Deck 5: Accounting for Merchandising Operations

Question 1

Sales minus operating expenses equals gross profit.

Answer 1

False

Question 2

A multiple-step income statement provides users with more information about a company's income performance.

Answer 2

True

Question 3

Inventory is reported as a long-term asset on the balance sheet.

Answer 3

False

Question 4

Cost of goods sold is determined only at the end of the accounting period in

A)a perpetual inventory system.
B)a periodic inventory system.
C)both a perpetual and a periodic inventory system.
D)neither a perpetual nor a periodic inventory system.

Question 5

If a company is given credit terms of 2/10, n/30, it should

A)hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time.
B)pay within the discount period and recognize a savings.
C)pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill.
D)recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.

Question 6

In a perpetual inventory system, the Cost of Goods Sold account is used

A)only when a cash sale of merchandise occurs.
B)only when a credit sale of merchandise occurs.
C)only when a sale of merchandise occurs.
D)whenever there is a sale of merchandise or a return of merchandise sold.

Question 7

Company A sells $2,500 of merchandise on account to Company B with credit terms of 2/10, n/30.If Company B remits a check taking advantage of the discount offered, what is the amount of Company B's check?

A)$1,750
B)$2,000
C)$2,250
D)$2,450

Question 8

The operating expense section of an income statement for a wholesaler would not include

A)freight-out.
B)utilities expense.
C)cost of goods sold.
D)insurance expense.

Question 9

During 2022, Parker Enterprises generated revenues of $90,000.The company's expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000. Parker's income from operations is

A)$18,000.
B)$27,000.
C)$45,000.
D)$90,000.

Question 10

The Inventory account balance appearing in a perpetual inventory worksheet represents the

A)ending inventory.
B)beginning inventory.
C)cost of merchandise purchased.
D)cost of merchandise sold.

Question 11

Cobb Company's accounting records show the following at the year ending on December 31, 2022: Assuming the company uses a periodic system, the cost of goods purchased is

A)$378,000.
B)$383,000.
C)$393,600.
D)$404,200.

Question 12

Under GAAP, companies generally classify income statement items by

A)function.
B)nature.
C)nature or function
D)date incurred.
IFRS.

Question 13

During October 2022, Red's Catering Company generated revenues of $14,000.Sales discounts totaled $200 for the month.Expenses were as follows: Cost of goods sold of $7,700 and operating expenses of $2,000.
Calculate (1) gross profit and (2) income from operations for the month.

Question 14

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Question 15

The multiple-step form of income statement is easier to read than the single-step form.

Question 16

Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

Question 17

Which of the following expressions is incorrect?

A)Gross profit - operating expenses = net income
B)Sales revenue - cost of goods sold - operating expenses = net income
C)Net income + operating expenses = gross profit
D)Operating expenses - cost of goods sold = gross profit

Question 18

In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to

A)Inventory.
B)Purchase Discounts.
C)Purchase Allowance.
D)Sales Discounts.

Question 19

Sales revenues are usually considered recognized when

A)cash is received from credit sales.
B)an order is received.
C)goods have been transferred from the seller to the buyer.
D)adjusting entries are made.

Question 20

Kern Company sells merchandise on account for $8,000 to Block Company with credit terms of 2/10, n/30.Block Company returns $1,600 of merchandise that was damaged along with a check to settle the account within the discount period.What is the amount of the check?

A)$6,272
B)$6,400
C)$7,840
D)$7,872

Question 21

Income from operations will always result if

A)the cost of goods sold exceeds operating expenses.
B)revenues exceed cost of goods sold.
C)revenues exceed operating expenses.
D)gross profit exceeds operating expenses.

Question 22

During 2022, Parker Enterprises generated revenues of $90,000.The company's expenses were as follows: cost of goods sold of $45,000, operating expenses of $18,000 and a loss on the sale of equipment of $3,000. Parker's net income is

A)$24,000.
B)$27,000.
C)$45,000.
D)$90,000.

Question 23

The following information is available for Dennehy Company: Dennehy's cost of goods sold is

A)$262,500.
B)$285,000.
C)$292,500.
D)$345,000.

Question 24

Cobb Company's accounting records show the following at the year ending on December 31, 2022: Assuming the company uses a periodic system, the cost of goods sold is

A)$378,000.
B)$383,000.
C)$393,600.
D)$404,200.

Question 25

Under IFRS, companies must classify income statement items by

A)function.
B)nature.
C)nature or function
D)date incurred.
IFRS.

Question 26

Assume that Swann Company uses a periodic inventory system and has these account balances at the end of the period: Purchases $525,000; Purchase Returns and Allowances $14,000; Purchase Discounts $9,000; and Freight-In $15,000.Determine net purchases and cost of goods purchased.

Question 27

A periodic inventory system requires a detailed inventory record of inventory items.

Question 28

Inventory is classified as a current asset in a classified balance sheet.

Question 29

The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

Question 30

Detailed records of goods held for resale are not maintained under a

A)perpetual inventory system.
B)periodic inventory system.
C)double entry accounting system.
D)single entry accounting system.

Question 31

Jake's Market recorded the following events involving a recent purchase of merchandise: Received goods for $60,000, terms 2/10, n/30.
Returned $1,200 of the shipment for credit.
Paid $300 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company's inventory increased by

A)$57,624.
B)$57,918.
C)$57,924.
D)$59,100.

Question 32

A sales invoice is a source document that

A)provides support for goods purchased for resale.
B)provides evidence of incurred operating expenses.
C)provides evidence of credit sales.
D)serves only as a customer receipt.

Question 33

Carter Company sells merchandise on account for $4,000 to Hannah Company with credit terms of 2/10, n/30.Hannah Company returns $600 of merchandise that was damaged along with a check to settle the account within the discount period.What entry does Carter Company make upon receipt of the check?

Question 34

Indicate which one of the following would appear on the income statement of both a merchandising company and a service company.

A)Gross profit
B)Operating expenses
C)Sales revenues
D)Cost of goods sold

Question 35

Financial information is presented below: Gross profit would be

A)$30,000.
B)$90,000.
C)$165,000.
D)$225,000.

Question 36

At the beginning of September 2022, Stella Company reported Inventory of $8,000.During the month, the company made purchases of $35,600.At September 30, 2022, a physical count of inventory reported $8,400 on hand.Cost of goods sold for the month is

A)$35,200.
B)$35,600.
C)$36,000.
D)$43,600.

Question 37

Ezra Company has sales revenue of $60,000, cost of goods sold of $36,000 and operating expenses of $14,000 for the year ended December 31.Ezra's gross profit is

A)$0.
B)$10,000.
C)$24,000.
D)$46,000.

Question 38

Under GAAP, income statement items are generally described as

A)administration, distribution, manufacturing, etc.
B)salaries, depreciation, utilities, etc.
C)administration, depreciation, manufacturing, etc.
D)salaries, distribution, utilities, etc.
IFRS.

Question 39

Assume that Swann Company uses a periodic inventory system and has these account balances at the end of the period: Purchases $630,000; Purchase Returns and Allowances $25,000; Purchase Discounts $11,000; and Freight-In $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000.Determine the cost of goods sold.

Question 40

Freight terms of FOB Destination means that the seller pays the freight costs.

Question 41

Gain on sale of equipment and interest expense are reported under other revenues and gains in a multiple-step income statement.

Question 42

Sales revenue should be recorded in accordance with the matching principle.

Question 43

A perpetual inventory system would likely be used by a(n)

A)automobile dealership.
B)hardware store.
C)drugstore.
D)convenience store.

Question 44

Costner's Market recorded the following events involving a recent purchase of merchandise: Received goods for $40,000, terms 2/10, n/30.
Returned $800 of the shipment for credit.
Paid $200 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company's inventory

A)increased by $38,416.
B)increased by $38,612.
C)increased by $38,616.
D)increased by $39,400.

Question 45

Sales revenue

A)may be recorded before cash is collected.
B)will always equal cash collections in a month.
C)only results from credit sales.
D)is only recorded after cash is collected.

Question 46

Which of the following would not be classified as a contra account?

A)Inventory
B)Sales Returns and Allowances
C)Accumulated Depreciation
D)Sales Discounts

Question 47

Conrad Company reported the following balances at June 30, 2022: Net sales for the month is

A)$7,800
B)$15,300.
C)$15,600.
D)$16,200.

Question 48

Financial information is presented below: The gross profit rate would be

A).13.
B).40.
C).60.
D).73.

Question 49

At the beginning of the year, Hunt Company had an inventory of $750,000.During the year, the company purchased goods costing $2,400,000.If Hunt Company reported ending inventory of $900,000 and sales of $3,750,000, the company's cost of goods sold and gross profit rate must be

A)$1,500,000 and 66.7%.
B)$2,250,000 and 40%.
C)$1,500,000 and 40%.
D)$2,250,000 and 60%.

Question 50

Rae Company uses a perpetual inventory system and made a purchase of merchandise on credit from Tyree Corporation on August 3 for $9,000, terms 2/10, n/45.On August 10, Rae makes the appropriate payment to Tyree.The entry on August 10 for Rae Company is

Question 51

Under IFRS, income statement items are generally described as

A)administration, distribution, manufacturing, etc.
B)salaries, depreciation, utilities, etc.
C)administration, depreciation, manufacturing, etc.
D)salaries, distribution, utilities, etc.
IFRS.

Question 52

Scruffy Brothers Supply uses a periodic inventory system.During May, the following transactions and events occurred. Instructions
Journalize the May transactions for Scruffy Brothers.You may omit explanations.

Question 53

Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.

Question 54

The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement.

Question 55

Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

Question 56

Which of the following is a true statement about inventory systems?

A)Periodic inventory systems require more detailed inventory records.
B)Perpetual inventory systems require more detailed inventory records.
C)A periodic system requires cost of goods sold be determined after each sale.
D)A perpetual system determines cost of goods sold only at the end of the accounting period.

Question 57

Under the perpetual system, freight costs incurred by the buyer for the transporting of goods is recorded in

A)Freight Expense.
B)Freight - In.
C)Inventory. d Freight - Out.

Question 58

The journal entry to record a credit sale of merchandise is

A)Cash Sales Revenue
B)Cash Service Revenue
C)Accounts Receivable Service Revenue
D)Accounts Receivable Sales Revenue

Question 59

Which of the following accounts has a normal credit balance?

A)Sales Returns and Allowances
B)Sales Discounts
C)Sales Revenue
D)Selling Expense

Question 60

Income from operations appears on

A)both a multiple-step and a single-step income statement.
B)neither a multiple-step nor a single-step income statement.
C)a single-step income statement.
D)a multiple-step income statement.

Question 61

Financial information is presented below: Gross profit would be

A)$104,000.
B)$116,000.
C)$130,000.
D)$142,000.

Question 62

During the year, Slick's Pet Shop's inventory decreased by $25,000.If the company's cost of goods sold for the year was $500,000, purchases must have been

A)$475,000.
B)$500,000.
C)$525,000.
D)Unable to determine.

Question 63

Kate Company uses a perpetual inventory system and purchased inventory from Phoe1.

Question 64

For the income statement, IFRS requires

A)single-step approach.
B)multiple-step approach.
C)single-step approach or multiple-step approach.
D)no specific income statement approach.
IFRS.

Question 65

For each of the following, determine the missing amounts.

Question 66

Sales revenues are recognized during the period cash is collected from the buyer.

Question 67

In a multiple-step income statement, income from operations excludes other revenues and gains and other expenses and losses.

Question 68

A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

Question 69

In a perpetual inventory system, cost of goods sold is recorded

A)on a daily basis.
B)on a monthly basis.
C)on an annual basis.
D)with each sale.

Question 70

Glover Co.returned defective goods costing $5,000 to Mal Company on April 19, for credit.The goods were purchased April 10, on credit, terms 3/10, n/30.The entry by Glover Co.on April 19, in receiving full credit is:

Question 71

Sales Returns and Allowances is increased when

A)an employee does a good job.
B)goods are sold on credit.
C)goods that were sold on credit are returned.
D)customers refuse to pay their accounts.

Question 72

With respect to the income statement,

A)contra-revenue accounts do not appear on the income statement.
B)sales discounts increase the amount of sales.
C)contra-revenue accounts increase the amount of operating expenses.
D)sales discounts are included in the calculation of gross profit.

Question 73

Gross profit does not appear

A)on a multiple-step income statement.
B)on a single-step income statement.
C)to be relevant in analyzing the operations of a merchandiser.
D)on the income statement if the periodic inventory system is used because it cannot be calculated.

Question 74

Financial information is presented below: The gross profit rate would be

A).347.
B).397.
C).473.
D).542.

Question 75

Cost of goods available for sale is computed by adding

A)beginning inventory to net purchases.
B)beginning inventory to the cost of goods purchased.
C)net purchases and freight-in.
D)purchases to beginning inventory.

Question 76

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting

A)Purchases.
B)Purchase Returns.
C)Purchase Allowance.
D)Inventory.

Question 77

Under IFRS, companies can apply revaluation to

A)land, buildings, and intangible assets.
B)land, buildings, but not intangible assets.
C)intangible assets, but not land or buildings.
D)no assets.
IFRS.

Question 78

Instructions
Prepare the journal entries to record the transactions assuming the company uses a perpetual inventory system.

Question 79

The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

Question 80

A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.