Question 1

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) to the time it takes to collect payment (60 days), and then subtracting the time allowed for payment to creditors (10 days). Therefore, the financing period in this case would be 80 days (30 + 60 - 10 = 80).

Question 2

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 3

Exchange gains and losses are reported on the income statement.

Accepted Answer

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

Question 4

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

Accepted Answer

Freight-in (or transportation-in) is a cost associated with the delivery of goods purchased, and should be added to the cost of inventory. Therefore, it should also be added to net purchases to obtain the total cost of purchases. The net cost of purchases represents the cost of goods that the company acquires for resale or use, after taking into account any returns, discounts, and allowances.

Question 5

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

Accepted Answer

The financing period refers to the time interval between when a company pays for its raw materials and when it receives cash from the sale of its finished products. It is also known as the cash gap.

Question 6

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 7

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 number of days it takes to turn inventory into cash, which is equal to the average days' inventory on hand plus the average number of days to collect credit sales.

Question 8

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 9

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 10

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 includes the purchase of inventory, the sale of inventory, and the collection of cash from credit sales. This cycle is also known as the cash conversion cycle.

Question 11

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 12

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 includes the beginning inventory, purchases, and any additional costs such as freight-in. The calculation is affected by the previous year's ending merchandise inventory, which is used as the beginning inventory for the current year.

Question 13

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 a U.S. company purchases goods from a British supplier for a fixed number of U.S. dollars, then the exchange rate fluctuations would not impact the U.S. company as the payment is already fixed in U.S. dollars. Therefore, there would be no exchange gain or loss for the U.S. company.

Question 14

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 affects the cost of goods sold because the cost of goods sold includes the cost of the merchandise that was sold during the year, which is calculated by subtracting the ending inventory from the beginning inventory and adding the cost of purchases made during the year. Therefore, any changes in the beginning or ending inventory levels will directly impact the cost of goods sold.

Question 15

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 16

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

Accepted Answer

Bank credit cards are a form of payment that is considered equivalent to cash, as they allow for immediate payment and transfer of funds. Therefore, when customers pay with bank credit cards, it is considered a cash sale.

Question 17

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

Accepted Answer

This statement is true. The financing period is the time it takes for a business to collect payment for goods sold. When goods are sold quickly and payment is collected promptly, the financing period is shorter.

Question 18

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 19

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 20

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

An exchange gain or loss will occur if there is a difference in the exchange rate between the date of the sale and the date of payment, as the value of the British pound will have changed in relation to the U.S. dollar.

Quiz 6: Accounting for Merchandising Operations