandise inventory account are two separate accounts and therefore will not always reflect the same balance. The income summary account reflects the net income or loss for the period, while the merchandise inventory account reflects the cost of inventory on hand.

Question 19

At the end of the accounting period, the merchandise inventory account is debited for the beginning inventory amount.

Accepted Answer

The beginning inventory amount is typically credited to the merchandise inventory account at the start of the accounting period, not debited at the end. This account is then adjusted throughout the period for purchases, returns, and cost of goods sold.

Question 20

Some businesses require payment before delivering a product or performing a service.

Accepted Answer

Some businesses, such as online retailers or contractors, require customers to pay upfront before delivery of a product or service. This helps ensure that the business will receive payment for their goods or services and helps prevent non-payment or disputes.

Quiz 14: Adjustments and the Work Sheet for a Merchandising Business