Question 1

A retailer sells plasma TVs at a selling price of $5,000 each.The total sale on account is for $20,000.Under a perpetual inventory system the journal entries to record the sale will include:
A)$20,000 will be debited to Inventory and $20,000 will be credited to Accounts Payable.
B)$20,000 will be debited to Costs of goods sold and $20,000 will be credited to Inventory.
C)$20,000 will be credited to Inventory and $20,000 will be credited to sales revenue.
D)$20,000 will be debited to Accounts Receivable and $20,000 will be credited to Sales Revenue.

Accepted Answer

The sale is on account, meaning the retailer will receive payment at a later time. Therefore, the journal entry should credit Accounts Receivable, not Inventory or Sales Revenue. The retailer is also selling the product, so Sales Revenue should be debited. The entry would be: 
Debit Accounts Receivable $20,000 
Credit Sales Revenue $20,000

Question 2

A company buys footwear and clothing from manufacturers,which it resells to discount stores in a large urban area.This company is an example of a:
A)wholesale merchandising company.
B)service company.
C)retail merchandising company.
D)secondary service company.

Accepted Answer

A wholesale merchandising company buys products from manufacturers and sells them to other businesses, such as discount stores, rather than directly to consumers. This is exactly what the company described is doing.

Question 3

On December 31,2017,you count 300 tie clips in inventory.During the next quarter,you carefully record the effect of each purchase and sale transaction on inventory.You buy 128 tie clips during the next quarter.On March 31,2018,you count 288 tie clips in inventory.Which of the following is true?
A)Ending inventory would be 278 tie clips on March 31,2018.
B)Your company uses the periodic inventory method.
C)Your company's records would show that 140 tie clips were sold during the quarter.
D)All of the answers are acceptable.

Accepted Answer

Ending inventory = Beginning inventory + Purchases - Goods sold 300 + 128 - Goods sold = 288 Goods sold = 140.

Question 4

On June 15,a retailer purchases merchandise on account from a supplier for $2,000 terms 3/10,n/30.On June 18,the retailer returns merchandise purchased for $600 for a reduction in the amount owing.On June 22,the retailer pays their account.Under a perpetual inventory system the journal entry to record the payment includes:
A)$1,400 will be debited to Accounts Payable,$1,358 will be credited to Cash and $42 will be credited to Inventory.
B)$1,358 will be credited to Cash,$1,400 will be debited to Accounts Payable and $42 will be credited to Discounts.
C)$1,358 will be credited to Cash,$1,358 will be debited to Accounts Payable.
D)$1,400 will be credited to Cash,$1,358 will be debited to Accounts Payable,and $42 will be debited to Inventory.

Accepted Answer

$2,000 - 600 = $1400 owing
$1400 × 3% discount = $42
1400-42 = $1,358 amount paid.

Question 5

The perpetual inventory method of tracking inventory is considered superior to the periodic method because the perpetual method:
A)makes calculations easier and less technology can be deployed.
B)tells what inventory a company should have at any point in time.
C)saves a company from ever having to count the goods in inventory.
D)is more consistent with how companies calculated inventory in the past.

Accepted Answer

The perpetual inventory method provides real-time tracking of inventory, allowing a company to know exactly what inventory they should have at any given point in time. This makes it easier to manage inventory levels, track inventory movement, and reduce the likelihood of stockouts or overstocks. The periodic method, on the other hand, requires physical counting of inventory and only provides a snapshot of inventory levels at a particular point in time.

Question 6

In order to calculate shrinkage:
A)both periodic and perpetual inventory systems are needed.
B)a periodic inventory system is most effective.
C)a perpetual inventory system requires an occasional count of actual inventory.
D)it does not matter which system one uses.

Accepted Answer

Shrinkage is defined as the difference between the recorded inventory and the actual inventory on hand. A perpetual inventory system continuously updates inventory records, but it still requires an occasional physical count to ensure accuracy. Therefore, a perpetual inventory system is the best choice for calculating shrinkage because it provides constant monitoring and updating of inventory records, while also allowing for periodic physical counts to double-check accuracy.

Question 7

On June 15,Oakley Inc.sells merchandise on account to Sunglass Hut (SH)for $1,000 terms 2/10,n/30.On June 20,SH returns to Oakley merchandise that SH had purchased for $300.On June 24,SH completely fulfills its obligation to Oakley by making a cash payment.What is the amount of cash paid by SH to Oakley?
A)$680.
B)$686.
C)$700.
D)$1,000.

Accepted Answer

SH returns $300 of merchandise and then pays within the discount period.$1,000 - $300 = $700 * 2% = $14 discount.$700 - $14 = $686.

Question 8

In a retail business that uses a perpetual inventory system,scanning a bar code:
A)calculates the amount owed by the customer.
B)identifies the item sold to be removed from the Inventory account.
C)identifies the item sold to be recorded in the Cost of Goods Sold account.
D)all of the answers are acceptable.

Accepted Answer

Scanning a barcode in a retail business using a perpetual inventory system accomplishes all of the listed actions: it calculates the amount owed by the customer, identifies the item to be removed from the Inventory account, and records the item in the Cost of Goods Sold account.

Question 9

An electronics retailer purchases $20,000 of computers for resale.The retailer spends $500 in transportation cost,$2,000 in labour and parts to upgrade the computers,and $300 to advertise them.At this point,what amount should appear in the Inventory account for these computers?
A)$20,000
B)$20,500
C)$22,500
D)$22,800

Accepted Answer

$20,000 + $500 + $2,000 = $22,500
Advertising,rent,etc are considered operating expenses and not included in the cost of inventory.

Question 10

The largest source of shrinkage in the retail industry is probably:
A)data entry error.
B)consumer shoplifting.
C)theft by suppliers or transportation companies.
D)theft by employees.

Accepted Answer

Employee theft is often the largest source of shrinkage in the retail industry, accounting for approximately 30-40% of all losses. It can include theft of cash, merchandise, or even time theft such as clocking in for a shift and then leaving early. While the other options listed can also contribute to shrinkage, employee theft is typically the most significant.

Question 11

On July 1,a retailer purchases merchandise on account from a supplier for $2,000 terms 2/10,n/30.On July 5,the retailer returns merchandise purchased for $500 for a reduction in the amount owing.On July 8,the retailer pays their account.What is the amount of cash paid by the retailer?
A)$1,500
B)$1,960
C)$1,470
D)$1,970

Accepted Answer

$2,000 - 500 = $1500 owing
$1500 × 2% discount = $30
1500-30 = $1,470 amount paid.

Question 12

A retailer sells TVs at a selling price of $20,000 on account.The total cost of the inventory sold is $15,000.Under a perpetual inventory system the journal entries to record the sale will include:
A)$20,000 will be debited to Inventory and $20,000 will be credited to Accounts Payable.
B)$20,000 will be debited to Accounts Receivable and $20,000 will be credited to Sales Revenue.
C)$20,000 will be credited to Inventory and $20,000 will be credited to sales revenue.
D)$20,000 will be debited to costs of goods sold and $20,000 will be credited to Inventory.

Accepted Answer

The sale is made on account, so Accounts Receivable will be debited for $20,000 (the selling price). The cost of goods sold will be credited for $15,000 (the cost of the inventory sold). The difference of $5,000 ($20,000 - $15,000) will be credited to Sales Revenue.

Question 13

An electronics retailer purchases $25,000 of computers on account for resale.The retailer returns $5,000 of computers to the supplier and receives a credit on their account.Under a perpetual inventory system the journal entry to record the returned goods will include:
A)$5,000 will be debited to Purchases Returns and $5,000 will be credited to Accounts Payable.
B)$5,000 will be debited to Accounts Payable and $5,000 will be credited to Inventory.
C)$25,000 will be debited to Accounts Payable and $25,000 will be credited to Inventory.
D)$20,000 will be credited to Inventory and $20,000 will be credited to Purchases.

Accepted Answer

Under a perpetual inventory system, when goods are returned to the supplier, the inventory account is directly adjusted. Therefore, the inventory account is debited to decrease it for the cost of the returned goods ($5,000), and accounts payable is credited to reduce the liability owed to the supplier by the same amount.

Question 14

A company purchased $6,000 of merchandise.Transportation costs were an additional $100.The company later returned $250 of the merchandise and paid the invoice within the 2% discount period.What is the total amount of cash paid?
A)$5,733
B)$6,100
C)$5,735
D)$5,730

Accepted Answer

$6,000 - $250 = $5,750 Discount = $5,750 F1F1F1S1F1F1F10.02 = $115
$5,750 - $115 + $100 = $5,735.

Question 15

Companies using a perpetual inventory system:
A)never physically count their inventory.
B)must physically count their inventory at least once a week.
C)still need to count the physical inventory occasionally.
D)always know the actual amount in inventory from their accounting records.

Accepted Answer

Even with a perpetual inventory system, companies still need to occasionally physically count their inventory to ensure the accuracy of their records. While the perpetual system tracks inventory in real-time, there may be discrepancies due to theft, damage, or errors in recording transactions. Therefore, physical counts must still be conducted periodically to reconcile any differences and ensure that the accounting records reflect the actual inventory on hand.

Question 16

An electronics retailer purchases $20,000 of computers for resale.The retailer spends $500 in cash for transportation cost.Under a perpetual inventory system the journal entry to record the purchase will include:
A)$20,500 will be debited to Inventory,$20,000 will be credited to Accounts Payable,and $500 will be credited to Cash.
B)$20,000 will be debited to Inventory and $20,000 will be credited to Cash.
C)$20,000 will be credited to Inventory and $20,000 will be credited to Purchases.
D)$20,500 will be debited to costs of goods sold and $20,500 will be credited to Accounts Payable.

Accepted Answer

Under a perpetual inventory system, the purchase cost of the inventory is directly debited to the Inventory account. Therefore, the journal entry to record the purchase will include a debit of $20,500 to Inventory. The retailer also spent $500 in cash for transportation costs, which must be credited in the entry. Hence, Cash will be credited with $500. Finally, the retailer owes the supplier $20,000 for the purchase, and this amount will be credited to Accounts Payable. Therefore, the entry will include a credit of $20,000 to Accounts Payable.

Question 17

The Tuck Shop began the current month with inventory costing $10,000,then purchased inventory at a cost of $35,000.The perpetual inventory system indicates that inventory costing $30,000 was sold during the month for $40,000.If an inventory count shows that inventory costing $14,500 is actually on hand at month-end,what amount of shrinkage occurred during the month?
A)$500.
B)$5,000.
C)$14,495.
D)$15,000.

Accepted Answer

Ending inventory = $10,000 + $35,000 - $30,000 = $15,000.$15,000 - $14,500 (actual count)= $500 shrinkage.

Question 18

Thirty years ago,most companies relied mainly upon periodic inventory systems.Why?
A)Theft was an insignificant source of loss compared to today.
B)Tax laws required physical inventory counts.
C)New technology,allowing perpetual inventory systems to be installed more easily and inexpensively,was not available thirty years ago.
D)Before the advent of computers,perpetual systems were less accurate than periodic systems.

Accepted Answer

Thirty years ago, technology was not as advanced as it is today, and installing perpetual inventory systems was more difficult and expensive. Therefore, most companies relied upon periodic inventory systems, which required less technology and fewer resources to maintain. The other options, such as theft and tax laws, may have played a role in companies' inventory management decisions, but they were not the primary reason why periodic inventory systems were more common. Additionally, the accuracy of inventory systems is not a significant factor in this context, as both periodic and perpetual systems can be accurate if implemented and maintained properly.

Question 19

The receipt of cash is one of the operating activities of:
A)companies that sell goods but not companies that sell services.
B)companies that sell to consumers but not companies that sell to other companies.
C)merchandising,manufacturing,and service companies.
D)companies that sell goods they bought from others but not companies that make the goods they sell.

Accepted Answer

The receipt of cash is a part of the operating activities of all types of companies, including merchandising, manufacturing, and service companies. Companies that sell goods they bought from others would also have receipts of cash from their sales. Therefore, options A, B, and D are incorrect.

Question 20

Businesses need to control their day-to-day operations in order to ensure that:
A)sales are not lost because desired goods are not in stock.
B)money is not tied up in excessive inventory.
C)the loss of inventory and cash to theft is minimized.
D)all of the answers are acceptable.

Accepted Answer

All of the answers listed are important reasons for businesses to control their day-to-day operations. By ensuring that desired goods are in stock, businesses can prevent lost sales and maintain customer satisfaction. By avoiding excessive inventory, businesses can free up cash flow and reduce the risk of holding onto obsolete or slow-moving products. Minimizing the loss of inventory and cash to theft is crucial for maintaining profitability and protecting against financial losses. Therefore, all of the answers are acceptable and important in maintaining successful day-to-day operations for businesses.

Quiz 6: Merchandising Operations and the Multi-Step Income Statement

A retailer sells plasma TVs at a selling price of $5,000 each.The total sale on account is for $20,000.Under a perpetual inventory system the journal entries to record the sale will include:

A company buys footwear and clothing from manufacturers,which it resells to discount stores in a large urban area.This company is an example of a:

On December 31,2017,you count 300 tie clips in inventory.During the next quarter,you carefully record the effect of each purchase and sale transaction on inventory.You buy 128 tie clips during the next quarter.On March 31,2018,you count 288 tie clips in inventory.Which of the following is true?

The perpetual inventory method of tracking inventory is considered superior to the periodic method because the perpetual method:

In order to calculate shrinkage:

In a retail business that uses a perpetual inventory system,scanning a bar code:

An electronics retailer purchases $20,000 of computers for resale.The retailer spends $500 in transportation cost,$2,000 in labour and parts to upgrade the computers,and $300 to advertise them.At this point,what amount should appear in the Inventory account for these computers?

The largest source of shrinkage in the retail industry is probably:

On July 1,a retailer purchases merchandise on account from a supplier for $2,000 terms 2/10,n/30.On July 5,the retailer returns merchandise purchased for $500 for a reduction in the amount owing.On July 8,the retailer pays their account.What is the amount of cash paid by the retailer?

A retailer sells TVs at a selling price of $20,000 on account.The total cost of the inventory sold is $15,000.Under a perpetual inventory system the journal entries to record the sale will include:

An electronics retailer purchases $25,000 of computers on account for resale.The retailer returns $5,000 of computers to the supplier and receives a credit on their account.Under a perpetual inventory system the journal entry to record the returned goods will include:

A company purchased $6,000 of merchandise.Transportation costs were an additional $100.The company later returned $250 of the merchandise and paid the invoice within the 2% discount period.What is the total amount of cash paid?

Companies using a perpetual inventory system:

An electronics retailer purchases $20,000 of computers for resale.The retailer spends $500 in cash for transportation cost.Under a perpetual inventory system the journal entry to record the purchase will include:

Thirty years ago,most companies relied mainly upon periodic inventory systems.Why?

The receipt of cash is one of the operating activities of:

Businesses need to control their day-to-day operations in order to ensure that: