Deck 6: Merchandising Operations and the Multistep Income Statement

Question 1

BetterBuy purchases computers from companies like Hewlett Packard and IBM and sells them to consumers.BetterBuy is a:

A)merchandising company at the retail level.
B)service company.
C)merchandising company at the wholesale level.
D)manufacturer.

Answer 1

A
Explanation:BetterBuy sells products to the final consumer at the retail level.

Question 2

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

Answer 2

False
Explanation:A retailer sells products to the final consumer.

Question 3

The periodic inventory system uses the Inventory account to keep track of the amount of inventory that is purchased.

Answer 3

False
Explanation:The periodic inventory system uses the Purchases account to keep track of the amount of inventory that is purchased.

Question 4

When a periodic inventory system is in use,at the end of each period a "book-to-physical" adjustment will be made to reduce inventory for shrinkage.

Question 5

FOB shipping point means that ownership of goods passes to the buyer when the goods leave the seller's place of business.

Question 6

Companies make a month-end adjustment for expected returns by decreasing Sales Revenue and decreasing Cost of Goods Sold.

Question 7

The periodic inventory system uses the Purchases account to keep track of the amount of inventory that is purchased.

Question 8

Inventory shrinkage is the difference between inventory in the warehouse and inventory counted.

Question 9

Sales discounts are discounts that consumers get from buying clearance items at a reduced price.

Question 10

Most companies report sales revenue,sales returns and allowances,and sales discounts,as well as net sales on their externally reported income statements.

Question 11

When a periodic inventory system is in use,the Inventory account is updated only at the end of the period.

Question 12

In a periodic inventory system,only one journal entry is required to record the sale of inventory.

Question 13

Gross profit is a ledger account name included with other income statement accounts.

Question 14

Generally,a physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system.

Question 15

The gross profit percentage is computed by dividing operating income by net sales.

Question 16

A merchandising company's operating cycle begins with the acquisition of inventory and ends with the cash collection from sales.

Question 17

Intel makes microchips from raw materials acquired from suppliers.Intel is a:

A)service company.
B)retail company.
C)manufacturer.
D)merchandising company.

Question 18

If a merchandiser offers a sales discount of 2/10,net/30 on a sale of $2,000,the amount due in 10 days is the net amount of $1,960.

Question 19

A company either performs a service,sells inventory that it purchases from others,or manufacturers a product;it cannot serve more than one of these functions.

Question 20

In a periodic inventory system,the cost of goods sold is recorded as each sale occurs.

Question 21

A company buys footwear and clothing from manufacturers,which it resells to discount stores in a large urban area.This company is an example of a:

A)wholesale merchandising company.
B)service company.
C)retail merchandising company.
D)secondary service company.

Question 22

Sleepy Head Coffee Shop buys coffee,mugs,and pastries from Morning Show Co.for sale to consumers.What type of company is Sleepy Head Coffee Shop?

A)Retail merchandiser
B)Wholesale merchandiser
C)Manufacturer
D)Service business

Question 23

Which of the following is an activity common to the operations of merchandising,manufacturing,and service companies?

A)Producing the product
B)Incurring operating expenses
C)Buying goods or raw materials
D)Selling a physical product

Question 24

Seasons has sales of $42,000,beginning inventory of $4,900,purchases of $24,500,and ending inventory of $3,500.The cost of goods sold is:

A)$29,400.
B)$25,900.
C)$16,100.
D)$23,100.

Question 25

Cost of goods sold reports the:

A)cost of merchandise available to sell.
B)cost of merchandise purchased.
C)cost times the quantity of goods sold.
D)selling price times the quantity of goods sold.

Question 26

Which line item would be found on a merchandiser's income statement and not on a service firm's?

A)Inventory
B)Service Revenue
C)Depreciation Expense
D)Cost of Goods Sold

Question 27

The receipt of cash is one of the operating activities of:

A)companies that sell goods but not companies that sell services.
B)companies that sell to consumers but do not sell to other companies.
C)merchandising,manufacturing,and service companies.
D)companies that sell goods they bought from others but not of companies that make the goods they sell.

Question 28

Sales Revenue reports the:

A)cost of merchandise available to sell.
B)cost of merchandise purchased.
C)cost times the quantity of goods sold.
D)selling price times the quantity of goods sold.

Question 29

Broad,Inc.had a beginning inventory of $50,000 and an ending inventory of $80,000.Its Cost of Goods Sold for the year was $970,000.What was the amount of purchases that it made for the year?

A)$940,000
B)$1,000,000
C)$1,050,000
D)$1,060,000

Question 30

Which of the following is inventory?

A)Tangible property held for sale in the normal course of business.
B)Office supplies that a company plans to use in the next few months.
C)Equipment used to manufacture products which will be sold later.
D)Raw materials and work in process.

Question 31

Madison Manufacturing's ending inventory count was $65,000,cost of goods sold was $35,100,and purchases were $72,800,its beginning inventory must have been:

A)$42,900.
B)$172,900.
C)$102,700.
D)$27,300.

Question 32

________ sell their inventory to ________ for resale to consumers.

A)Wholesalers;retailers
B)Retailers;wholesalers
C)Manufacturers;wholesalers
D)Manufacturers;service companies

Question 33

Inventory is reported as a(n)________ on the ________.

A)current asset;balance sheet
B)current asset;balance sheet and income statement
C)expense;income statement
D)expense;balance sheet

Question 34

Orbit,Inc.has sales of $28,000,beginning inventory of $3,500,purchases of $17,500,and ending inventory of $4,900.The cost of goods sold is:

A)$16,100.
B)$21,000.
C)$28,000.
D)$11,900.

Question 35

Elm Corporation is a merchandising company.The year began with inventory of $35,100,Purchases for the year were $67,600,and the Ending Inventory was $18,200.What is the Cost of Goods Sold that would be reported on the income statement?

A)$120,900
B)$50,700
C)$14,300
D)$84,500

Question 36

Which line item would be found on a merchandiser's balance sheet and not on a service firm's?

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

Question 37

A series of activities that generates revenues and collects cash from customers is called:

A)the operating cycle.
B)the financing cycle.
C)the accounting cycle.
D)the perpetual cycle.

Question 38

Which of the following is an activity in the operations of a manufacturer,but not in the operations of a merchandising or service company?

A)Selling goods to consumers
B)Receiving cash
C)Selling goods to other firms
D)Buying raw materials

Question 39

Inventory reports the:

A)cost of goods available for sale.
B)cost of merchandise purchased and sold.
C)cost of goods that have been delivered to customers.
D)selling price times the quantity of goods sold.

Question 40

Which of the following is a merchandising company?

A)General Motors
B)H&R Block
C)The Gap
D)Proctor & Gamble

Question 41

Companies using a perpetual inventory system:

A)never physically count their inventory.
B)must count their inventory at least once a week.
C)still need to count their inventory at the end of the period.
D)never know the amount of inventory shrinkage.

Question 42

Which of the following statements regarding inventory counts is not correct?

A)Companies need to perform a physical count of their inventory at least yearly regardless of which inventory system is being used.
B)A perpetual inventory system does not require a physical count during the accounting period to determine cost of goods sold.
C)In a perpetual inventory system,the inventory count is compared to the inventory account balance to reveal shrinkage.
D)If a company uses a perpetual inventory system and the inventory count at the end of the accounting period is greater than the balance in the inventory ledger account,there must have been shrinkage.

Question 43

Sheridan's beginning inventory is $140,000,goods purchased during the period cost $480,000,and the cost of goods sold for the period is $560,000.What is the amount of its ending inventory?

A)$180,000
B)$80,000
C)$100,000
D)$60,000

Question 44

On December 31,2018,you count 600 backpacks in inventory.During the next quarter,you carefully record the effect of each purchase and sale transaction on inventory.You buy 256 backpacks during the next quarter.On March 31,2019,you count 576 backpacks in inventory.Which of the following is not correct?

A)Ending inventory on March 31,2019 should be 576 backpacks.
B)Your company uses the perpetual inventory method.
C)Your company's records would show that 280 backpacks were sold during the quarter.
D)The amount of shrinkage cannot be determined with this type of inventory system.

Question 45

A company starts the period with 300 computers in inventory,purchases 90 more,returns 12 of them to suppliers,and has 249 in inventory at the end of the period.If there is no shrinkage,how many computers were sold?

A)141
B)129
C)51
D)249

Question 46

A ________ inventory system will always give updated balances for ________.

A)perpetual;Cost of Goods Sold
B)periodic;Inventory
C)perpetual;Goods Available for Sale
D)periodic;Cost of Goods Sold

Question 47

Beginning inventory plus purchases equals:

A)ending inventory.
B)cost of goods sold.
C)goods available for sale.
D)net purchases.

Question 48

In a retail business that uses a perpetual inventory system,scanning a bar code does not:

A)calculate the amount owed by the customer.
B)identify the item sold to be removed from the Inventory account.
C)identify the item sold to be recorded in the Cost of Goods Sold account.
D)calculate the gross profit.

Question 49

Under the periodic inventory system:

A)inventory records are updated immediately after each purchase.
B)inventory must be counted at the end of each accounting period.
C)inventory does not have to be counted.(It can be taken from the accounting records. )
D)inventory levels must be counted every day.

Question 50

Beginning inventory plus purchases minus ending inventory equals:

A)net sales.
B)cost of goods sold.
C)goods available for sale.
D)net purchases.

Question 51

Which of the following statements regarding periodic and perpetual inventory systems is correct?

A)Perpetual inventory systems are inferior for determining optimal times to reorder inventory.
B)Periodic inventory systems require a greater investment in technology.
C)Perpetual inventory systems may assist in determining inventory lost due to shrinkage.
D)Periodic inventory systems allow sales personnel to provide more immediate information regarding availability of inventory.

Question 52

Jackson Manufacturing Company had a beginning inventory of $30,000.During the year,the company recorded inventory purchases of $90,000 and cost of goods sold of $100,000.The ending inventory must equal:

A)$20,000.
B)$50,000.
C)$52,000.
D)$54,000.

Question 53

Which of the following statements regarding shrinkage is not correct?

A)Perpetual inventory systems can help managers detect shrinkage.
B)Shrinkage is another term for inventory loss due to theft,error,or fraud.
C)Shrinkage is detected by comparing the balance in the inventory ledger account with the results of the physical inventory count.
D)It is easier to detect shrinkage in a periodic inventory system than in a perpetual inventory system.

Question 54

Buckeye Co.had beginning inventory of $18,000,cost of goods sold of $42,000,and ending inventory of $24,000.Purchases were:

A)$36,000.
B)$30,000.
C)$27,000.
D)$48,000.

Question 55

In order to calculate shrinkage:

A)both periodic and perpetual inventory systems are needed.
B)a periodic inventory system is more effective.
C)a perpetual inventory system requires an occasional count of actual inventory.
D)it does not matter which system one uses.

Question 56

Which of the following is the equation for cost of goods sold?

A)Beginning inventory + Purchases − Ending inventory
B)Beginning inventory + Purchases + Ending inventory
C)Net purchases − Ending inventory
D)Ending inventory + Purchases − Beginning inventory

Question 57

The perpetual inventory method of tracking inventory is considered superior to the periodic method because the perpetual method:

A)makes calculations easier and less technology can be deployed.
B)tells what inventory a company should have on hand at any point in time.
C)saves a company from ever having to count the goods in inventory.
D)is more consistent with how companies calculated inventory in the past.

Question 58

Windsor,Inc.uses a perpetual inventory system and reported $250,000 of inventory at the beginning of the month based on a physical count of inventory.During the month,the company bought $22,500 of inventory and sold inventory that had cost $15,000.At the end of the month,the physical count of inventory shows $255,000 on hand.How much shrinkage occurred during the month?

A)$17,500
B)$12,500
C)$2,500
D)$5,000

Question 59

Alvarado Company began the current month with inventory costing $18,000,then purchased inventory at a cost of $63,000.The perpetual inventory system indicates that inventory costing $54,000 was sold during the month for $72,000.If an inventory count shows that inventory costing $26,100 is actually on hand at month-end,what amount of shrinkage occurred during the month?

A)$900
B)$9,000
C)$26,091
D)$27,000

Question 60

Palm Industries had cost of goods sold of $40,000.If purchases were $46,000 and ending inventory was $12,000,Ace's beginning inventory must have been:

A)$6,000.
B)$18,000.
C)$52,000.
D)$34,000.

Question 61

On April 6,Portland purchased $25,000 of inventory,terms 1/15,n/30.Portland uses a perpetual inventory system.The company paid for the purchase on April 26.The entry to record the payment on April 26 includes which of the following?

A)A credit to Inventory for $250.
B)A debit to Accounts Payable for $24,500.
C)A credit to Accounts Payable for $25,000.
D)A credit to Cash for $25,000.

Question 62

Coranado Company purchases $70,000 of inventory from a wholesaler who allows 45 days to pay.In addition,the wholesaler offers a 3% discount if payment is made within 12 days.These payment terms would be expressed as:

A)0.03/12,n/45.
B)n/45,3/12.
C)n/45,0.03/12.
D)3/12,n/45.

Question 63

If merchandise purchased on credit is returned to the seller for a full refund,what would be the effect on the accounts listed below?

A)Increase Inventory;No effect on Cost of Goods Sold;Decrease Accounts Payable.
B)Decrease Inventory;Decrease Cost of Goods Sold;No effect on Accounts Payable.
C)No effect on Inventory;Decrease Cost of Goods Sold;Decrease Accounts Payable.
D)Decrease Inventory;No effect on Cost of Goods Sold;Decrease Accounts Payable.

Question 64

Monte Vista uses the perpetual inventory system.At the beginning of the quarter,Monte Vista has $60,000 in inventory.During the quarter the company purchases $15,800 of new inventory from a vendor,returned $1,400 of inventory to the vendor,and took advantage of discounts from the vendor of $400.At the end of the quarter the balance in inventory is $53,000.What is the cost of goods sold?

A)$21,000
B)$22,800
C)$7,000
D)$23,800

Question 65

Purple Corp.purchased $10,000 of merchandise on June 3,subject to the terms,2/10,n/30.On June 9,it pays for all the merchandise purchased on June 3.The entry on June 9 will reduce:

A)Accounts Payable by $9,800.
B)net income by $200.
C)stockholders' equity by $200.
D)Inventory by $200.

Question 66

Sheridan Co.uses a perpetual inventory system.On May 1,beginning inventory was $350,000.During May,Sheridan purchased $122,500 of inventory and sold $248,500 of inventory.After the store closed on May 31,employees counted the inventory in the store and found that $210,000 of inventory remained unsold.What was Sheridan's inventory shrinkage?

A)$14,000
B)$224,000
C)$262,500
D)$161,000

Question 67

Polk Company uses a perpetual inventory system and had the following transactions during November: November 6-Purchased $8,700 of inventory on account,terms 2/10,n/30.
November 8-Returned $1,200 of defective units and received full credit.
November 15-Paid the amount due.
What journal entry will be recorded by Polk Company on November 8?

A)Debit Inventory and credit Cost of Goods Sold for $1,200.
B)Debit Accounts Payable and credit Inventory for $1,200.
C)Debit Inventory and credit Accounts Payable for $1,200.
D)Debit Accounts Payable and credit Purchase Returns for $1,200.

Question 68

Willetta Company purchases inventory for $10,000 with terms 3/10,n/30.It then returns $2,000 of the inventory purchased to the supplier and also receives an allowance for defective inventory of $100.The company pays the amount due within the discount period.What is the amount of the discount that will be taken?

A)$300
B)$237
C)$240
D)$297

Question 69

When a perpetual system is used and transportation cost is incurred to obtain inventory,the transportation cost is:

A)added to Inventory.
B)reported as Selling,General & Administrative Expense on the income statement.
C)reported as a contra-account that is subtracted from sales revenue when determining net sales.
D)deducted from the Cost of Goods Sold when determining gross profit.

Question 70

To determine cost of goods sold for the period requires:

A)subtracting ending inventory from the goods available for sale,which is the beginning inventory plus purchases.
B)adding ending inventory to the goods available for sale,which is the beginning inventory plus purchases.
C)subtracting beginning inventory from the goods available for sale,which is the ending inventory plus purchases.
D)adding beginning inventory to the goods available for sale,which is the ending inventory plus purchases.

Question 71

After performing a physical count of inventory at the end of the accounting period,it was discovered that the amount of inventory on hand was less than the accounting records reported.The entry to record this inventory shrinkage includes:

A)credit to Cost of Goods Sold.
B)debit to Inventory.
C)credit to Purchase Discounts.
D)credit to Inventory.

Question 72

Berkley Company had beginning inventory of $4,000 and purchases of $20,000.If half of its inventory was sold,Berkley's goods available for sale will:

A)be split between cost of goods sold and ending inventory.
B)appear only as an expense on the income statement.
C)appear only as an expense on the balance sheet.
D)appear only as an asset on the income statement.

Question 73

Assume that a perpetual inventory system is in use.Which of the following statements regarding the journal entries prepared is correct?

A)"Freight-out" or delivery costs associated with sales should be included in Cost of Goods Sold.
B)When a company receives payment from a customer for a sale,Cash is debited and Accounts Payable is credited.
C)When a company grants an allowance to a customer,Inventory is credited when using a perpetual inventory system.
D)When a customer returns inventory,the seller debits Sales Revenue (or Sales Returns & Allowances)under a perpetual inventory system.

Question 74

Polk Company uses a perpetual inventory system and had the following transactions during November: November 6-Purchased $8,700 of inventory on account,terms 2/10,n/30.
November 8-Returned $1,200 of defective units and received full credit.
November 15-Paid the amount due.
What journal entry will be recorded by Polk Company on November 6?

A)Debit Inventory and credit Accounts Payable for $8,700.
B)Debit Cost of Goods Sold and credit Accounts Payable for $8,526.
C)Debit Purchases and credit Accounts Payable for $8,700.
D)Debit Inventory and credit Accounts Payable for $8,526.

Question 75

Which inventory system records a change in the Inventory account every time goods are bought,sold or returned?

A)Periodic
B)Perpetual
C)FOB Shipping Point
D)FOB Destination

Question 76

Moreland Moldings purchased goods on credit costing $85,000 with terms of 3/10 n/30.Payment is made to the seller 7 days after the purchase.How would the payment be recorded?

A)Debit Inventory for $2,550,debit Cash for $82,450,and credit Accounts Payable for $85,000.
B)Debit Accounts Payable for $85,000,credit Cash for $82,450,and credit Cost of Goods Sold for $2,550.
C)Debit Accounts Payable for $85,000 credit Cash for $82,450,and credit Inventory for $2,550.
D)Debit Accounts Payable and credit Cash for $85,000.

Question 77

Which inventory system updates the inventory account only at the end of the accounting period?

A)LIFO
B)Perpetual
C)FIFO
D)Periodic

Question 78

Broadmor's beginning inventory was $9,000.During the month,the company purchased an additional $45,000 of inventory and sold goods that cost $36,000.Ending inventory was:

A)$9,000
B)$90,000
C)$18,000
D)$0

Question 79

Verde Co.returned $500 of merchandise that was purchased on account.As a result of this transaction,assets will:

A)decrease and liabilities will decrease.
B)decrease and net income will decrease.
C)stay the same and net income will decrease.
D)stay the same and liabilities will decrease.

Question 80

Goods available for sale can:

A)be sold and then become Cost of Goods Sold on the income statement.
B)not be sold and thus are not reported as Cost of Goods Sold on the balance sheet.
C)not be sold and thus are reported as Inventory on the income statement.
D)be sold and thus reported as Cost of Goods Sold on the balance sheet.