Question 1

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

Accepted Answer

A) True 
 B)False

Question 2

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:

Accepted Answer

A) Debit Merchandise Inventory $1,600; credit Cash $1,600. 
B) Debit Cash $1,600; credit Accounts Payable $1,600. 
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. 
D) Debit Accounts Payable $1,800; credit Cash $1,800. 
E) Debit Accounts Payable $1,600; credit Cash $1,600. 
A) Debit Merchandise Inventory $1,600; credit Cash $1,600. 
B) Debit Cash $1,600; credit Accounts Payable $1,600. 
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. 
D) Debit Accounts Payable $1,800; credit Cash $1,800. 
E) Debit Accounts Payable $1,600; credit Cash $1,600.

Question 3

The amount recorded for merchandise inventory includes all of the following except:

Accepted Answer

A) Purchase discounts. 
B) Returns and allowances. 
C) Freight costs paid by the buyer. 
D) Freight costs paid by the seller. 
E) Trade discounts. 
A) Purchase discounts. 
B) Returns and allowances. 
C) Freight costs paid by the buyer. 
D) Freight costs paid by the seller. 
E) Trade discounts.

Question 4

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

Accepted Answer

A) The ending inventory amount. 
B) The beginning inventory amount. 
C) Equal to the cost of goods sold. 
D) Equal to the cost of goods purchased. 
E) Equal to the gross profit. 
A) The ending inventory amount. 
B) The beginning inventory amount. 
C) Equal to the cost of goods sold. 
D) Equal to the cost of goods purchased. 
E) Equal to the gross profit.

Question 5

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory) and FOB destination.

Accepted Answer

FOB stands for free on board, and it det

Question 6

National Storage Company, Inc. had sales of $1,000,000, sales discounts of $2,500, sales returns and allowances of $15,000, and cost of goods sold of $525,000. Calculate National's gross profit.

Accepted Answer

Gross Profit = Sales - Sales D

Question 7

Zenith Company Inc.'s Merchandise Inventory account at the end of year 2015 has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this $1,370 of inventory shrinkage is:

Accepted Answer

A) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Merchandise } \
\text { Inventory }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Inventory } \
\text { shrinkage } \
\text { expense }
\end{array} & & 1,370 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Purchases } \
\text { discounts }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Cost of } \
\text { goods } \
\text { sold }
\end{array} & & 1,370 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Cost of goods } \
\text { sold }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Merchandise } \
\text { Inventory }
\end{array} & & 1,370 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Inventory } \
\text { shrinkage } \
\text { expense }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Cost of } \
\text { goods }
\end{array} & & 1,370 \
\text { sold } & & \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | l | l | } 
\hline \text { Cost of } & \
\text { Goods Sold } & 90,450 & \
\hline \begin{array} { l } 
\text { Merchandise } \
\text { Inventory }
\end{array} & & 90,450 \
\hline
\end{array}$$ 
A) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Merchandise } \
\text { Inventory }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Inventory } \
\text { shrinkage } \
\text { expense }
\end{array} & & 1,370 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Purchases } \
\text { discounts }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Cost of } \
\text { goods } \
\text { sold }
\end{array} & & 1,370 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Cost of goods } \
\text { sold }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Merchandise } \
\text { Inventory }
\end{array} & & 1,370 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Inventory } \
\text { shrinkage } \
\text { expense }
\end{array} & 1,370 & \
\hline \begin{array} { l } 
\text { Cost of } \
\text { goods }
\end{array} & & 1,370 \
\text { sold } & & \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | l | l | } 
\hline \text { Cost of } & \
\text { Goods Sold } & 90,450 & \
\hline \begin{array} { l } 
\text { Merchandise } \
\text { Inventory }
\end{array} & & 90,450 \
\hline
\end{array}$$

Question 8

FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

Accepted Answer

A) True 
 B)False

Question 9

All of the following statements regarding sales returns and allowances are true except:

Accepted Answer

A) A reduction is the selling price because of damaged merchandise is included in sales returns and allowances. 
B) There is no relationship between sales returns and allowances and the possibility of lost future sales. 
C) Sales returns and allowances are recorded in a separate contra-revenue account. 
D) Sales returns and allowances are rarely disclosed in published financial statements. 
E) Sales returns and allowances are closed to the Income Summary account. 
A) A reduction is the selling price because of damaged merchandise is included in sales returns and allowances. 
B) There is no relationship between sales returns and allowances and the possibility of lost future sales. 
C) Sales returns and allowances are recorded in a separate contra-revenue account. 
D) Sales returns and allowances are rarely disclosed in published financial statements. 
E) Sales returns and allowances are closed to the Income Summary account.

Question 10

If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

Accepted Answer

A) True 
 B)False

Question 11

Cushman Company, Inc. had $800,000 in net sales, $350,000 in gross profit, and $200,000 in operating expenses. Cost of goods sold equals:

Accepted Answer

A) $150,000. 
B) $450,000. 
C) $800,000. 
D) $350,000. 
E) $200,000. 
A) $150,000. 
B) $450,000. 
C) $800,000. 
D) $350,000. 
E) $200,000.

Question 12

Prentice Company, Inc. had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:

Accepted Answer

A) $94,275. 
B) $172,550. 
C) $174,250. 
D) $176,025. 
E) $177,725. 
A) $94,275. 
B) $172,550. 
C) $174,250. 
D) $176,025. 
E) $177,725.

Question 13

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

Accepted Answer

A) True 
 B)False

Question 14

Describe the key attributes of inventory for a merchandising company.

Accepted Answer

Merchandise inventory refers to products

Question 15

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 26, it paid the full amount due. The amount of the cash paid on August 26 equals:

Accepted Answer

A) $8,167.50 
B) $9,652.50. 
C) $9,750.00. 
D) $8,250.00. 
E) $8,152.50. 
A) $8,167.50 
B) $9,652.50. 
C) $9,750.00. 
D) $8,250.00. 
E) $8,152.50.

Question 16

The following statements are true regarding the operating cycle of a merchandising company except:

Accepted Answer

A) The operating cycle begins with the purchase of merchandise. 
B) The operating cycle is shortened by credit sales. 
C) The operating cycle ends with the collection of cash from the sale of merchandise. 
D) The operating cycle can vary in length among different merchandising companies. 
E) The operating cycle sometimes involves accounts receivable. 
A) The operating cycle begins with the purchase of merchandise. 
B) The operating cycle is shortened by credit sales. 
C) The operating cycle ends with the collection of cash from the sale of merchandise. 
D) The operating cycle can vary in length among different merchandising companies. 
E) The operating cycle sometimes involves accounts receivable.

Question 17

On September 12, Vander Company, Inc. sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

Accepted Answer

A) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,800 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,000 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 3,920 & \
\hline \text { Sales discounts } & 80 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Accounts receivable } & & 5,684 \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Sales discounts } & 116 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
A) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,800 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 4,000 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 3,920 & \
\hline \text { Sales discounts } & 80 & \
\hline \text { Accounts receivable } & & 4,000 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Accounts receivable } & & 5,684 \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 5,684 & \
\hline \text { Sales discounts } & 116 & \
\hline \text { Accounts receivable } & & 5,800 \
\hline
\end{array}$$

Question 18

Liquidity problems are likely to exist when a company's acid-test ratio:

Accepted Answer

A) Is less than the current ratio. 
B) equals 1. 
C) Is higher than 1. 
D) Is substantially lower than 1. 
E) Is higher than the current ratio. 
A) Is less than the current ratio. 
B) equals 1. 
C) Is higher than 1. 
D) Is substantially lower than 1. 
E) Is higher than the current ratio.

Question 19

Operating expenses are classified into two categories: selling expenses and cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 20

A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge was $500. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

Accepted Answer

A) $9,224. 
B) $10,200. 
C) $10,500. 
D) $10,300. 
E) $9,424. 
A) $9,224. 
B) $10,200. 
C) $10,500. 
D) $10,300. 
E) $9,424.

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:

The amount recorded for merchandise inventory includes all of the following except:

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory) and FOB destination.

National Storage Company, Inc. had sales of $1,000,000, sales discounts of $2,500, sales returns and allowances of $15,000, and cost of goods sold of $525,000. Calculate National's gross profit.

Zenith Company Inc.'s Merchandise Inventory account at the end of year 2015 has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this $1,370 of inventory shrinkage is:

FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

All of the following statements regarding sales returns and allowances are true except:

If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

Cushman Company, Inc. had $800,000 in net sales, $350,000 in gross profit, and $200,000 in operating expenses. Cost of goods sold equals:

Prentice Company, Inc. had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

Describe the key attributes of inventory for a merchandising company.

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 26, it paid the full amount due. The amount of the cash paid on August 26 equals:

The following statements are true regarding the operating cycle of a merchandising company except:

Liquidity problems are likely to exist when a company's acid-test ratio:

Operating expenses are classified into two categories: selling expenses and cost of goods sold.

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

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:

The amount recorded for merchandise inventory includes all of the following except:

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory) and FOB destination.

National Storage Company, Inc. had sales of $1,000,000, sales discounts of $2,500, sales returns and allowances of $15,000, and cost of goods sold of $525,000. Calculate National's gross profit.

Zenith Company Inc.'s Merchandise Inventory account at the end of year 2015 has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this $1,370 of inventory shrinkage is:

FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

All of the following statements regarding sales returns and allowances are true except:

If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

Cushman Company, Inc. had $800,000 in net sales, $350,000 in gross profit, and $200,000 in operating expenses. Cost of goods sold equals:

Prentice Company, Inc. had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

Describe the key attributes of inventory for a merchandising company.

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 26, it paid the full amount due. The amount of the cash paid on August 26 equals:

The following statements are true regarding the operating cycle of a merchandising company except:

Liquidity problems are likely to exist when a company's acid-test ratio:

Operating expenses are classified into two categories: selling expenses and cost of goods sold.

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