Question 1

The operating cycle of a merchandising company is

Accepted Answer

A) always one year in length. 
B) ordinarily longer than that of a service company. 
C) about the same as that of a service company. 
D) ordinarily shorter than that of a service company. 
A) always one year in length. 
B) ordinarily longer than that of a service company. 
C) about the same as that of a service company. 
D) ordinarily shorter than that of a service company.

Question 2

The operating cycle of a merchandising company ordinarily is shorter than that of a service company.

Accepted Answer

A) True 
 B)False

Question 3

Comprehensive income under IFRS

Accepted Answer

A) includes unrealized gains and losses included in net income, in contrast to GAAP. 
B) includes unrealized gains and losses included in net income, similar to GAAP. 
C) excludes unrealized gains and losses included in net income, in contrast to GAAP. 
D) excludes unrealized gains and losses included in net income, similar to GAAP. 
A) includes unrealized gains and losses included in net income, in contrast to GAAP. 
B) includes unrealized gains and losses included in net income, similar to GAAP. 
C) excludes unrealized gains and losses included in net income, in contrast to GAAP. 
D) excludes unrealized gains and losses included in net income, similar to GAAP.

Question 4

A purchase invoice is a document that

Accepted Answer

A) provides support for goods purchased for cash. 
B) provides evidence of incurred operating expenses. 
C) provides evidence of credit purchases. 
D) serves only as a customer receipt. 
A) provides support for goods purchased for cash. 
B) provides evidence of incurred operating expenses. 
C) provides evidence of credit purchases. 
D) serves only as a customer receipt.

Question 5

With the periodic inventory system, goods available for sale must be calculated before cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 6

What is a difference between the profit margin and the gross profit rate?

Accepted Answer

A) None, these are interchangeable terms. 
B) The gross profit rate is computed by dividing net sales by gross profit and the profit margin is computed by dividing net sales by net income. 
C) The gross profit rate will normally be higher than the profit margin ratio. 
D) A profit margin of 7% means that 7 cents of each net sales dollar ends up in net income and a gross profit rate of 7% means that the cost of the goods were 7% of the selling price. 
A) None, these are interchangeable terms. 
B) The gross profit rate is computed by dividing net sales by gross profit and the profit margin is computed by dividing net sales by net income. 
C) The gross profit rate will normally be higher than the profit margin ratio. 
D) A profit margin of 7% means that 7 cents of each net sales dollar ends up in net income and a gross profit rate of 7% means that the cost of the goods were 7% of the selling price.

Question 7

The journal entry to record a credit sale ignoring cost of goods sold is

Accepted Answer

A) Cash Sales Revenue 
B) Cash Service Revenue 
C) Accounts Receivable Sales Returns and Allowances 
D) Accounts Receivable Sales Revenue 
A) Cash Sales Revenue 
B) Cash Service Revenue 
C) Accounts Receivable Sales Returns and Allowances 
D) Accounts Receivable Sales Revenue

Question 8

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

Accepted Answer

A) multiple-step statement. 
B) revenue statement. 
C) report-form statement. 
D) single-step statement. 
A) multiple-step statement. 
B) revenue statement. 
C) report-form statement. 
D) single-step statement.

Question 9

Retailers and wholesalers are both considered merchandising enterprises.

Accepted Answer

A) True 
 B)False

Question 10

A Sales Returns and Allowances account is not debited if a customer

Accepted Answer

A) returns defective merchandise. 
B) receives a credit for merchandise of inferior quality. 
C) utilizes a prompt payment incentive. 
D) returns goods that are not in accordance with specifications. 
A) returns defective merchandise. 
B) receives a credit for merchandise of inferior quality. 
C) utilizes a prompt payment incentive. 
D) returns goods that are not in accordance with specifications.

Question 11

Financial information is presented below: $$\begin{array} { l r } 
\text { Operating expenses } & \$ 42,000 \
\text { Sales returns and allowances } & 12,000 \
\text { Sales discounts } & 3,000 \
\text { Sales revenue } & 165,000 \
\text { Cost of goods sold } & 96,000
\end{array}$$ The gross profit rate would be

Accepted Answer

A) $64. 
B) $42. 
C) $36. 
D) $37. 
A) $64. 
B) $42. 
C) $36. 
D) $37.

Question 12

American Importers reports net income of $60,000 and cost of goods sold of $540,000. If the company's gross profit rate was 40%, net sales were

Accepted Answer

A) $900,000. 
B) $1,350,000. 
C) $1,410,000. 
D) $990,000. 
A) $900,000. 
B) $1,350,000. 
C) $1,410,000. 
D) $990,000.

Question 13

Which of the following would not be classified as a contra account?

Accepted Answer

A) Sales Revenue 
B) Sales Returns and Allowances 
C) Accumulated Depreciation 
D) Sales Discounts 
A) Sales Revenue 
B) Sales Returns and Allowances 
C) Accumulated Depreciation 
D) Sales Discounts

Question 14

Sampson Company's accounting records show the following at the year ending on December 31, 2017. $$\begin{array} { l r } 
\text { Purchase Discounts } & \$ 11,200 \
\text { Freight-In } & 15,600 \
\text { Purchases } & 700,020 \
\text { Beginning Inventory } & 47,000 \
\text { Ending Inventory } & 57,600 \
\text { Purchase Returns and Allowances } & 12,800
\end{array}$$ Using the periodic system, the cost of goods sold is

Accepted Answer

A) $702,220. 
B) $697,820. 
C) $681,020. 
D) $719,020. 
A) $702,220. 
B) $697,820. 
C) $681,020. 
D) $719,020.

Question 15

The gross profit rate is computed by dividing gross profit by

Accepted Answer

A) sales revenue. 
B) cost of goods sold. 
C) net sales. 
D) operating expenses. 
A) sales revenue. 
B) cost of goods sold. 
C) net sales. 
D) operating expenses.

Question 16

When a seller records a return of goods, the account that is credited is

Accepted Answer

A) Sales Revenue. 
B) Sales Returns and Allowances. 
C) Inventory. 
D) Accounts Receivable. 
A) Sales Revenue. 
B) Sales Returns and Allowances. 
C) Inventory. 
D) Accounts Receivable.

Question 17

Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Inventory account.

Accepted Answer

A) True 
 B)False

Question 18

In a perpetual inventory system, cost of goods sold is recorded

Accepted Answer

A) on a daily basis. 
B) on a monthly basis. 
C) on an annual basis. 
D) each time a sale occurs. 
A) on a daily basis. 
B) on a monthly basis. 
C) on an annual basis. 
D) each time a sale occurs.

Question 19

Under the periodic system, the purchases account is used to accumulate all purchases of merchandise for resale.

Accepted Answer

A) True 
 B)False

Question 20

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Accepted Answer

A) a sales discount. 
B) free delivery. 
C) a sales allowance. 
D) a sales return. 
A) a sales discount. 
B) free delivery. 
C) a sales allowance. 
D) a sales return.

Exam 4: Merchandising Operations and the Multiple-Step Income Statement

The operating cycle of a merchandising company is

The operating cycle of a merchandising company ordinarily is shorter than that of a service company.

Comprehensive income under IFRS

A purchase invoice is a document that

With the periodic inventory system, goods available for sale must be calculated before cost of goods sold.

What is a difference between the profit margin and the gross profit rate?

The journal entry to record a credit sale ignoring cost of goods sold is

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

Retailers and wholesalers are both considered merchandising enterprises.

A Sales Returns and Allowances account is not debited if a customer

Financial information is presented below: Operating expenses \ 42,000 Sales returns and allowances 12,000 Sales discounts 3,000 Sales revenue 165,000 Cost of goods sold 96,000 The gross profit rate would be

American Importers reports net income of $60,000 and cost of goods sold of $540,000. If the company's gross profit rate was 40%, net sales were

Which of the following would not be classified as a contra account?

The gross profit rate is computed by dividing gross profit by

When a seller records a return of goods, the account that is credited is

Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Inventory account.

In a perpetual inventory system, cost of goods sold is recorded

Under the periodic system, the purchases account is used to accumulate all purchases of merchandise for resale.

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Liabilities

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

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