Question 1

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

Accepted Answer

Cash sales refer to transactions where payment is made in physical currency or cash equivalents. Since bank credit cards involve electronic payment, they do not fall under the category of cash sales. However, they are still considered a form of payment and contribute to overall sales figures.

Question 2

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 goods priced in pounds, resulting in an exchange gain.

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 during the year takes into account the previous year's ending merchandise inventory as it is a component of the beginning inventory. The formula for cost of goods available for sale is beginning inventory + purchases during the year.

Question 4

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 sum of the average days' inventory on hand plus the average number of days to collect credit sales.

Question 5

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

The exchange rate has risen, which means the British pound is now worth more in dollars. Therefore, the U.S. company would actually record an exchange gain.

Question 6

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 U.S. company has agreed to pay a fixed number of U.S. dollars for the goods purchased from a British supplier, there will be no exchange gain or loss even if the exchange rate has changed between the time of purchase and payment. This is because the exchange rate risk is borne by the British supplier, who will receive the agreed-upon amount in U.S. dollars regardless of the exchange rate at the time of payment.

Question 7

Exchange gains and losses are reported on the income statement.

Accepted Answer

Exchange gains and losses are considered a type of financial transaction, and are typically reported as part of the company's net income or loss on the income statement.

Question 8

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

Accepted Answer

The financing period refers to the time between the payment of a company's expenses and the collection of its revenue. It is also commonly referred to as the cash gap. 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

This statement is true. An exchange gain or loss occurs when the exchange rate between currencies changes, resulting in a difference in the amount of dollars the U.S. company receives or pays for the British pounds used to make the transaction.

Question 10

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

Accepted Answer

The statement is true. If goods are sold quickly and payment is collected promptly, the financing period will be shorter as there is less time between when the company incurs the costs of production and when it receives payment for the goods sold. This can help improve a company's cash flow and reduce its need for external financing.

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 the cost of goods sold through the calculation of the cost of goods available for sale. The cost of goods available for sale is calculated by adding the beginning inventory and purchases, and then the ending inventory is subtracted to find the cost of goods sold.

Question 12

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.

Question 13

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 14

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, which typically includes net purchases plus freight-in (shipping costs for getting goods to the seller).

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 begins with the purchase of inventory, followed by sales of inventory on credit or for cash, and finally, the collection of cash from credit sales, which completes the cycle.

Question 16

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 17

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 should be calculated by adding the time it takes to sell inventory, the time it takes to collect payment, and the payment terms for creditors. Therefore, the financing period in this case should be:

45 days (to sell inventory) + 30 days (to collect payment) + 60 days (creditors' payment terms) = 135 days

So the statement "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" is actually true, not false as option B suggests.

Question 18

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 19

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 the sum of the inventory conversion period (30 days), accounts receivable collection period (60 days), and accounts payable deferral period (10 days), which equals 100 days.

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 the goods to the buyer's location, and is considered a part of the cost of goods purchased. Therefore, it should be added to the net purchases to calculate the total cost of purchases.

Quiz 6: Accounting for Merchandising Operations