Question 1

Inventory turnover is calculated as:
A)cost of goods sold divided by average inventory.
B)cost of goods sold minus average inventory.
C)cost of goods sold times average inventory.
D)average inventory divided by cost of goods sold.

Accepted Answer

Inventory turnover is calculated by dividing the cost of goods sold (COGS) by the average inventory during the period. This measures how many times a company's inventory is sold and replaced over a period.

Question 2

Using a periodic inventory system, the entry to record the purchase of merchandise on account involves a:
A)debit to Inventory.
B)debit to Accounts Payable.
C)credit to Inventory.
D)debit to Purchases.

Accepted Answer

In a periodic inventory system, purchases of merchandise are recorded by debiting the Purchases account, not the Inventory account. This approach is used to accumulate the cost of purchases during the period, which will then be used to calculate the cost of goods sold at the end of the period.

Question 3

Mars Company purchased $2,500 of merchandise on account, terms 3/10 n/60. If payment was made within the discount period, the entry to record the payment under a periodic inventory system would include a credit to:
A)Cash of $2,425.
B)Inventory of $2,352.
C)Accounts Payable of $2,400.
D)Cash for $2,400.

Accepted Answer

The correct entry includes crediting Cash for $2,425, which is the result of taking the 3% discount on the $2,500 purchase ($2,500 - $75 = $2,425).

Question 4

When a discount is taken for prompt payment under a periodic inventory system, the purchaser would credit:
A)Accounts Payable.
B)Accounts Receivable.
C)Purchases Discounts.
D)Inventory.

Accepted Answer

Purchases Discounts is a contra-revenue account that reduces the amount of Purchases. When a discount is taken for prompt payment, the purchaser records the discount as a credit to Purchases Discounts.

Question 5

If the shipping terms are FOB shipping point and the freight bill is $200, the purchaser, using a periodic inventory system would record payment of the freight with a debit to:
A)Inventory and credit to Cash for $200.
B)Freight In and a credit to Cash for $200.
C)Inventory and credit to Purchases Discounts for $200.
D)Purchases Discounts and credit to Inventory for $200.

Accepted Answer

Under FOB shipping point terms, the buyer is responsible for the freight costs from the shipping point to their location. Therefore, the purchaser records the freight cost as "Freight In" (or Transportation-In), which is considered part of the cost of purchasing inventory. This cost is debited to the Freight In account and credited to Cash, reflecting the payment of the freight bill.

Question 6

The entry to record the purchase of inventory on account in a periodic inventory system includes a debit to the Purchases account.

Accepted Answer

In a periodic inventory system, the purchase of inventory on account is recorded by debiting the Purchases account, which is used to accumulate the cost of inventory bought during the period until the period-end inventory count is conducted.

Question 7

Alpha Company had $45,000 in beginning inventory and $80,000 in ending inventory. Cost of goods sold for the period was $25,000. The inventory turnover is:
A)0.56.
B)0.3125.
C)0.4.
D)4.0.

Accepted Answer

Inventory turnover is calculated as Cost of Goods Sold divided by Average Inventory. Average Inventory = ($45,000 + $80,000) / 2 = $62,500. Inventory Turnover = $25,000 / $62,500 = 0.4.

Question 8

A merchandiser purchases inventory on account under a periodic inventory system with terms of 2/10 n/30. The merchandiser would:
A)credit Inventory on date of payment if the discount is taken.
B)credit Inventory on date of payment if the discount is not taken.
C)credit Purchases Discounts on date of purchase if the discount is taken.
D)credit Purchases Discounts on date of purchase if the discount is not taken.

Accepted Answer

Purchases Discounts is credited when the discount is taken.

Question 9

Day Company purchased $3,000 of merchandise on credit, terms 3/15 n/30. The entry to record payment for the merchandise within the discount period under a periodic inventory system would include a:
A)debit to Inventory of $1,940.
B)debit to Accounts Payable of $1,940.
C)credit to Purchase Discounts of $90.
D)credit to Inventory of $90.

Accepted Answer

Under a periodic inventory system, when payment is made within the discount period, the purchase discount is recorded. The discount is 3% of $3,000, which is $90. Therefore, the entry would include a credit to Purchase Discounts of $90.

Question 10

If a purchaser returns goods purchased on account to the supplier under a periodic inventory system, the purchaser would debit:
A)Inventory and credit Accounts Payable.
B)Accounts Payable and credit Inventory.
C)Inventory and credit Accounts Receivable.
D)Accounts Payable and credit Purchase Returns.

Accepted Answer

Under a periodic inventory system, purchase returns are recorded by debiting Accounts Payable and crediting Purchase Returns, not Inventory.

Question 11

What are two key criteria that merchandisers who report under international financial reporting standards (IFRS)must follow?
A)Revenue-recognition criteria and time-allotment assumption
B)Revenue-recognition criteria and matching objective
C)Revenue-recognition criteria and economic-period assumption
D)Revenue-recognition criteria and time-concern assumption

Accepted Answer

Under IFRS, merchandisers must follow the revenue-recognition criteria and the matching objective to ensure that revenues and expenses are recorded in the same period they are incurred.

Question 12

Please refer to the following trial balance. $$\begin{array} { | l | r | r | } 
\hline & \text { Debit } & \text { Credit } \
\hline \text { Cash } & \$ 5,000 & \
\hline \text { Accounts receivable } & 14,000 & \
\hline \text { Inventory } & 20,000 & \
\hline \text { Supp lies } & 5,000 & \
\hline \text { Land } & 100,000 & \
\hline \text { Accounts payable } & & \$ 3,000 \
\hline \text { Notes payable } & & 25,000 \
\hline \text { Capital } & & 90,000 \
\hline \text { Withdrawals } & 1,000 & \
\hline \text { Sales revenues } & & 160,000 \
\hline \text { Sales returns and allowances } & 2,000 & \
\hline \text { Sales discounts } & 3,000 & \
\hline \text { Cost of goods sold } & 80,000 & \
\hline \text { Salary expense } & 5,000 & \
\hline \text { Utility expense } & 23,000 & \
\hline \text { Rent expense } & 18,000 & \
\hline \text { Interest expense } & 2,000 & \
\hline \text { Totals } & \$ 278,000 & \$ 278,000 \
\hline
\end{array}$$ How much is the gross profit percentage?
A)50.0%
B)51.6%
C)46.8%
D)48.4%

Accepted Answer

The answer of Please refer to the following trial balance....

Question 13

In a periodic inventory system, purchase returns and allowances and purchase discounts are considered contra liability accounts.

Accepted Answer

In a periodic inventory system, purchase returns and allowances and purchase discounts are considered contra asset accounts, specifically reducing the cost of inventory purchased, not contra liability accounts.

Question 14

When the buyer pays the freight costs, the entry to record the payment under a periodic inventory system would include a debit to:
A)Delivery Expense.
B)Purchases Discounts.
C)Inventory.
D)Freight In.

Accepted Answer

In a periodic inventory system, when the buyer pays the freight costs, it is recorded as "Freight In" because it is considered part of the cost of purchasing inventory.

Question 15

The preparation of the income statement for a merchandising company that is following international financial reporting standards (IFRS)is not significantly different from the approach used by companies following accounting standards for private enterprises (ASPE).

Accepted Answer

Both IFRS and ASPE have similar fundamental principles for the preparation of financial statements, including the income statement. The main differences lie in the level of detail and disclosure requirements, rather than the basic approach to recording revenues, costs of goods sold, and expenses.

Question 16

When the seller accepts a return of undamaged goods from the purchaser, the seller's journal entries would include two sets of entries, if they are using a periodic inventory system.

Accepted Answer

The answer of When the seller accepts a return of...

Question 17

In a periodic inventory system, purchases of inventory are debited to an account titled Purchases.

Accepted Answer

In a periodic inventory system, purchases of inventory are recorded by debiting an account titled Purchases, which is used to accumulate the cost of inventory bought during the period.

Question 18

Purchase discounts normally have a credit balance.

Accepted Answer

Purchase discounts are recorded as a reduction in the cost of inventory or purchases, and they are typically credited to reflect the reduction in expense.

Question 19

When goods are shipped FOB destination and a periodic inventory system is used, the buyer would:
A)debit Freight In for the amount of the transportation charges.
B)debit Delivery Expense for the amount of the transportation charges.
C)make no journal entry for the transportation charges.
D)debit Inventory for the amount of the transportation charges.

Accepted Answer

Under FOB destination, the seller is responsible for transportation charges until the goods reach the buyer, so the buyer makes no journal entry for transportation charges.

Question 20

A purchase return or allowance under a periodic inventory system is credited to:
A)Accounts Payable.
B)Purchase Returns and Allowances.
C)Inventory.
D)Purchases.

Accepted Answer

Under a periodic inventory system, a purchase return or allowance is credited to the "Purchase Returns and Allowances" account. This account is used to track the cost of inventory that was either returned to the supplier or for which an allowance was received, reducing the total cost of purchases during the period.

Quiz 5: Merchandising Operations and the Accounting Cycle

Inventory turnover is calculated as:

Using a periodic inventory system, the entry to record the purchase of merchandise on account involves a:

Mars Company purchased $2,500 of merchandise on account, terms 3/10 n/60. If payment was made within the discount period, the entry to record the payment under a periodic inventory system would include a credit to:

When a discount is taken for prompt payment under a periodic inventory system, the purchaser would credit:

If the shipping terms are FOB shipping point and the freight bill is $200, the purchaser, using a periodic inventory system would record payment of the freight with a debit to:

The entry to record the purchase of inventory on account in a periodic inventory system includes a debit to the Purchases account.

Alpha Company had $45,000 in beginning inventory and $80,000 in ending inventory. Cost of goods sold for the period was $25,000. The inventory turnover is:

A merchandiser purchases inventory on account under a periodic inventory system with terms of 2/10 n/30. The merchandiser would:

Day Company purchased $3,000 of merchandise on credit, terms 3/15 n/30. The entry to record payment for the merchandise within the discount period under a periodic inventory system would include a:

If a purchaser returns goods purchased on account to the supplier under a periodic inventory system, the purchaser would debit:

What are two key criteria that merchandisers who report under international financial reporting standards (IFRS) must follow?

In a periodic inventory system, purchase returns and allowances and purchase discounts are considered contra liability accounts.

When the buyer pays the freight costs, the entry to record the payment under a periodic inventory system would include a debit to:

The preparation of the income statement for a merchandising company that is following international financial reporting standards (IFRS)is not significantly different from the approach used by companies following accounting standards for private enterprises (ASPE).

When the seller accepts a return of undamaged goods from the purchaser, the seller's journal entries would include two sets of entries, if they are using a periodic inventory system.

In a periodic inventory system, purchases of inventory are debited to an account titled Purchases.

Purchase discounts normally have a credit balance.

When goods are shipped FOB destination and a periodic inventory system is used, the buyer would:

A purchase return or allowance under a periodic inventory system is credited to: