Deck 5: Accounting for Merchandising Activities

Question 1

Y-Mart had sales of $350,000$550,000.

Answer 1

False

Question 2

A perpetual inventory system gives a continuous record of the amount of inventory on hand.

Answer 2

True

Question 3

Gross profit is also called gross margin

Answer 3

True

Question 4

Merchandise inventory is included in the Plant and Equipment section of the balancesheet.

Question 5

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

Question 6

Z-Mart had a gross profit of $340,000 based on sales of $700,000was $350,000.

Question 7

Assets tied up in inventory are not productive assets

Question 8

A periodic inventory system requires updating the inventory account at the beginning of an accounting period.

Question 9

A wholesaler is a company that buys products from manufacturers and sells them to consumers.

Question 10

Merchandise inventory includes merchandise and office supplies

Question 11

Cost of goods sold represents the cost of buying and preparing merchandise for sale

Question 12

Companies try to lengthen their operating cycles to increase net income

Question 13

A merchandiser earns net income by buying and selling merchandise

Question 14

A service company earns net income by buying and selling merchandise

Question 15

Merchandise inventory refers to products a company owns for purposes of selling tocustomers.

Question 16

In a perpetual inventory system, the cost of inventory purchased is recorded in thePurchases account.

Question 17

A retailer is a middleman that buys products from manufacturers and sells them to wholesalers.

Question 18

A company's cost of merchandise available for sale consists of beginning inventory plusthe net cost of purchases minus ending inventory.

Question 19

Cost of goods sold is reported on both the income statement and the balance sheet

Question 20

Y-Mart had net sales of $645,000$200,000.

Question 21

Each sales transaction for sellers using a perpetual inventory system involves recognizing revenue and cost of goods sold.

Question 22

The purchaser usually records a purchase return by a credit memorandum

Question 23

Trade discounts are entered into the accounting system

Question 24

The Merchandise Inventory account balance at the end of one period is the amount ofbeginning inventory in the next period.

Question 25

Credit terms are the listing of the amounts and timing of payments between a buyer anda seller.

Question 26

In a perpetual inventory system, the net cost of purchases is accumulated in theInventory account.

Question 27

Sales of $350,000 and net sales of $323,000 may reflect sales discounts of $27,000

Question 28

A sales discount of 1/15 means the seller will receive 85% of the selling price

Question 29

Sellers offer a purchase discount to buyers for prompt payment for purchases on account.

Question 30

Periodic inventory systems were historically used by companies that sold large quantities of low-value items.

Question 31

A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

Question 32

Z-Mart did not take advantage of a supplier's offer of 2/10, n/30, and paid the invoice at the end of the month. By not taking the discount Z-Mart lost the equivalent of 18%annual interest on the amount of the purchase.

Question 33

A perpetual inventory system is able to directly measure shrinkage

Question 34

In a periodic inventory system, cost of goods sold is not recorded as each sale occurs

Question 35

The terms 2/10, n/30 means that the seller offers the purchaser a 2% cash discount if the amount is paid in full within 10 days. Otherwise, the full amount is due in 30 days.

Question 36

FOB shipping or FOB factory means ownership of goods transfers to the buyer at the buyer's place of business.

Question 37

Transportation-in increases cost of goods purchased

Question 38

In a periodic inventory system, Purchases is a temporary account

Question 39

A debit to Sales Returns and Allowances and a credit to Accounts Receivable mean that a customer may have returned merchandise.

Question 40

A credit memorandum informs a customer of a credit to its Accounts Payable account from a sales return or allowance.

Question 41

Merchandising sales and costs reported on the income statement usually differ from cash receipts and payments for the period.

Question 42

Businesses normally get a full credit for both the goods and services tax (GST)and/orHarmonized Sales Tax (HST), and the provincial sales tax (PST)that they have paid.

Question 43

Goods and services tax (GST)or Harmonized Sales Tax (HST)is calculated on the original purchase price plus the provincial sales tax (PST).

Question 44

A merchandising company

A)Earns net income from buying and selling merchandise.
B)Reports cost of goods sold on the income statement.
C)Buys products from manufacturers and sells them to consumers.
D)Buys products from manufacturers and sells to retailers.
E)All of these answers are correct.

Question 45

The cost of goods sold section of a multiple-step income statement includes beginning and ending inventories, goods available for sale and operating expenses.

Question 46

The adjustment to reflect shrinkage is a debit to Income Summary and a credit toShrinkage Expense.

Question 47

For a business, goods and services tax (GST)and/or Harmonized Sales Tax (HST)paid is included in the amount recorded as an asset or an expense when a purchase is made.

Question 48

For a business, provincial sales tax (PST)paid is included in the amount recorded as an asset or an expense when a purchase is made.

Question 49

The periodic inventory system is superior to the perpetual inventory system in preventing shrinkage.

Question 50

Businesses normally get a full credit for the provincial sales tax (PST)they have paid

Question 51

When a single goods and services tax (GST)or Harmonized Sales Tax (HST)account is used, a credit balance in the account means that the government owes money to thebusiness.

Question 52

Provincial sales tax (PST)is normally calculated on the original purchase price plus the goods and services tax (GST)or Harmonized Sales Tax (HST).

Question 53

A classified multiple-step income statement is a format that shows intermediate totals between sales and net income and detailed calculations of net sales and cost of goods sold.

Question 54

Merchandisers

A)Earn net income from fares.
B)Earn net income from commissions.
C)Earn net income from buying and selling merchandise.
D)Do not report gross profit.
E)Receive fees in exchange for services.

Question 55

The amount of gross profit for a merchandising business will be the same under both the accrual basis and the cash basis of accounting.

Question 56

When a single goods and services tax (GST)or Harmonized Sales Tax (HST)account is used, a debit balance in the account means the government owes money to the business.

Question 57

Some businesses use only one account to keep track of the amount of goods and services tax (GST)and/or Harmonized Sales Tax (HST)owed or owing.

Question 58

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

Question 59

Generally accepted accounting principles require companies to use a specific format for financial statements.

Question 60

Businesses normally get a full credit for the goods and services tax (GST)and/orHarmonized Sales Tax (HST)that they have paid.

Question 61

Gross profit is

A)Subtracted from operating income to get net income.
B)A special general ledger account.
C)Net sales less cost of goods sold.
D)Only calculated when using the perpetual inventory system.
E)The same as net income.

Question 62

Z-Mart purchased $5,000 worth of merchandise on credit. Transportation costs were an additional $100, paid cash to the cartage company on delivery. Z-Mart returned $275 worth of merchandise and paid the invoice on time, and took a 2% purchase discount. The amount of this payment was:

A)$3,725.00
B)$4,728.50
C)$3,993.50
D)$3,600.50
E)$4,630.50

Question 63

Z-Mart had sales of $498,100. Cost of goods sold was $143,400. What is the grossprofit?

A)$214,600.
B)$501,900.
C)$354,700.
D)$215,100.
E)40%.

Question 64

Merchandise inventory is

A)Products a company owns for resale to customers.
B)Includes supplies.
C)Included on a service company's balance sheet.
D)Reported on the income statement as an expense.
E)Reported on the balance sheet under plant and equipment.

Question 65

The cash sales operating cycle moves from

A)Purchases to inventory for sale to accounts receivable to cash sales.
B)Accounts receivable to purchases to inventory for sale to cash sales.
C)Inventory for sale to cash sales to purchases.
D)Purchases to inventory for sale to cash sales.
E)Accounts receivable to inventory for sale to cash sales.

Question 66

Merchandise inventory

A)Is a type of long term investment.
B)Is a current asset.
C)Is a capital asset.
D)Is an expense.
E)Can include supplies.

Question 67

Retailers

A)Buy products from manufacturers and wholesalers and sell to consumers.
B)Buy products from wholesalers and sell to other wholesalers.
C)Buy only from wholesalers.
D)Buy products from manufacturers and sell to wholesalers.
E)All of these answers are correct.

Question 68

A trade discount is

A)A term used by a purchaser to describe a cash discount given to customers for prompt payment.
B)A term used by a seller to describe a cash discount granted to customers for prompt payment.
C)A reduction below a list price.
D)Also called a rebate.
E)A reduction in price for prompt payment.

Question 69

Wholesalers

A)Buy products from other wholesalers and sell to consumers.
B)Buy products from manufacturers and sell to retailers.
C)Buy products from retailers and sell to consumers.
D)Buy products from manufacturers and sell to consumers.
E)All of these answers are correct.

Question 70

On December 5, Z-Mart purchased $1,800 worth of merchandise. On December 7, Z-Mart returned $400 worth of merchandise. On December 8, the company paid the balance in full, taking a 2% discount. The amount of the payment was:

A)$1,600.
B)$1,568.
C)$200.
D)$1,800.
E)$1,372.

Question 71

To calculate the total cost of a merchandise purchase, the invoice account must beadjusted for which of the following?

A)Any discounts given to a purchaser by a supplier.
B)Any freight costs paid by a purchaser.
C)Any taxes or other costs necessary to make the goods ready for sale.
D)Any returns and allowances received from a supplier.
E)All of these answers are correct.

Question 72

A periodic inventory system

A)Was historically used by companies that sold large quantities of low-value items.
B)Gives more timely information.
C)Does not use a Purchases account.
D)Is widely used in practice.
E)Provides point of sale data.

Question 73

A periodic inventory system

A)Does not require a physical count of inventory.
B)Records the cost of new merchandise purchased in a permanent account.
C)Records the cost of new merchandise purchased in a temporary account.
D)Requires updating the inventory account every month.
E)All of these answers are correct.

Question 74

Z-Mart had sales of $569,300. Gross profit was $239,106. What is the cost of goods sold?

A)$330,194.
B)$276,194.
C)$808,406.
D)$357,194.
E)42%.

Question 75

The operating cycle of a merchandising company

A)Ends with the collection of cash from the sale of merchandise.
B)Varies among types of businesses.
C)Applies to both cash and credit sales.
D)Begins with the purchase of merchandise.
E)All of these answers are correct.

Question 76

Z-Mart uses the perpetual inventory system and recorded the following journal entry: The transaction was:

A)A purchase and recognition of a cash discount taken.
B)A return and payment of the account payable.
C)A return.
D)A purchase.
E)A payment of the account payable and recognition of a cash discount taken.

Question 77

2/10, n/30 is interpreted as

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

Question 78

In a periodic inventory system

A)A continuous record of the amount of inventory on hand is maintained.
B)The company records the cost of new merchandise in the permanent Purchases account.
C)The cost of merchandise on hand is determined by relating the quantities on hand to records showing each item's original cost.
D)The inventory value is not based on a physical count.
E)None of these answers apply.

Question 79

Cost of goods sold is

A)An operating expense.
B)The cost of goods sold to customers.
C)The term used for the cost of buying and preparing merchandise.
D)Also called gross margin.
E)Another term for net sales.

Question 80

A perpetual inventory system

A)Gives a continuous record of the amount of inventory on hand.
B)Is not widely used in practice.
C)Was historically used by companies that sold large quantities of low-value items.
D)Uses a Purchases account for the cost of new merchandise purchased.
E)All of these answers are correct.