Question 1

Under the net method, when a company uses a perpetual inventory system, an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Merchandise Inventory and a credit to Accounts Payable of $2,000.

Accepted Answer

Under the net method, the invoice should be recorded at the net amount, considering the discount. Therefore, it should be recorded as $1,960 ($2,000 - 2% discount).

Question 2

Inventory Returns Estimated, which reflects an adjustment to inventory for expected future returns, is a liability account reported in the balance sheet, usually under Current Liabilities.

Accepted Answer

The answer of Inventory Returns Estimated, which reflects an adjustment...

Question 3

In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

Accepted Answer

In a periodic inventory system, cost of goods sold is calculated at the end of the accounting period by subtracting the ending inventory from the sum of beginning inventory and purchases. It is not recorded as each sale occurs.

Question 4

Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

Accepted Answer

In a perpetual inventory system, returns and allowances are directly recorded in the inventory account, not in a temporary account like Purchases Returns and Allowances, which is used in a periodic inventory system.

Question 5

The periodic inventory system requires updating the inventory account only at the end of the period to reflect the quantity and cost of goods available for sale and the cost of goods sold.

Accepted Answer

In a periodic inventory system, the inventory account is updated only at the end of the period to determine the quantity and cost of goods available for sale and the cost of goods sold. This differs from a perpetual inventory system, where the inventory account is updated continuously as purchases and sales occur.

Question 6

Under a periodic inventory system, purchases, purchases returns and allowances, purchase discounts, and transportation in transactions are recorded in the Merchandise Inventory account.

Accepted Answer

In a periodic inventory system, purchases, purchase returns and allowances, purchase discounts, and transportation-in transactions are recorded in separate accounts, not directly in the Merchandise Inventory account.

Question 7

Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.

Accepted Answer

This is true. Inventory Returns Estimated is a current asset account that reflects the estimated amount of inventory that a company expects to be returned in the future. It is used in a period-end adjusting entry to ensure that the company's inventory values are accurately reported on its financial statements.

Question 8

The net method initially records the invoice at its net amount (net of any cash discount).

Accepted Answer

The net method records the invoice at its net amount, which means the total amount of the invoice minus any cash discount offered by the seller.

Question 9

A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

Accepted Answer

Gross profit is calculated as sales minus cost of goods sold. Therefore, cost of goods sold is $375,000 - $157,500 = $217,500.

Question 10

The gross method requires a period-end adjusting entry to estimate future sales discounts.

Accepted Answer

The gross method of accounting for sales discounts requires a period-end adjusting entry to estimate future sales discounts. This is necessary because the actual amount of discounts given to customers may not be known until they are redeemed, which could be after the end of the accounting period. Therefore, an estimate of the future discounts must be made in order to properly report net sales and accounts receivable on the period-end financial statements.

Question 11

Either the gross method or net method may be used to record sales with cash discounts, but the net method requires a period-end adjusting entry to estimate expected future sales discounts taken.

Accepted Answer

The gross method requires a period-end adjusting entry to estimate expected future sales discounts taken, not the net method. The net method records sales net of discounts from the outset.

Question 12

Cost of goods sold:

Accepted Answer

Cost of goods sold is the term used for the expense of buying and preparing merchandise for sale. It is not another term for revenue or merchandise sales. Gross margin is a related term, but it is not interchangeable with cost of goods sold. Service firms may not have a cost of goods sold in the traditional sense, but they may have similar expenses related to their specific services.

Question 13

A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.

Accepted Answer

A single-step income statement includes all the revenues and gains together and then deducts all the expenses and losses together, including cost of goods sold, to arrive at the net income. Therefore, it shows only one subtotal for total expenses.

Question 14

A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

Accepted Answer

Gross Profit = Sales - Cost of Goods Sold
Gross Profit = $695,000 - $278,000
Gross Profit = $417,000. Therefore, the correct answer is D.

Question 15

New revenue recognition rules require that sellers report sales net of expected sales discounts.

Accepted Answer

The new revenue recognition rules require that sellers report sales net of expected sales discounts, making the answer true. This means that the revenue reported on financial statements will be reduced by the amount of expected discounts.

Question 16

Under the net method of recording purchases, the Discounts Lost account is used when the purchaser fails to take a discount offered by the seller.

Accepted Answer

Under the net method, purchases are initially recorded net of any available discounts. If the purchaser fails to take the discount, the difference is recorded in the Discounts Lost account.

Question 17

When a company has no reportable non-operating activities, its income from operations is simply labeled net income.

Accepted Answer

If a company has no reportable non-operating activities, then its income from operations is indeed labeled as net income. Non-operating activities may include investment gains or losses, interest income, or other income and expenses not related to the company's core operations. Without these non-operating activities, net income is equal to income from operations.

Question 18

When purchases are recorded at net amounts, any discounts lost as a result of late payments are reported as an operating expense.

Accepted Answer

When purchases are recorded at net amounts, discounts lost due to late payments are considered a cost of not taking advantage of the discount and are reported as an operating expense.

Question 19

A merchandiser:

Accepted Answer

A merchandiser earns net income by buying and selling merchandise. They acquire goods from suppliers or manufacturers at a cost and then sell them at a higher price to customers, earning a profit from the difference.

Question 20

Delivery expense is reported as part of general and administrative expense in the seller's income statement.

Accepted Answer

Delivery expense is typically reported as part of selling expenses, not general and administrative expenses, in the seller's income statement.

Quiz 5: Accounting for Merchandising Operations