Question 1

The financing period is also referred to as the cash gap.

Accepted Answer

The financing period is the time period between a company's payment of expenses and the collection of its receivables, it is also referred to as the cash gap.

Question 2

Under the periodic inventory system,the return of goods to the supplier is recorded with a debit to Purchases Returns and Allowances.

Accepted Answer

The answer of Under the periodic inventory system,the return of...

Question 3

The calculation of cost of goods available for sale during the year is not affected by the previous year's ending merchandise inventory.

Accepted Answer

The calculation of cost of goods available for sale takes into account the beginning inventory which is the ending inventory of the previous year. Therefore, the previous year's ending merchandise inventory does have an impact on the calculation of cost of goods available for sale.

Question 4

Ending merchandise inventory is not included in the calculation of cost of goods available for sale.

Accepted Answer

Ending merchandise inventory is not considered a cost of goods sold, but rather a part of inventory that still remains at the end of the accounting period. Cost of goods available for sale only includes the beginning inventory and additional purchases made during the accounting period.

Question 5

Exchange gains and losses are reported on the income statement.

Accepted Answer

Exchange gains and losses are considered a part of the company's operating activities and are reported on the income statement.

Question 6

The faster goods are sold and collection is made,the shorter the financing period.

Accepted Answer

This statement is true as a shorter financing period means that the company does not have to wait as long to receive payment for its goods, leading to faster collection and turnover of inventory.

Question 7

Adding freight-out expenses to net purchases gives net cost of purchases.

Accepted Answer

Freight-out expenses are related to the delivery of goods to customers and are considered a selling expense, not included in the calculation of net cost of purchases. Net cost of purchases typically includes the cost of goods bought plus any freight-in expenses (cost to get the goods to the seller), less any purchase returns, allowances, and discounts.

Question 8

If it takes 30 days to sell inventory,60 days to collect for the sale,and creditors' terms are 10 days,the financing period is 80 days.

Accepted Answer

The financing period is calculated by adding the time it takes to sell inventory (30 days) with the time it takes to collect payment for the sale (60 days) and subtracting the creditor terms (10 days): 30 + 60 - 10 = 80 days. Therefore, the statement is true.

Question 9

When a U.S.company does business with a British company and payment is in British pounds,an exchange gain or loss occurs if the exchange rate between dollars and pounds changes between the date of sale and the date of payment.

Accepted Answer

If the exchange rate between dollars and pounds changes between the date of sale and the date of payment, the U.S. company will experience an exchange gain or loss when converting the British pounds back to U.S. dollars.

Question 10

When customers pay with bank credit cards,cash sales are considered to have taken place.

Accepted Answer

When customers pay with bank credit cards, the amount is immediately credited to the merchant's account by the issuing bank. This means that the merchant receives the money immediately and the transaction is considered a cash sale.

Question 11

The change in merchandise inventory level from the beginning to the end of the year affects cost of goods sold.

Accepted Answer

The change in merchandise inventory level from the beginning to the end of the year affects cost of goods sold because it is used in the calculation of the cost of goods sold formula, which is Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold.

Question 12

If a U.S.company purchases goods for a fixed number of British pounds,and the exchange rate has fallen from $1.55 per pound to $1.50 per pound by the time payment is made,the U.S.company would record an exchange gain.

Accepted Answer

Because the exchange rate fell from $1.55 to $1.50 per pound, the U.S. company pays less in USD for the same amount of pounds, resulting in a gain.

Question 13

Freight-in is treated as an addition in the cost of goods sold section of the income statement.

Accepted Answer

Freight-in costs are considered part of the cost of purchasing inventory, and therefore, they are included in the cost of goods sold (COGS) on the income statement, as they directly relate to the cost of acquiring or producing the goods sold during the period.

Question 14

A merchandiser's operating cycle concludes with the sale of goods.

Accepted Answer

A merchandiser's operating cycle concludes with the collection of cash from the sale of goods, not just the sale itself.

Question 15

The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.

Accepted Answer

The operating cycle refers to the series of transactions starting from the purchase of inventory to the collection of cash from customers for the sale of goods. Therefore, the operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.

Question 16

If it takes 45 days to sell inventory,30 days to collect for the sale,and creditors' payment terms are 60 days,the financing period is 135 days.

Accepted Answer

The financing period is calculated by adding the days it takes to sell inventory (45 days) and the days to collect for the sale (30 days), then subtracting the creditors' payment terms (60 days). So, the financing period is 45 + 30 - 60 = 15 days.

Question 17

If a U.S.company purchases goods from a British supplier for a fixed number of U.S.dollars,an exchange gain or loss would not arise for the U.S.company,even if the exchange rate has changed between the time of purchase and the time of payment.

Accepted Answer

If the payment is made in fixed U.S. dollars, any fluctuation in the exchange rate would not affect the U.S. company. Hence, no exchange gain or loss would arise in this scenario.

Question 18

The operating cycle is the average days' inventory on hand minus the average number of days to collect credit sales.

Accepted Answer

The operating cycle is the average time it takes to turn inventory into cash (days' inventory on hand) plus the average time it takes to collect credit sales (days' sales outstanding).

Question 19

If a U.S.company sells goods for a fixed number of British pounds,and the exchange rate has risen from $1.60 per pound to $1.65 per pound by the time collection is made,the U.S.company would record an exchange loss.

Accepted Answer

If the exchange rate has risen from $1.60 per pound to $1.65 per pound, it means that the pound has appreciated against the dollar. Therefore, the U.S. company would actually record an exchange gain, not an exchange loss.

Question 20

The net cost of purchases is found by adding freight-in to net purchases.

Accepted Answer

Freight-in is a cost incurred to bring goods into the company's warehouse or inventory. Therefore, it is added to net purchases to find the net cost of purchases.

Quiz 5: Accounting for Merchandising Operations