Deck 5: Merchandising Operations

Question 1

Hitech Inc., a small, local grocer, without optical scanning cash registers and computer systems, wants to introduce an inventory system to track its inventory. The perpetual inventory system is the most suitable for its operations.

Answer 1

False

Question 2

A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer.

Answer 2

True

Question 3

________ are the expenses that occur in an entity's major line of business.

A)Selling expenses
B)Administrative expenses
C)Operating expenses
D)Overhead expenses

Answer 3

C

Question 4

In a periodic inventory system, the cost of goods sold account is continuously updated as and when sales occur.

Question 5

The perpetual inventory system keeps a running record of inventory and cost of goods sold.

Question 6

The term "inventory," for a merchandiser, refers to:

A)raw materials that are used for production.
B)equipment that are used in production process.
C)the cost of goods sold.
D)goods held for sale to customers.

Question 7

Credit terms of a merchandising company are: 1/15, net 40. This means that the buyer can avail a discount of 1 percent, if the invoice is paid within 40 days of the invoice date.

Question 8

When a company uses a perpetual inventory system, all merchandise transactions are updated as and when they occur; so, the inventory account will show the current balance at all times.

Question 9

Even in a perpetual inventory system that updates the inventory account as and when transactions occur, the business must count inventory at least once in a year.

Question 10

A retailer purchases goods from a manufacturer and sells them to customers.

Question 11

A purchase discount is the price offered by the purchaser for delaying the payment to the seller.

Question 12

Merchandise Inventory accounting systems can be broadly categorized into two. They are:

A)FIFO; LIFO
B)perpetual; periodic
C)wholesale; retail
D)manufacturer; producer

Question 13

Gross profit is calculated as the difference between net sales revenue and:

A)purchases.
B)cost of goods sold.
C)cost of merchandise inventory.
D)selling and administrative expenses.

Question 14

The main expense of a merchandiser is:

A)cost of goods sold.
B)current assets.
C)selling and administrative cost.
D)production overheads.

Question 15

A wholesaler or a retailer needs to maintain stock to carry out its day-to-day operations. This stock is known as:

A)accounts receivable.
B)prepaid insurance.
C)merchandise inventory.
D)equipment.

Question 16

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

A)Salaries Expense
B)Depreciation Expense
C)Cost of Goods Sold
D)Supplies Inventory

Question 17

An invoice is a request by the seller for payment from the purchaser.

Question 18

An invoice is also known as a bill.

Question 19

An entity that buys goods and sells them to customers at a markup is a:

A)merchandiser.
B)service provider.
C)manufacturer.
D)producer.

Question 20

The Gajet Store Inc. started its operations on January 1, 2015. It engages in buying and selling different types of electronic gadgets. The first step in its operating cycle would be to:

A)collect cash from customers.
B)sell goods to customers.
C)purchase inventory from vendors.
D)record the sales in accounts.

Question 21

What does "2/10" mean, with respect to "credit terms of 2/10, n/30"?

A)A discount of 2% will be allowed if invoice is paid within 10 days from the date of the invoice .
B)An interest of 2% will be charged if invoice is paid after 10 days from the date of invoice.
C)A discount of 10% will be allowed if invoice is paid within 2 days from the date of invoice.
D)An interest of 10% will be charged if invoice is paid after 2 days.

Question 22

Procession Groceries, a famous grocery merchandiser, purchased goods and paid transportation to bring them to the company warehouse. The transportation cost is known as:

A)freight out.
B)selling expense
C)freight in.
D)cost of goods sold.

Question 23

Nurix Inc. sold goods on credit terms n/20 to Jelly Harper Inc. This means no discounts are offered, and the amount of the invoice must be paid within 20 days from the date of invoice.

Question 24

Defective, damaged, or otherwise unsuitable merchandise that is returned to the seller is referred to as purchase allowances by the purchaser.

Question 25

On January 21^st, 2014, Bessant merchandisers, received merchandise from Mullies Inc. On that date, it found a few of these goods to be damaged. On January 22, it returned the damaged goods to the seller. Such returns will be treated as ________ by Bessant.

A)purchase returns
B)sales returns
C)purchase allowances
D)sales allowances

Question 26

Credit terms of 2/10, n/30 indicate that a discount of 2% will be given if payment is made within 10 days of the invoice date. Otherwise, the total invoice amount is due within 30 days after the invoice date.

Question 27

Under the perpetual inventory system, when a wholesaler returns the goods purchased on account, the ________ account is credited.

A)Accounts Receivable
B)Merchandise Inventory
C)Cost of Goods Sold
D)Accounts Payable

Question 28

Freight in is to be recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.

Question 29

The term "Freight out" refers to:

A)transportation costs on purchases.
B)cost of inventory purchased.
C)costs that are not actually paid in cash.
D)transportation costs on sales.

Question 30

A company that uses the perpetual inventory system purchases inventory for $65,000 on account, with terms of 2/10, n/30. Which of the following is the journal entry to record the payment made within 10 days?

A)a debit to Accounts payable for $65,000 and a credit to Cash for $65,000 and a debit to Merchandise Inventory for $1,300
B)a debit to Accounts payable for $65,000, a credit to Merchandise Inventory for $1,300, and a credit to Cash for $63,700
C)a debit to Merchandise Inventory for $1,300, a debit to Accounts Payable for $65,000 and a credit to Cash for $66,300
D)a debit to Accounts Payable for $63,700, a debit to Merchandise Inventory for $1,300 and a credit to Cash for$65,000

Question 31

Freight out is an addition to the Merchandise Inventory account if the seller uses the perpetual inventory system.

Question 32

Which of the following entries would be made to record the purchase of inventory on account if a company uses the perpetual inventory system?

A)a debit to Purchases and a credit to Accounts Payable
B)a debit to Accounts Payable and a credit to Purchases
C)a debit to Merchandise Inventory and a credit to Accounts Payable
D)a debit to Accounts Payable and a credit to Merchandise Inventory

Question 33

The discount is calculated on the amount of the merchandise purchased including transportation costs.

Question 34

If purchase allowances are granted, the buyer need not return the goods to the seller.

Question 35

Under the terms FOB destination, title to the merchandise will pass to the purchaser when the goods are received by the purchaser.

Question 36

The discount amount is calculated on the amount of the invoice minus the returns and allowances.

Question 37

A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $200 to the vendor. The journal entry to record these returns would be:

A)
B)
C)
D)

Question 38

Under the perpetual inventory system, purchase returns or allowances are debited to the Merchandise Inventory account by the purchaser.

Question 39

Under the perpetual inventory system, when a purchaser makes payment within the discount period, the amount of discount will be credited to the Merchandise Inventory account.

Question 40

A company that uses the perpetual inventory system purchased inventory for $1,000,000 on account with terms of 4/7, n/20. Which of the following correctly records the payment made 15 days after the date of invoice?

A)
B)
C)
D)

Question 41

Under which of the following terms will the buyer be required to pay transportation costs?

A)FOB destination
B)FOB shipping point
C)CIF
D)5/5, net 45

Question 42

If goods are sold on terms FOB shipping point the:

A)seller normally pays the transportation costs.
B)buyer normally pays the transportation costs.
C)buyer and the seller split the shipping costs.
D)shipping company bears the transportation cost.

Question 43

Under the perpetual inventory system, discounts taken on an invoice by the buyer would be:

A)debited to Merchandise Inventory.
B)credited to Merchandise Inventory.
C)debited to Cost of goods sold.
D)credited to Cost of goods sold.

Question 44

A company purchased inventory for $75,000 from a vendor on account, FOB shipping point, with terms of 3/10, n/30. The company paid the shipper $1,500 cash for freight in. The company paid the vendor 9 days after the sale. If there was no beginning inventory, the cost of inventory would be: (Assume a perpetual inventory system)

A)$74,250.
B)$76,500.
C)$71,295.
D)$73,500.

Question 45

An invoice for an amount of $600 for merchandise purchased is showing 2/15, n/30 as terms of credit. If the invoice is paid on or before the fifteenth day, the amount to be paid is:

A)$588.
B)$600.
C)$612.
D)$615.

Question 46

A company purchased inventory for $2,000 from a vendor on account, FOB shipping point, with terms of 2/10, n/30. The company paid the shipper $100 cash for freight in. The company then returned damaged goods worth $200. The invoice has been paid 8 days after the sale. Assuming that there was no beginning inventory balance, the cost of inventory would be: (Assume a perpetual inventory system)

A)$1,764.
B)$1,864.
C)$2,100.
D)$1,900.

Question 47

Which of the following is true of freight in?

A)It is an administrative expense.
B)It is a selling expense.
C)It is transportation cost on purchases.
D)It is transportation cost on sales.

Question 48

A company using the perpetual inventory system purchased inventory worth $25,000 on account with terms of 2/10, n/30. Defective inventory of $2,000 was returned 2 days later and the accounts were appropriately adjusted. If the invoice is paid within 10 days, the amount of the purchase discount that would be available to the company is:

A)$460.
B)$540.
C)$500.
D)$490.

Question 49

A company using the perpetual inventory system purchased inventory worth $500,000 on account with terms of credit being 3/15, n/45. Defective inventory of $50,000 was returned 2 days later and the accounts were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the payment would be:

A)$500,000 debit to Accounts Payable and $500,000 credit to Cash.
B)$450,000 debit to Accounts Payable, $450,000 credit to Cash.
C)$500,000 debit to Accounts Payable ,$486,500 credit to Cash and $13,500 credit to Inventory.
D)$486,500 debit to Accounts Payable, $13,500 credit to Inventory and $450,000 credit to Cash.

Question 50

A company purchased inventory for $2,000 from a vendor on account, FOB shipping point, with terms of 2/10, n/30. The company paid $100 cash for freight in. The entry to record payment of invoice within 10 days by the purchaser would include: (Assume a perpetual inventory system)

A)a debit to Accounts Payable for $1,960 and a credit to Cash for $1,960.
B)a debit to Accounts Payable for $2,000, a debit to Merchandise Inventory for $100 and a credit to Cash for $1,960.
C)a debit to Accounts Payable for $2,000, a credit to Merchandise Inventory for $40 and a credit to Cash for $1,960.
D)a debit to Accounts Payable, for$1,960 a debit to Merchandise Inventory for $40 and a credit to Cash for $2,000.

Question 51

A company has purchased inventory and received an invoice that requires the buyer to pay the transportation costs for delivering the merchandise. The terms in this case are:

A)FOB destination.
B)FOB shipping point.
C)FOB, 2/10, n/30.
D)FOB in transit.

Question 52

FOB destination refers to a situation where title to goods while in transit vests with the:

A)buyer.
B)seller.
C)transport agency.
D)insurance agency.

Question 53

WAXS-D, merchandisers of musical instruments, has provided the following details: Credit terms are: 3/20, n/45, FOB shipping. Calculate the net cost of inventory purchased assuming that there are no other inventory related transactions during the month.

A)$785,000
B)$740,000
C)$725,000
D)$743,250

Question 54

A company purchased inventory for $2,200 on account, and recorded the following journal entry: The vendor's invoice showed terms of 3/10, n/30. Give the journal entry for the payment of the invoice seventeen days after the invoice date.

Question 55

A merchandiser, following the perpetual inventory system, has the following transactions during August, 2015: Credit terms of invoice are 2/15, n/45. Give journal entries for the above transactions.

Question 56

A company ships goods to a customer, and pays transportation costs. To the seller, the transportation costs so paid are known as:

A)freight out.
B)freight in.
C)sales commission.
D)brokerage.

Question 57

An invoice, with payment terms of 5/10, n/30, was issued on April 28, for $235. If the payment was made on May 12, the amount of payment will be:

A)$235.00.
B)$211.50.
C)$223.25.
D)$230.00.

Question 58

The terms of an invoice are 3/10, n/25. This means that a:

A)discount of 10% is allowed if the invoice is paid within 3 days.
B)discount of 3% is allowed if the invoice is paid within 10 days.
C)discount of 25% is allowed if the invoice is paid within 10 days.
D)discount of 3% is allowed if the invoice is paid after 25 days.

Question 59

A company purchased inventory for $100,000 on account, and recorded it as follows: The vendor's invoice showed terms of 3/10, net 30. Give the journal entry for the payment of the invoice seven days after the invoice date, assuming that the vendor uses the perpetual inventory system.

Question 60

The purpose of reviewing FOB terms on the invoice is to:

A)identify the person liable to pay freight.
B)calculate the amount of freight payable.
C)to locate the transporter.
D)to decide and conform the transporter.

Question 61

An amount that a merchandiser earns by selling its inventory is known as Sales Revenue or Sales.

Question 62

Under the perpetual inventory system, two journal entries are used to record the sales of merchandise. One entry records the Sales Revenue and another entry records the Cost of Goods Sold.

Question 63

A sales allowance is recorded with a credit to Accounts Payable.

Question 64

Under the perpetual inventory system, what is the difference between a sales return and a sales allowance?

A)A sales return reduces the amount receivable from the customer, but an allowance does not.
B)A sales return involves an adjustment to Merchandise Inventory, but a sales allowance does not.
C)A sales return requires a debit to Sales Returns and Allowances, but a sales allowance does not.
D)A sales allowance is deducted from Sales revenue to calculate net sales, but a sales return is not.

Question 65

Net sales revenue is equal to sales revenue less cost of goods sold.

Question 66

A company using the perpetual inventory system, purchased merchandise on account for $5,000. Give journal entry to record the same.

Question 67

Under a perpetual inventory system, merchandise returned by a customer to the seller is recorded as a ________ in the books of the seller.

A)sales return
B)sales allowance
C)sales discount
D)purchase return

Question 68

A company sold merchandise worth $221 for $350 on account. The seller uses the perpetual inventory system. The entry to record the cost of merchandise sold would include:

A)a debit to Sales and a credit to Cash for $350.
B)a debit to Cash and a credit to Sales for $350.
C)a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $221.
D)a debit to Merchandise Inventory for $221 and a credit to Cost of Goods Sold for $221.

Question 69

When a merchandiser records sales returns, the Accounts Receivable account is credited. The seller uses the perpetual inventory system.

Question 70

Portian Merchandisers has purchased merchandise on account and paid $450 for freight in. Give journal entry for freight paid. (Assume a perpetual inventory system)

Question 71

Oscar Packers received an allowance from the vendor for an amount of $400. Give the journal entry for the same. The company uses a perpetual inventory system.

Question 72

From the following details, calculate net sales revenue.

A)$400,000
B)$415,000
C)$425,000
D)$455,000

Question 73

A company sold merchandise for $1,000 on account with terms of 2/10, n/30. The company uses a perpetual inventory system. Defective merchandise of $200 was returned 2 days later. If the payment was received after 20 days, the journal entry to record the cash receipt will include:

A)a debit to Cash for $980 and a credit to Accounts Receivable for $980.
B)a debit to Cash for $800 and a credit to Accounts Receivable for $800.
C)a credit to Sales for $800 and a debit to Cash for $ 800.
D)a credit to Cost of Goods Sold for $1000 and a debit to Sales for $1,000.

Question 74

A company sold merchandise for $20,000 on account with terms of 3/10, n/30. The company uses a perpetual inventory system. After two days, it received defective merchandise worth $2,000. The journal entry to record the cash receipt for sale if the payment is received within 10 days of the invoice date would include:

A)a debit to Cash for $17,460, a credit to Merchandise Inventory for $540, and a credit to Sales Revenue for $18,000.
B)a debit to Cash for $17,460, a debit to Sales Discount for $540, and a credit to Accounts Receivable for $18,000.
C)a debit to Cash for $18,000, a debit to Merchandise Inventory for $2,000 and a credit to Accounts Receivable.
D)a debit to Sales for $20,000, a credit to Accounts Receivable for $20,000, and a credit to Sales Discount for $2,000.

Question 75

When a seller grants a sales allowance, the customer does not return any goods to the seller.

Question 76

Which of the following is true of net sales revenue?

A)It is calculated by subtracting cost of goods sold from sales.
B)It is calculated by adding sales discounts to sales.
C)It is calculated by adding sales discounts and sales returns and allowances to sales.
D)It is calculated by deducting sales discounts and sales returns and allowances from sales.

Question 77

A reduction in the amount of cash received from a customer for early payment is known as a Sales Discount.

Question 78

When a customer returns goods to the seller, the seller records it as purchase returns.

Question 79

The normal balances of Sales, Sales Discounts, and Sales Returns and Allowances are:

A)debit, credit, and credit, respectively.
B)debit, debit, and credit, respectively.
C)credit, debit, and debit, respectively.
D)credit, credit, and debit, respectively.

Question 80

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2015: