Question 1

Cost of Goods Sold is part of general and administrative expenses.

Accepted Answer

Cost of Goods Sold (COGS) is a type of expenses directly related to the cost of producing or purchasing goods that are sold by a company. It is usually classified as a separate category from general and administrative expenses in a company's income statement.

Question 2

Which of the following indicates that the shipment is free on board and the seller pays all of the shipping and freight costs?

Accepted Answer

FOB destination means that the seller is responsible for the goods and pays all shipping costs until the goods reach the buyer's specified location.

Question 3

A company has net sales of $137,000, cost of goods sold of $73,000, operating expenses of $42,000, and other expenses of $1,000. The company's operating income is:

Accepted Answer

The answer of A company has net sales of $137,000,...

Question 4

Long-term assets on the Balance Sheet represent assets that will last longer than one operating cycle of the business.

Accepted Answer

Long-term assets include items such as property, plant, and equipment, which are expected to provide economic benefit for more than one operating cycle of the business. Therefore, they are classified as non-current assets on the Balance Sheet.

Question 5

S&C, Inc. purchases $2,100 of inventory with shipping terms FOB Olympia. The supplier is based in Seattle and S&C is based in Olympia. The shipping costs are $300. What is the cost of S&C's inventory?

Accepted Answer

The answer of S&C, Inc. purchases $2,100 of inventory with...

Question 6

A company has net sales of $132,000, cost of goods sold of $77,000, operating expenses of $32,000, and other expenses of $1,000. The company's gross profit is:

Accepted Answer

Gross profit is calculated as net sales minus the cost of goods sold. Therefore, $132,000 - $77,000 = $55,000.

Question 7

Sassycat Corporation has $7,000 cash, $6,000 equipment, and $3,000 inventory. The current assets section of the balance sheet would total $10,000

Accepted Answer

The current assets section of the balance sheet includes cash, accounts receivable, inventory, and any other assets that are expected to be converted to cash within a year or the operating cycle of the business, whichever is longer. Therefore, the current assets section would total $10,000 in this scenario.

Question 8

Net income is commonly referred to as the company's "bottom line."

Accepted Answer

This is true. Net income is the company's profit after all expenses and taxes have been deducted, and is often used as a key measure of a company's financial performance. It is commonly referred to as the "bottom line" because it appears at the bottom of a company's income statement.

Question 9

Which of the following is NOT a selling expense?

Accepted Answer

A utility bill is not directly related to the selling of a product or service, making it a general operating expense rather than a selling expense. Advertising, salary of salesperson, and commissions are all expenses directly related to the selling process.

Question 10

On the Balance Sheet, assets are listed in alphabetical order.

Accepted Answer

Assets are not listed in alphabetical order on a balance sheet. They are typically listed in order of liquidity or in order of how easily they can be converted into cash.

Question 11

Net Sales minus Cost of Goods Sold equals Gross Profit.

Accepted Answer

This is a fundamental accounting equation that reflects the basic relationship between net sales, cost of goods sold, and gross profit. Gross profit represents the amount of revenue that a company generates after accounting for the direct costs associated with producing its goods or services. Therefore, gross profit equals net sales minus cost of goods sold.

Question 12

The accounting principle that relates to the expensing of freight charges is:

Accepted Answer

The matching principle states that expenses should be recognized in the same period as the revenue they helped to generate. Therefore, if freight charges were incurred to bring in inventory that will be sold in a specific period, those expenses should be recognized as part of the cost of goods sold in the same period, rather than being recognized as an expense in a different period.

Question 13

Prism Co. purchased $2,300 of merchandise on account. The terms of the purchase are 2/15, n/45, FOB shipping point with prepaid shipping costs of $60. If Prism pays within the discount period, what is the amount of the purchase discount?

Accepted Answer

The purchase discount is calculated on the merchandise amount only, not including shipping. The discount is 2% of $2,300, which is $46.00.

Question 14

A 5-year note payable to be repaid in equal payments throughout the 5-year period, would be listed on the Balance Sheet as a long-term liability only.

Accepted Answer

A 5-year note payable would be listed on the Balance Sheet under both current liabilities (for the portion due within the next 12 months) and long-term liabilities (for the portion due after 12 months).

Question 15

The Statement of Retained Earnings for a merchandiser is prepared differently than that of a service business.

Accepted Answer

The Statement of Retained Earnings is prepared in the same manner for both merchandising and service businesses, as it primarily reflects the changes in retained earnings over a period, regardless of the business type.

Question 16

Greene Company purchases $8,000 of inventory with shipping terms, FOB Columbus. Greene is based in Dayton and the supplier is based in Columbus. The shipping costs are $450. What is the cost of Greene's inventory?

Accepted Answer

Since the shipping terms are FOB Columbus, the supplier is responsible for the shipping costs until the inventory reaches the Columbus location. Therefore, the cost of the inventory to Greene Company is the purchase price of $8,000 plus the shipping cost of $450, which equals $8,450.

Question 17

Salieri & Company has net sales of $43,000, cost of goods sold $22,000, interest expense $1,000, and operating expenses $5,000. Salieri's operating income is $15,000.

Accepted Answer

Operating income is calculated as net sales minus cost of goods sold and operating expenses. Here, it would be $43,000 - $22,000 - $5,000 = $16,000, not $15,000.

Question 18

When a company repays the seller for shipping costs on an FOB shipping point transaction, which of the following is TRUE?

Accepted Answer

In an FOB shipping point transaction, the buyer is responsible for shipping costs. If the seller pays these costs and the buyer reimburses them, the buyer can still take a purchase discount on the net amount, excluding the prepaid shipping charges.

Question 19

Most merchandising businesses prepare a single-step Income Statement.

Accepted Answer

Most merchandising businesses prepare a multi-step income statement, which separates operating revenues and expenses from non-operating revenues, expenses, and gains and losses, providing a more detailed financial performance overview.

Question 20

Merchandise is sold FOB shipping point. If the seller prepays the delivery costs and adds them to the customer's invoice, the entry the seller must prepare, will:

Accepted Answer

When the seller prepays the delivery costs and adds them to the customer's invoice, it increases the amount the customer owes. Therefore, the seller debits Accounts Receivable and credits Cash.

Quiz 4: Accounting for a Merchandising Business