Deck 12: Preparing a Worksheet for a Merchandising Company

Question 1

Rental Income is what type of account?

A) Asset
B) Revenue
C) Expense
D) Liability

Answer 1

B

Question 2

If gross profit exceeds expenses, the company

A) had a net loss.
B) broke even.
C) had a net income.
D) Not enough information given

Answer 2

C

Question 3

Inventory Shrinkage results because of

A) theft.
B) breakage.
C) errors in recording transactions.
D) All of the above are correct.

Answer 3

D

Question 4

Which of the following accounts is NOT a liability?

A) Accounts Payable
B) Salaries Payable
C) Unearned Rent
D) All of the above answers are liabilities.

Question 5

The Inventory ledger account balance was $16,000 but the physical count at the end of period was $15,900. What adjustment is required to Cost of Goods Sold?

A) $15,900
B) -$100
C) +$100
D) $0

Question 6

As Unearned Rent is earned, it becomes

A) an asset.
B) a revenue.
C) a liability.
D) an expense.

Question 7

The entry to adjust for Inventory Shrinkage includes

A) a debit to Inventory.
B) a credit to Inventory.
C) a credit to Cost of Goods Sold.
D) None of these are correct.

Question 8

Unearned Rent is what type of account?

A) Asset
B) Revenue
C) Liability
D) Expense

Question 9

The entry to adjust for Unearned Rent becoming earned includes

A) a debit to Unearned Rent.
B) a credit to Unearned Rent.
C) a debit to Income Summary.
D) None of these are correct.

Question 10

If $4,000 was the beginning inventory, $10,000 in new inventory purchases were made and the cost of goods sold were $7,000. How much was ending inventory last accounting period?

A) $7,000
B) $4,000
C) $14,000
D) $3,000

Question 11

Net Income equals

A) Net Sales - Cost of goods sold - Operating expenses.
B) Gross Profit - Operating expenses.
C) Sales - Sales Returns & Allowances - Sales Discount - Cost of goods sold - Operating Expenses.
D) All of the above are correct.

Question 12

What inventory method is used when the inventory balance is updated only at the end of the accounting period?

A) Periodic
B) Perpetual
C) Net Income
D) Cost of Goods Sold

Question 13

A characteristic of a perpetual inventory method is that

A) it keeps continual track of inventory.
B) it records units on hand at the beginning of the period.
C) it records units sold immediately.
D) All of these answers are correct.

Question 14

The normal balance for Unearned Rent is

A) a credit.
B) a debit.
C) zero.
D) dependent on circumstances.

Question 15

When using a perpetual inventory method, what account is increased when you buy merchandise inventory?

A) Cost of Goods Sold
B) Inventory
C) Prepaid Assets
D) Merchandise Expense

Question 16

Inventory shrinkage

A) increases Cost of Goods Sold.
B) decreases Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) increases liabilities.

Question 17

Joe received $4,000 in advance for renting part of his building for 4 months. What is the entry to record the adjustment after one month has passed?

A) Debit Cash $1,000; credit Rental Income $1,000
B) Debit Cash $4,000; credit Rental Income $4,000
C) Debit Unearned Rent $1,000, credit Rental Income $1,000
D) Debit Unearned Rent $4,000, credit Rental Income $4,000

Question 18

The term used when the physical inventory account doesn't match the Inventory account balance at the end of the period is

A) Inventory Degradation.
B) Inventory Theft.
C) Inventory Shrinkage
D) Inventory Management.

Question 19

When the adjustment for Unearned Rent is made,

A) liabilities decrease.
B) revenue increases.
C) assets decrease.
D) Both A and B are correct.

Question 20

Joe received $4,000 in advance for renting part of his building. What is the entry to record the receipt of payment?

A) Debit Cash; credit Rent Expense
B) Debit Cash; credit Prepaid Rent
C) Debit Cash; credit Unearned Rent
D) Debit Cash; credit Rental Income

Question 21

The periodic inventory system updates the record of goods on hand

A) daily.
B) weekly.
C) as transactions occur.
D) at the end of the accounting period.

Question 22

The normal balance of Rental Income is

A) a credit.
B) a debit.
C) zero.
D) dependent on the circumstances.

Question 23

On December 1, Video Center received $2,400 for two years' rent in advance from Gaffey Company. The December 31 adjusting entry that Video Center should make is to

A) debit Rental Income; credit Unearned Rent $1,200.
B) debit Cash; credit Rental Income $1,200.
C) debit Unearned Rent; credit Rental Income $100.
D) debit Unearned Rent; credit Rent Expense $100.

Question 24

At the end of the fiscal period the merchandise inventory account

A) will have a zero balance.
B) will have the same balance as the beginning inventory.
C) will have been transferred to the balance sheet credit column.
D) will have been transferred to the balance sheet debit column.

Question 25

Assuming a periodic system, the beginning inventory

A) in the current period is a periodic inventory.
B) in the current period is a perpetual inventory.
C) in the current period is the beginning inventory last period.
D) remains unchanged during the accounting period.

Question 26

As the Unearned Rent is earned,

A) the liability account is decreased and the revenue account is increased.
B) the liability account is increased and the revenue account is decreased.
C) the liability account is decreased and the revenue account is not affected.
D) the liability account is not affected but the revenue account is decreased.

Question 27

At the start of the year, Northern Lights had $7,000 worth of merchandise. This is called

A) Cost of Goods Sold.
B) beginning inventory.
C) ending inventory.
D) Shrinkage.

Question 28

The financial statement on which Unearned Rent would appear is

A) the income statement.
B) the balance sheet.
C) the owner's equity statement.
D) Unearned Rent is not reported until earned.

Question 29

Merchandise inventory is not

A) goods a company plans to sell to its customers.
B) a current asset on the balance sheet.
C) an important item on a merchandise company's financial statements.
D) a long term asset.

Question 30

The goods a company has available to sell to customers are called

A) Supplies.
B) Sales.
C) Cost of Goods Sold.
D) Merchandise Inventory.

Question 31

In the periodic inventory system the inventory balance is

A) updated only at the end of the period.
B) updated at the beginning of the period.
C) continually updated throughout the year.
D) adjusted only every three months.

Question 32

From the following items, which would most likely cause the recording of unearned revenue?

A) Potential sale of merchandise
B) Purchase of merchandise on account
C) Legal fees collected after work is performed
D) Subscriptions collected in advance for a magazine

Question 33

The financial statement on which Rental Income would appear is the

A) income statement.
B) owner's equity statement.
C) balance sheet.
D) operations statement.

Question 34

Gross profit less operating expenses equals

A) Cost of Goods Sold.
B) net sales.
C) net revenue.
D) net income.

Question 35

The dollar amount determined by a physical count of merchandise on hand at the end of the period is called

A) beginning inventory.
B) ending inventory.
C) periodic inventory.
D) perpetual inventory.

Question 36

Unearned Rent results because

A) no fee has been paid, but the service is complete.
B) the fee is earned but not collected.
C) the fee has been collected before the service has been provided.
D) the fee has been paid, and the service is complete.

Question 37

What financial statement shows the amount for Cost of Goods Sold?

A) Balance Sheet
B) Statement of Owner's Equity
C) Income Statement
D) Trial balance

Question 38

The physical count of inventory was incorrect which overstated the ending inventory. This would cause

A) Cost of Goods Sold to be overstated.
B) Cost of Goods Sold to be understated.
C) gross profit to be understated.
D) net income to be understated.

Question 39

The perpetual inventory method is

A) used by companies with small amounts of inventory.
B) used by companies with high amounts of inventory.
C) not used by many companies today.
D) does not ever require a physical inventory.

Question 40

Inventory Shrinkage

A) adds to the Cost of Goods Sold.
B) reduces the Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) depends on the circumstances.

Question 41

Unearned Rent is a balance sheet account.

Question 42

Merchandise Inventory appears on both the Income Statement and the Balance Sheet.

Question 43

A perpetual inventory system is an inventory system that keeps continual track of inventory. It is used by companies with a high unit cost and a low volume.

Question 44

Unearned Rent is one type of unearned revenue.

Question 45

Adjustments are journalized before recording them in the worksheet.

Question 46

Sales Discount is used when calculating Inventory.

Question 47

The Inventory account balance is assumed to be accurate; therefore, a physical count of goods is not required.

Question 48

The Income Summary account is used to adjust for Inventory Shrinkage.

Question 49

Mortgage Payable is a liability account.

Question 50

If a physical count is not completed and shrinkage has occured, beginning inventory will be overstated in the next period.

Question 51

Unearned Revenue is a liability account used to record rent fees received in advance.

Question 52

In the perpetual inventory system, it is not necessary to take a physical inventory at the end of the period.

Question 53

The ending inventory figure is shown on the balance sheet.

Question 54

The ending inventory in Year 1 is the beginning inventory in Year 2.

Question 55

The physical inventory count is not needed to validate Cost of Goods Sold.

Question 56

The category Other Income can be used to report rental income.

Question 57

Differences in the ending physical count of inventory are added to the cost of goods sold.

Question 58

When the adjustment is made for depreciation, both the Depreciation Expense account and Accumulated Depreciation account are increased.

Question 59

The perpetual inventory system updates the record of goods on hand

A) daily.
B) weekly.
C) as transactions occur.
D) at the end of the accounting period.

Question 60

Under the accrual system, expenses are recorded when paid.

Question 61

Calculate: (a) net sales, (b) cost of goods sold, (c) gross profit, and (d) net income from the following:
Sales $1,300 Beginning Inventory $11
Sales Discount 5 Net Purchases 1,050
Sales Returns and Ending Inventory 16
Allowances 15 Operating Expenses 100

Question 62

As supplies are used, they become

A) an asset.
B) a liability.
C) an expense.
D) a revenue.

Question 63

Calculate: (a) net sales, (b) inventory shrinkage, (c) gross profit, and (d) net income from the following:
Sales $1,300 Cost of Goods Sold (unadjusted) $ 1,061
Sales Discount 5 Merchandise Inventory 900
Sales Returns and Physical Inventory Count 884
Allowances 15 Operating Expenses 100

Question 64

Indicate the normal balance of each of the following accounts:
a) Unearned Rent Revenue
b) Merchandise Inventory
c) Cost of Goods Sold
d) Sales Discount
e) Unearned Revenue

Question 65

Prepare the general journal entry to record the adjustment for inventory:
Merchandise Inventory account balance $5,000
Physical Count of inventory 4,995

Question 66

Camping is Fun has a Merchandise Inventory account balance of $2,000 and an unadjusted Cost of Goods Sold of $2,200. Calculate the cost of goods sold under the following different situations:
a) Physical count shows $2,000 of Merchandise Inventory on hand.
b) Physical count shows $2,250 of Merchandise Inventory on hand.
c) Physical count shows $1,980 of Merchandise Inventory on hand.

Question 67

a) ________
b) ________
c) ________

Question 68

a) ________
b) ________
c) ________

Question 69

Brady Company's unadjusted trial balance includes the following:
Cash $2,100
Unearned Legal Fees 600
Legal Fees Revenue 7,200
The accounting department has been notified that legal services in the amount of $400 have been performed for clients who had previously paid in advance. Prepare the appropriate adjusting entry.

Question 70

Indicate the financial statement(s) on which you would find the following items:
a) Cost of Goods Sold
b) Unearned Rent Revenue
c) Rental Revenue
d) Merchandise Inventory
e) Sales Discount

Question 71

When completing a worksheet,

A) the inventory amount appears in the income statement debit column.
B) the inventory amount appears in the adjustment credit column.
C) the inventory amount appears in the unadjusted trial balance debit column of the worksheet.
D) the inventory amount appears in the balance sheet debit column of the worksheet.

Question 72

a) ________
b) ________
c) ________

Question 73

Calculate: (a) net sales, (b) inventory shrinkage, (c) gross profit, and (d) net income from the following:
Sales $3,000 Cost of Goods Sold (unadjusted) $ 2,000
Sales Discount 50 Merchandise Inventory 1,400
Sales Returns and Physical Inventory Count 1,350
Allowances 80 Operating Expenses 300

Question 74

Mortgage Payable is what type of account?

A) Asset
B) Liability
C) Expense
D) Capital

Question 75

The adjustment for supplies used would be to

A) debit Supplies Expense; credit Supplies.
B) debit Supplies; credit Cash.
C) debit Supplies; credit Supplies Expense.
D) debit Supplies; credit Accounts Payable.

Question 76

Katelyn Marie's Law Firm's unadjusted trial balance includes the following:
Cash $4,200
Unearned Legal Fees 1,200
Legal Fees Revenue 14,400
Using the above data, record the adjusting entry for $1,000 of the unearned legal fees earned.

Question 77

Indicate the normal balance of each of the following accounts:
a. Sales Returns and Allowances
b. Merchandise Inventory
c. Cost of Goods Sold
d. Payroll Tax Expense
e. Unearned Rent
f. Sales Discount
g. Canada Pension Plan Payable
h. Unearned Revenue

Question 78

a) ________
b) ________
c) ________

Question 79

Calculate (a) net sales, (b) cost of goods sold, (c) gross profit, and (d) net income from the following:
Sales $2,200 Merchandise Inventory $65
Sales Discount 50 Cost of Goods Sold 1,320
Sales Returns and Allowances 25 Operating Expenses 360

Question 80

The adjustment for accrued salaries would be to

A) debit Salaries Expense; credit Cash.
B) debit Salaries Payable; credit Salaries Expense.
C) debit Salaries Expense; credit Accrued Salaries.
D) debit Salaries Payable; credit Cash.