Question 1

A common rule of thumb is that a company's acid-test ratio should be at least 2 or a company may face financial problems in the near future.

Accepted Answer

A) True 
 B)False

Question 2

A company purchased merchandise inventory at a cost of $8,500 with credit terms 2/10, net 60. If the company borrows $8,330 to pay for the purchase on the last day of the discount period and pays the loan plus interest in the amount of $8,466.93 on the last day of the credit period, what is interest rate for borrowing money from the bank?

Accepted Answer

A)  12% 
B)  13.5% 
C)  11.5% 
D)  16% 
E)  Can't be determined from the information given 
A)  12% 
B)  13.5% 
C)  11.5% 
D)  16% 
E)  Can't be determined from the information given

Question 3

A company had a gross profit of $300,000 based on sales of $400,000, which means its cost of goods sold is equal to $700,000.

Accepted Answer

A) True 
 B)False

Question 4

Total Company has current liabilities in the amount of $1,250,000 and an acid test ratio of 3 and a current ratio of 7. What is the amount of quick assets that Total Company has on the balance sheet?

Accepted Answer

A)  $8,750,000 
B)  $416,667 
C)  $3,750,000 
D)  $1,250,000 
E)  $2,500,000 
A)  $8,750,000 
B)  $416,667 
C)  $3,750,000 
D)  $1,250,000 
E)  $2,500,000

Question 5

The acid-test ratio differs from the current ratio in that:

Accepted Answer

A)  Liabilities are divided by current assets 
B)  Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio 
C)  The acid-test ratio measures profitability and the current ratio does not 
D)  The acid-test ratio excludes short-term investments from the calculation 
E)  The acid-test ratio is a measure of liquidity but the current ratio is not 
A)  Liabilities are divided by current assets 
B)  Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio 
C)  The acid-test ratio measures profitability and the current ratio does not 
D)  The acid-test ratio excludes short-term investments from the calculation 
E)  The acid-test ratio is a measure of liquidity but the current ratio is not

Question 6

Beginning inventory plus net cost of purchases is:

Accepted Answer

A)  Cost of goods sold 
B)  Merchandise available for sale 
C)  Ending inventory 
D)  Sales 
E)  Shown on the balance sheet 
A)  Cost of goods sold 
B)  Merchandise available for sale 
C)  Ending inventory 
D)  Sales 
E)  Shown on the balance sheet

Question 7

The operating cycle for a merchandiser that sells only for cash moves from:

Accepted Answer

A)  Purchases of merchandise to inventory to cash sales 
B)  Purchases of merchandise to inventory to accounts receivable to cash sales 
C)  Inventory to purchases of merchandise to cash sales 
D)  Accounts receivable to purchases of merchandise to inventory to cash sales 
E)  Accounts receivable to inventory to cash sales 
A)  Purchases of merchandise to inventory to cash sales 
B)  Purchases of merchandise to inventory to accounts receivable to cash sales 
C)  Inventory to purchases of merchandise to cash sales 
D)  Accounts receivable to purchases of merchandise to inventory to cash sales 
E)  Accounts receivable to inventory to cash sales

Question 8

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

Merchandising companies have some accoun

Question 9

The credit terms 2/10, n/30 are interpreted as:

Accepted Answer

A)  2% cash discount if the amount is paid within 10 days, with the balance due in 30 days 
B)  10% cash discount if the amount is paid within 2 days, with balance due in 30 days 
C)  30% discount if paid within 2 days 
D)  30% discount if paid within 10 days 
E)  2% discount if paid within 30 days 
A)  2% cash discount if the amount is paid within 10 days, with the balance due in 30 days 
B)  10% cash discount if the amount is paid within 2 days, with balance due in 30 days 
C)  30% discount if paid within 2 days 
D)  30% discount if paid within 10 days 
E)  2% discount if paid within 30 days

Question 10

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 11

A _____________________ income statement format shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items.

Accepted Answer

The answer of A _____________________ income statement format shows detailed...

Question 12

A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03.
$147,000/$143,000 = 1.03

Accepted Answer

A) True 
 B)False

Question 13

With credit terms of 2/10, n/30 the seller is offering the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Accepted Answer

A) True 
 B)False

Question 14

A perpetual inventory system is able to directly measure and monitor inventory shrinkage.

Accepted Answer

A) True 
 B)False

Question 15

Inventory shrinkage can be computed by comparing the ___________ of inventory with recorded quantities and amounts.

Accepted Answer

Physical c

Question 16

When a credit customer returns merchandise a seller that uses the perpetual system would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

Accepted Answer

A) True 
 B)False

Question 17

On October 1, Robertson Company sold merchandise in the amount of $5,800 to Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses the perpetual inventory system. On October 4, Alberts returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Robertson must make on October 4 is:

Accepted Answer

A) $\begin{array} { | c | r | r | } 
\hline \text { Sales returns and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$ 
B) $\begin{array} { | c | r | r | } 
\hline \text { Sales returns and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline
\end{array}$ 
C) $\begin{array} { | c | r | r | } 
\hline \text { Accounts receivable } & 500 & \
\hline \text { Sales returns and allowances } & & 500 \
\hline
\end{array}$ 
D) $\begin{array}{|l|r|r|}
\hline \text { Accounts receivable } & 500 & \
\hline \text { Sales returns and allowances } & & 500 \
\hline \text { Cost of goods sold } & 350 & \
\hline \text { Merchandise inventory } & & 350 \
\hline
\end{array}$ 
E) $\begin{array} { | c | r | r | } 
\hline \text { Sales returns and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$ 
A) $\begin{array} { | c | r | r | } 
\hline \text { Sales returns and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$ 
B) $\begin{array} { | c | r | r | } 
\hline \text { Sales returns and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline
\end{array}$ 
C) $\begin{array} { | c | r | r | } 
\hline \text { Accounts receivable } & 500 & \
\hline \text { Sales returns and allowances } & & 500 \
\hline
\end{array}$ 
D) $\begin{array}{|l|r|r|}
\hline \text { Accounts receivable } & 500 & \
\hline \text { Sales returns and allowances } & & 500 \
\hline \text { Cost of goods sold } & 350 & \
\hline \text { Merchandise inventory } & & 350 \
\hline
\end{array}$ 
E) $\begin{array} { | c | r | r | } 
\hline \text { Sales returns and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$

Question 18

The gross margin ratio:

Accepted Answer

A)  Is also called the net profit ratio 
B)  Measures a merchandising firm's ability to earn a profit from the sale of inventory 
C)  Is also called the profit margin 
D)  Is a measure of liquidity 
E)  Should be greater than 1 
A)  Is also called the net profit ratio 
B)  Measures a merchandising firm's ability to earn a profit from the sale of inventory 
C)  Is also called the profit margin 
D)  Is a measure of liquidity 
E)  Should be greater than 1

Question 19

Cash sales shorten the operating cycle for a merchandiser; credit purchases lengthen operating cycles.

Accepted Answer

A) True 
 B)False

Question 20

________________________ refers to products that a company owns and intends to sell.

Accepted Answer

Merchandis

Exam 4: Accounting for Merchandising Operations

A common rule of thumb is that a company's acid-test ratio should be at least 2 or a company may face financial problems in the near future.

A company had a gross profit of $300,000 based on sales of $400,000, which means its cost of goods sold is equal to $700,000.

Total Company has current liabilities in the amount of $1,250,000 and an acid test ratio of 3 and a current ratio of 7. What is the amount of quick assets that Total Company has on the balance sheet?

The acid-test ratio differs from the current ratio in that:

Beginning inventory plus net cost of purchases is:

The operating cycle for a merchandiser that sells only for cash moves from:

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

The credit terms 2/10, n/30 are interpreted as:

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.

A _____________________ income statement format shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items.

A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03. $147,000/$143,000 = 1.03

With credit terms of 2/10, n/30 the seller is offering the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

A perpetual inventory system is able to directly measure and monitor inventory shrinkage.

Inventory shrinkage can be computed by comparing the ___________ of inventory with recorded quantities and amounts.

When a credit customer returns merchandise a seller that uses the perpetual system would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

The gross margin ratio:

Cash sales shorten the operating cycle for a merchandiser; credit purchases lengthen operating cycles.

________________________ refers to products that a company owns and intends to sell.

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Inventories and Cost of Sales

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costing

Decentralization and Performance Evaluation

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Investments and International Operations

Accounting for Partnerships

Appendix : Accounting With Special Journals

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