Question 1

An income statement on which the cost of goods sold and operating expenses are added together and subtracted from net sales in one step to get net income is a(n):

Accepted Answer

A single-step income statement is a simpler form of income statement where all expenses including cost of goods sold are subtracted from net sales in a single step to get the net income. This type of income statement is useful for small businesses with simpler operations.

Question 2

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Accepted Answer

A debit to Sales Returns and Allowances and a credit to Accounts Receivable recognizes that a customer returned merchandise. This transaction reduces the amount of revenue earned and the amount of Accounts Receivable.

Question 3

Merchandising companies must account for:

Accepted Answer

Merchandising companies must account for all of these factors as they are major components of the income statement and impact the overall profitability of the business. Sales are the primary source of revenue, but sales discounts and returns/allowances can reduce that revenue. Cost of goods sold is also a key factor to calculate the gross profit of the company.

Question 4

Classified multiple-step income statements:

Accepted Answer

Classified multiple-step income statements are not required by Canada Revenue Agency and are not specific to the perpetual system. Rather, they are used for internal reporting purposes to provide a more detailed breakdown of revenues, expenses, and net income. They typically include sections for gross profit, operating expenses (including cost of goods sold), non-operating income and expenses, and income taxes.

Question 5

The agreed cost of an item to be purchased by a business on credit is $4,000.The applicable cost will be debited to advertising expense.The item is subject to 5% goods and services tax (GST)and 7% provincial sales tax (PST).When this transaction is recorded,what amount will be credited to accounts payable?

Accepted Answer

The total cost including taxes is calculated as follows: $4,000 + 5% GST ($200) + 7% PST ($280) = $4,480. This is the amount that will be credited to accounts payable, as it represents the total amount the business owes for the purchase.

Question 6

Expenses that support the overall operations of a business and include the expenses of such activities as providing accounting services,human resource management,and financial management are called:

Accepted Answer

General and administrative expenses are expenses that support the overall operations of a business and include the expenses of such activities as providing accounting services, human resource management, and financial management. Operating expenses typically refer to expenses directly related to the production and delivery of a company's goods or services. Selling expenses are expenses incurred in the process of making sales, such as advertising, commissions, and shipping. Purchasing expenses are costs related to the procurement of goods and materials needed for production. Miscellaneous expenses are expenses that do not fit into any specific category.

Question 7

Sales returns:

Accepted Answer

Sales returns refers to merchandise that has been sold to customers but is then returned to the seller for various reasons such as being damaged or faulty, incorrect size or color, or simply not meeting the customer's expectations.

Question 8

Sales returns and allowances:

Accepted Answer

Sales returns and allowances provide information about dissatisfied customers and the possibility of lost future sales, are usually recorded in separate contra-revenue accounts, represent a reduction of the customer's account receivable, and are omitted from published statements.

Question 9

If a merchandising company ends a period with a larger inventory than it owned at the beginning of the period,then:

Accepted Answer

A larger ending inventory compared to the beginning inventory implies that the cost of goods sold was smaller than the net purchases. In other words, the company purchased more goods than it sold during the period, resulting in an increase in inventory. Therefore, choice C is the best answer.

Question 10

A business sold some inventory on credit for $5,000 before taxes.The sale is subject to 5% goods and services tax (GST)and 7% provincial sales tax (PST).The business uses a perpetual inventory system.What is the amount of the accounts receivable that was recorded as a result of this sale?

Accepted Answer

The total amount of accounts receivable includes the original sale amount plus both the GST and PST. The calculation is $5,000 + ($5,000 * 5%) + ($5,000 * 7%) = $5,000 + $250 + $350 = $5,600.

Question 11

On December 5,Z-Mart purchased $1,800 worth of merchandise.On December 7,Z-Mart returned $400 worth of merchandise.On December 8,the company paid the balance in full,taking a 2% discount.The amount of the payment was:

Accepted Answer

The answer of On December 5,Z-Mart purchased $1,800 worth of...

Question 12

A business sold some inventory on credit for $5,000 before taxes.The sale is subject to 5% goods and services tax (GST)and 7% provincial sales tax (PST).The business uses a perpetual inventory system.What is the amount that will be recorded in the GST payable account as a result of this sale?

Accepted Answer

The GST payable on a $5,000 sale at 5% is $250 ($5,000 * 0.05). This amount is a liability for the business until it is remitted to the government, so it is recorded as a credit in the GST payable account.

Question 13

Z-Mart purchased $5,000 worth of merchandise on credit.Transportation costs were an additional $100,paid cash to the cartage company on delivery.Z-Mart returned $275 worth of merchandise and paid the invoice on time,and took a 2% purchase discount.The amount of this payment was:

Accepted Answer

The net purchase amount after the return is $4,725 ($5,000 - $275). A 2% discount on $4,725 is $94.50, making the payment $4,630.50 ($4,725 - $94.50). The transportation cost does not affect the discount calculation.

Question 14

For a merchandiser,each sales transaction involves:

Accepted Answer

Each sales transaction involves recognizing the cost of merchandise sold to a customer. This is because the merchandiser needs to take into account the cost of goods sold in order to determine the profit earned from the sale. The other options listed may also be involved in certain transactions, but recognizing the cost of merchandise sold is always necessary.

Question 15

The agreed cost of an item to be purchased by a business on credit is $4,000.The applicable cost will be debited to advertising expense.The item is subject to 5% goods and services tax (GST)and 7% provincial sales tax (PST).When this transaction is recorded,what amount will be recorded as GST Receivable?

Accepted Answer

The GST that is applicable to the item will be recorded as GST Receivable. The GST amount is 5% of $4,000, which is $200. It will be debited to the advertising expense, and since the accounting equation must always be balanced, a corresponding credit entry is made to the GST Receivable account. Therefore, the amount recorded as GST Receivable is $200 debit.

Question 16

For a merchandising company using the perpetual inventory system,the second closing entry closes debit balances in:

Accepted Answer

In a perpetual inventory system, all these accounts (Sales Discounts, Sales Returns and Allowances, Cost of Goods Sold, and Operating Expenses) have debit balances that need to be closed at the end of the accounting period.

Question 17

The agreed cost of an item to be purchased by a business on credit is $4,000.The applicable cost will be debited to advertising expense.The item is subject to 5% goods and services tax (GST)and 7% provincial sales tax (PST).When this transaction is recorded,what amount will be debited to advertising expense?

Accepted Answer

The cost of the item is $4,000. 
5% GST on $4,000 = $200 
7% PST on ($4,000 + $200) = $308 
Total cost of the item = $4,508 
The applicable cost to be debited to advertising expense will be $4,280 ($4,508 - $228 tax).

Question 18

Gross profit is derived from:

Accepted Answer

Gross profit is derived from all of these answers. Sales, beginning inventory, ending inventory, and cost of goods sold are all factors that contribute to gross profit.

Question 19

A business sold some inventory that had cost $5,000 before taxes.The sale is subject to 5% goods and services tax (GST)and 7% provincial sales tax (PST).The business uses a perpetual inventory system.How much will be credited to the Merchandise Inventory account as a result of this sale?

Accepted Answer

In a perpetual inventory system, the Merchandise Inventory account is credited for the cost of the goods sold. Taxes collected (GST and PST) do not affect the Merchandise Inventory account. Therefore, the correct amount to be credited is the cost of the goods sold, which is $5,000.

Question 20

Shrinkage:

Accepted Answer

Shrinkage refers to the loss of inventory for merchandising companies, which can arise because of theft and deterioration of merchandise. Shrinkage is not able to be directly measured by a perpetual inventory system and is recognized by debiting Cost of Goods Sold. Therefore, all of these answers are correct.

Quiz 5: Accounting for Merchandising Activities

An income statement on which the cost of goods sold and operating expenses are added together and subtracted from net sales in one step to get net income is a(n) :