Question 1

Under the perpetual inventory system,the adjusting journal entries to record estimated sales returns (the original sales were on account)would be:

Accepted Answer

A)  $$\begin{array} { |l | r | r | } 
\hline \text { Sales Revenue } & \mathrm { XX } & \
\hline \text { Merchandise Inventory } & & \mathrm { XX } \
\hline\
\hline \text { Estimated Returns Inventory } & \mathrm { XX } & \
\hline \text { Refunds Payable } & & \mathrm { XX } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales Revenue } & \mathrm { XX } & \
\hline \text { Refunds Payable } & & \mathrm { XX } \
\hline\
\hline \text { Estimated Returns Inventory } & \mathrm { XX } & \
\hline \text { Cost of Goods Sold } & & \mathrm { XX } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l| r | r | } 
\hline \text { Accounts Receivable } & \text { XX } & \
\hline \text { Sales Revenue } & & \text { XX } \
\hline\
\hline \text { Sales Revenue } & & \
\hline \text { Cost of Goods Sold } & & \text { XX } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales Returns and Allowances } & \text { XX } & \
\hline \text { Cost of Goods Sold } & & \text { XX } \
\hline\
\hline \text { Merchandise Inventory } &\text { XX }  & \
\hline \text { Accounts Receivable } & & \text { XX } \
\hline 
\end{array}$$ 
A)  $$\begin{array} { |l | r | r | } 
\hline \text { Sales Revenue } & \mathrm { XX } & \
\hline \text { Merchandise Inventory } & & \mathrm { XX } \
\hline\
\hline \text { Estimated Returns Inventory } & \mathrm { XX } & \
\hline \text { Refunds Payable } & & \mathrm { XX } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales Revenue } & \mathrm { XX } & \
\hline \text { Refunds Payable } & & \mathrm { XX } \
\hline\
\hline \text { Estimated Returns Inventory } & \mathrm { XX } & \
\hline \text { Cost of Goods Sold } & & \mathrm { XX } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l| r | r | } 
\hline \text { Accounts Receivable } & \text { XX } & \
\hline \text { Sales Revenue } & & \text { XX } \
\hline\
\hline \text { Sales Revenue } & & \
\hline \text { Cost of Goods Sold } & & \text { XX } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales Returns and Allowances } & \text { XX } & \
\hline \text { Cost of Goods Sold } & & \text { XX } \
\hline\
\hline \text { Merchandise Inventory } &\text { XX }  & \
\hline \text { Accounts Receivable } & & \text { XX } \
\hline 
\end{array}$$

Question 2

Sales Revenue is recorded net of sales discounts,so it is labeled Net Sales Revenue on the income statement.

Accepted Answer

A) True 
 B)False

Question 3

After making a sale,a seller may have customers that return goods.The seller uses the perpetual inventory system.This requires the seller to ________.

Accepted Answer

A)  use historical data to record sales revenue in the amount that is expected to be received 
B)  record two adjusting entries to account for the estimated returns 
C)  reduce sales and cost of goods sold for the period 
D)  All of the statements are correct. 
A)  use historical data to record sales revenue in the amount that is expected to be received 
B)  record two adjusting entries to account for the estimated returns 
C)  reduce sales and cost of goods sold for the period 
D)  All of the statements are correct.

Question 4

City Market,a small-scale grocer,wants to introduce an inventory system to track its inventory.The cash registers are not computer terminals.The perpetual inventory system is most suitable for its operations.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is TRUE of freight in?

Accepted Answer

A)  It is an administrative expense. 
B)  It is a selling expense. 
C)  It is the transportation cost on purchases. 
D)  It is the transportation cost on sales. 
A)  It is an administrative expense. 
B)  It is a selling expense. 
C)  It is the transportation cost on purchases. 
D)  It is the transportation cost on sales.

Question 6

A merchandiser's statement of owner's equity looks exactly like that of a service business.

Accepted Answer

A) True 
 B)False

Question 7

Purchase Discounts is a contra asset account.

Accepted Answer

A) True 
 B)False

Question 8

With the terms FOB shipping point,the freight cost becomes part of the cost of merchandise inventory for the purchaser.(Assume a perpetual inventory system.)

Accepted Answer

A) True 
 B)False

Question 9

In a periodic inventory system,businesses must obtain a physical count of inventory to determine quantities on hand.

Accepted Answer

A) True 
 B)False

Question 10

The general ledger shows a balance of $67,000 in the Merchandise Inventory account at the end of the period.The physical inventory count shows inventory of $64,400.(Assume a perpetual inventory system.)The adjusting entry includes a ________.

Accepted Answer

A)  debit to Cost of Goods Sold and a credit to Merchandise Inventory for $2,600 
B)  debit to Cost of Goods Sold and a credit to Cash for $2,600 
C)  debit to Merchandise Inventory and a credit to Cost of Goods Sold for $2,600 
D)  debit to Merchandise Inventory and a credit to Cash for $2,600 
A)  debit to Cost of Goods Sold and a credit to Merchandise Inventory for $2,600 
B)  debit to Cost of Goods Sold and a credit to Cash for $2,600 
C)  debit to Merchandise Inventory and a credit to Cost of Goods Sold for $2,600 
D)  debit to Merchandise Inventory and a credit to Cash for $2,600

Question 11

When a company uses the perpetual inventory system ________.

Accepted Answer

A)  purchases of Office Supplies and Equipment that will be used in the day-to-day operations of the business are recorded as debits to Merchandise Inventory. 
B)  the purchase of merchandise inventory on account is recorded as a debit to Accounts Payable and a credit to Merchandise Inventory. 
C)  the Merchandise Inventory account is reported as an expense on the income statement. 
D)  the Merchandise Inventory account is debited for purchases of goods that the company intends to resell to customers. 
A)  purchases of Office Supplies and Equipment that will be used in the day-to-day operations of the business are recorded as debits to Merchandise Inventory. 
B)  the purchase of merchandise inventory on account is recorded as a debit to Accounts Payable and a credit to Merchandise Inventory. 
C)  the Merchandise Inventory account is reported as an expense on the income statement. 
D)  the Merchandise Inventory account is debited for purchases of goods that the company intends to resell to customers.

Question 12

A small increase in the gross profit percentage may indicate an important rise in income.

Accepted Answer

A) True 
 B)False

Question 13

A company purchased inventory for $71,000 from a vendor on account,FOB shipping point,with terms of 3/10,n/30.The company paid the shipper $1,700 cash for freight in.The company paid the vendor nine days after the invoice date.If there was no beginning inventory,the cost of inventory would be ________.(Assume a perpetual inventory system.)

Accepted Answer

A)  $70,570 
B)  $72,700 
C)  $67,170 
D)  $69,300 
A)  $70,570 
B)  $72,700 
C)  $67,170 
D)  $69,300

Question 14

The Merchandise Inventory account is an expense account that is used for goods purchased that the business owns and intends to resell to customers,as well as for purchases of office supplies and equipment.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is NOT recorded in a modern perpetual inventory system?

Accepted Answer

A)  units purchased and cost amounts 
B)  units sold and sales and cost amounts 
C)  timeliness of vendor deliveries 
D)  the quantity of merchandise inventory on hand and its cost 
A)  units purchased and cost amounts 
B)  units sold and sales and cost amounts 
C)  timeliness of vendor deliveries 
D)  the quantity of merchandise inventory on hand and its cost

Question 16

Journalize the following sales transactions for Power Equipment using the periodic inventory system.Explanations are not required.
July 1: Sold $4,200 of equipment on account,credit terms are n/30,FOB destination.
July 5: Paid $90 on freight out.
July 11: Received payment from the customer for the full amount due on the July 1 sale.

Accepted Answer

\[\begin{array} { | c | c | r | l | } 
\

Question 17

The term "freight out" refers to ________.

Accepted Answer

A)  transportation costs on purchases 
B)  cost of inventory purchased 
C)  costs that are not actually paid in cash 
D)  transportation costs on sales 
A)  transportation costs on purchases 
B)  cost of inventory purchased 
C)  costs that are not actually paid in cash 
D)  transportation costs on sales

Question 18

In a periodic inventory system,a sale of inventory involves two entries,one to record Sales Revenue and one to record Cost of Goods Sold.

Accepted Answer

A) True 
 B)False

Question 19

When using the periodic inventory system,the Merchandise Inventory account is ________.

Accepted Answer

A)  not used 
B)  never used when recording purchase discounts, or returns of inventory 
C)  replaced on the balance sheet with the Purchases account 
D)  updated after each sale 
A)  not used 
B)  never used when recording purchase discounts, or returns of inventory 
C)  replaced on the balance sheet with the Purchases account 
D)  updated after each sale

Question 20

Regarding the end of period adjusting entries to record estimated sales returns,which of the following statements is correct? (Assume the perpetual inventory system is used.)

Accepted Answer

A)  Companies use data published by the FASB to estimate the amount of sales returns related to the sales of similar companies. 
B)  It is acceptable to prepare a single adjusting entry which debits Estimated Returns Inventory and credits Refunds Payable. 
C)  Both Sales Revenue and Cost of Goods Sold accounts are decreased. 
D)  Estimated Returns Inventory is an income statement account. 
A)  Companies use data published by the FASB to estimate the amount of sales returns related to the sales of similar companies. 
B)  It is acceptable to prepare a single adjusting entry which debits Estimated Returns Inventory and credits Refunds Payable. 
C)  Both Sales Revenue and Cost of Goods Sold accounts are decreased. 
D)  Estimated Returns Inventory is an income statement account.

Exam 5: Merchandising Operations

Under the perpetual inventory system,the adjusting journal entries to record estimated sales returns (the original sales were on account)would be:

Sales Revenue is recorded net of sales discounts,so it is labeled Net Sales Revenue on the income statement.

After making a sale,a seller may have customers that return goods.The seller uses the perpetual inventory system.This requires the seller to ________.

City Market,a small-scale grocer,wants to introduce an inventory system to track its inventory.The cash registers are not computer terminals.The perpetual inventory system is most suitable for its operations.

Which of the following is TRUE of freight in?

A merchandiser's statement of owner's equity looks exactly like that of a service business.

Purchase Discounts is a contra asset account.

With the terms FOB shipping point,the freight cost becomes part of the cost of merchandise inventory for the purchaser.(Assume a perpetual inventory system.)

In a periodic inventory system,businesses must obtain a physical count of inventory to determine quantities on hand.

The general ledger shows a balance of $67,000 in the Merchandise Inventory account at the end of the period.The physical inventory count shows inventory of $64,400.(Assume a perpetual inventory system.)The adjusting entry includes a ________.

When a company uses the perpetual inventory system ________.

A small increase in the gross profit percentage may indicate an important rise in income.

The Merchandise Inventory account is an expense account that is used for goods purchased that the business owns and intends to resell to customers,as well as for purchases of office supplies and equipment.

Which of the following is NOT recorded in a modern perpetual inventory system?

The term "freight out" refers to ________.

In a periodic inventory system,a sale of inventory involves two entries,one to record Sales Revenue and one to record Cost of Goods Sold.

When using the periodic inventory system,the Merchandise Inventory account is ________.

Regarding the end of period adjusting entries to record estimated sales returns,which of the following statements is correct? (Assume the perpetual inventory system is used.)

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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