Question 1

Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

Accepted Answer

A) True 
 B)False

Question 2

Purchase discounts are the same as trade discounts.

Accepted Answer

A) True 
 B)False

Question 3

On March 12, Klein Company, Inc. sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The journal entry that Klein makes on March 20 is:

Accepted Answer

A) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 7,800 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,800 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 4,500 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 4,500 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | r | l | } 
\hline \text { Cash } & 7,056 & \
\hline \begin{array} { l } 
\text { Sales } \
\text { discounts }
\end{array} & 144 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,200 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 7,056 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,056 \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | c | l | } 
\hline \text { Cash } & 7,644 & \
\hline \begin{array} { l } 
\text { Sales } \
\text { discounts }
\end{array} & 156 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,800 \
\hline
\end{array}$$ 
A) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 7,800 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,800 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 4,500 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 4,500 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | r | l | } 
\hline \text { Cash } & 7,056 & \
\hline \begin{array} { l } 
\text { Sales } \
\text { discounts }
\end{array} & 144 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,200 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & 7,056 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,056 \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | c | l | } 
\hline \text { Cash } & 7,644 & \
\hline \begin{array} { l } 
\text { Sales } \
\text { discounts }
\end{array} & 156 & \
\hline \begin{array} { r } 
\text { Accounts } \
\text { receivable }
\end{array} & & 7,800 \
\hline
\end{array}$$

Question 4

A merchandising company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from the sale.

Accepted Answer

A) True 
 B)False

Question 5

What is inventory shrinkage? How do managers account for shrinkage?

Accepted Answer

Inventory shrinkage is the loss of merch

Question 6

A company uses the perpetual inventory system and recorded the following entry: $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Payable } & 2,500 & \
\hline \text { Merchandise Irventory } & & 50 \
\hline \text { Cash } & & 2,450 \
\hline
\end{array}$$ This entry reflects a:

Accepted Answer

A) Purchase of merchandise on credit. 
B) Return of merchandise. 
C) Sale of merchandise on credit. 
D) Payment of the account payable less a 2% cash discount taken. 
E) Payment of the account payable less a 1% cash discount taken. 
A) Purchase of merchandise on credit. 
B) Return of merchandise. 
C) Sale of merchandise on credit. 
D) Payment of the account payable less a 2% cash discount taken. 
E) Payment of the account payable less a 1% cash discount taken.

Question 7

Farmen Company, Inc. had net sales of $600,000 and cost of goods sold of $450,000. Calculate Farmen's gross profit.

Accepted Answer

Gross Profit = Sales

Question 8

Merchandise inventory:

Accepted Answer

A) Is a long-term asset. 
B) Is a current asset. 
C) Includes supplies the company will use in future periods. 
D) Is classified with investments on the balance sheet. 
E) Must be sold within one month. 
A) Is a long-term asset. 
B) Is a current asset. 
C) Includes supplies the company will use in future periods. 
D) Is classified with investments on the balance sheet. 
E) Must be sold within one month.

Question 9

Gross profit is also called gross margin.

Accepted Answer

A) True 
 B)False

Question 10

In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

Accepted Answer

A) True 
 B)False

Question 11

If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

Accepted Answer

A) True 
 B)False

Question 12

What is gross margin ratio? How is it used as an indicator of profitability?

Accepted Answer

The gross margin ratio computes the rela

Question 13

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

Accepted Answer

Closing entries are similar for service

Question 14

A debit memorandum is:

Accepted Answer

A) Required whenever a journal entry is recorded. 
B) The source document for the purchase of merchandise inventory. 
C) Required when a purchase discount is granted. 
D) The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records. 
E) Not necessary in a perpetual inventory system. 
A) Required whenever a journal entry is recorded. 
B) The source document for the purchase of merchandise inventory. 
C) Required when a purchase discount is granted. 
D) The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records. 
E) Not necessary in a perpetual inventory system.

Question 15

All of the following statements regarding inventory shrinkage are true except:

Accepted Answer

A) Inventory shrinkage refers to the loss of inventory. 
B) Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts. 
C) Inventory shrinkage is recognized by debiting an operating expense. 
D) Inventory shrinkage is recognized by debiting Cost of Goods Sold. 
E) Inventory shrinkage can be caused by theft or deterioration. 
A) Inventory shrinkage refers to the loss of inventory. 
B) Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts. 
C) Inventory shrinkage is recognized by debiting an operating expense. 
D) Inventory shrinkage is recognized by debiting Cost of Goods Sold. 
E) Inventory shrinkage can be caused by theft or deterioration.

Question 16

Juniper Company, Inc. uses a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the purchase on August 7 is:

Accepted Answer

A) Debit Merchandise Inventory $9,750; credit Cash $9,750. 
B) Debit Accounts Payable $9,750; credit Merchandise Inventory $9,750. 
C) Debit Merchandise Inventory $9,750; credit Sales Returns $1,500; credit Cash $8,250. 
D) Debit Merchandise Inventory $9,750; credit Accounts Payable $9,750. 
E) Debit Accounts Payable $8,250; debit Purchase Returns $1,500; credit Merchandise Inventory $9,750. 
A) Debit Merchandise Inventory $9,750; credit Cash $9,750. 
B) Debit Accounts Payable $9,750; credit Merchandise Inventory $9,750. 
C) Debit Merchandise Inventory $9,750; credit Sales Returns $1,500; credit Cash $8,250. 
D) Debit Merchandise Inventory $9,750; credit Accounts Payable $9,750. 
E) Debit Accounts Payable $8,250; debit Purchase Returns $1,500; credit Merchandise Inventory $9,750.

Question 17

The acid-test ratio is also called the quick ratio.

Accepted Answer

A) True 
 B)False

Question 18

Explain the difference between the single-step and multiple-step income statements.

Accepted Answer

A single-step income statement format in

Question 19

Explain the way in which costs flow through the merchandise inventory account to a merchandiser's income statement.

Accepted Answer

Beginning inventory plus the net cost of

Question 20

Sales Discounts is added to the Sales account when computing a company's net sales.

Accepted Answer

A) True 
 B)False

Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

Purchase discounts are the same as trade discounts.

A merchandising company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from the sale.

What is inventory shrinkage? How do managers account for shrinkage?

A company uses the perpetual inventory system and recorded the following entry: Accounts Payable 2,500 Merchandise Irventory 50 Cash 2,450 This entry reflects a:

Farmen Company, Inc. had net sales of $600,000 and cost of goods sold of $450,000. Calculate Farmen's gross profit.

Merchandise inventory:

Gross profit is also called gross margin.

In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

What is gross margin ratio? How is it used as an indicator of profitability?

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

A debit memorandum is:

All of the following statements regarding inventory shrinkage are true except:

Juniper Company, Inc. uses a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the purchase on August 7 is:

The acid-test ratio is also called the quick ratio.

Explain the difference between the single-step and multiple-step income statements.

Explain the way in which costs flow through the merchandise inventory account to a merchandiser's income statement.

Sales Discounts is added to the Sales account when computing a company's net sales.

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Inventories and Cost of Sales

Cash and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Filters

Exam 4: Accounting for Merchandising Operations

Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

Purchase discounts are the same as trade discounts.

A merchandising company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from the sale.

What is inventory shrinkage? How do managers account for shrinkage?

A company uses the perpetual inventory system and recorded the following entry: Accounts Payable 2,500 Merchandise Irventory 50 Cash 2,450 This entry reflects a:

Farmen Company, Inc. had net sales of $600,000 and cost of goods sold of $450,000. Calculate Farmen's gross profit.

Merchandise inventory:

Gross profit is also called gross margin.

In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.

What is gross margin ratio? How is it used as an indicator of profitability?

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

A debit memorandum is:

All of the following statements regarding inventory shrinkage are true except:

Juniper Company, Inc. uses a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the purchase on August 7 is:

The acid-test ratio is also called the quick ratio.

Explain the difference between the single-step and multiple-step income statements.

Explain the way in which costs flow through the merchandise inventory account to a merchandiser's income statement.

Sales Discounts is added to the Sales account when computing a company's net sales.

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Inventories and Cost of Sales

Cash and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Accounting for Long-Term Liabilities

Corporate Reporting and Analysis

Filters