Deck 5: Accounting for Merchandising Activities

Question 1

Y-Mart had sales of $350,000.Its cost of goods sold was $200,000.Its gross profit was $550,000.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Gross profit is also called gross margin.

Answer 3

True

Question 4

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

Question 5

Merchandise inventory includes merchandise and office supplies.

Question 6

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

Question 7

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

Question 8

Y-Mart had net sales of $645,000.Its cost of goods was $445,000.Its gross margin was $200,000.

Question 9

A service company earns net income by buying and selling merchandise.

Question 10

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

Question 11

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

Question 12

A merchandiser earns net income by buying and selling merchandise.

Question 13

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

Question 14

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

Question 15

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

Question 16

Assets tied up in inventory are not productive assets.

Question 17

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

Question 18

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

Question 19

Companies try to lengthen their operating cycles to increase net income.

Question 20

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

Question 21

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

Question 22

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 23

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

Question 24

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 25

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

Question 26

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

Question 27

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

Question 28

A perpetual inventory system is able to directly measure shrinkage.

Question 29

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 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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 35

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

Question 36

The purchaser usually records a purchase return by a credit memorandum.

Question 37

In a periodic inventory system,Purchases is a temporary account.

Question 38

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

Question 39

Trade discounts are entered into the accounting system.

Question 40

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

Question 41

Sales Discounts,Sales Returns and Allowances,and Cost of Goods Sold are closed to Income Summary with debits.

Question 42

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 43

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 44

A credit to Income Summary of $231,000 and a debit to Income Summary of $216,250 results in profit of $14,750 transferred to Owner's Capital.

Question 45

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 46

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

Question 47

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

Question 48

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

Question 49

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 50

Sales Discounts are closed to Income Summary.

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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 56

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

Question 57

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 58

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 the business.

Question 59

Accounts unique to merchandising companies include Merchandise Inventory,Sales,Sales Discounts,Sales Returns and Allowances,and Cost of Goods Sold.

Question 60

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 61

A periodic inventory system:

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

Question 62

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

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

Question 63

Merchandisers:

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

Question 64

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

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

Question 65

A trade discount is:

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

Question 66

The cash sales operating cycle moves from:

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

Question 67

In a periodic inventory system:

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

Question 68

Cost of goods sold is:

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

Question 69

Merchandise inventory:

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

Question 70

Wholesalers:

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

Question 71

The operating cycle of a merchandising company:

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

Question 72

A perpetual inventory system:

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

Question 73

Merchandise inventory is:

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

Question 74

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

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

Question 75

2/10,n/30 is interpreted as:

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

Question 76

Gross profit is:

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

Question 77

Retailers:

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

Question 78

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

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

Question 79

A periodic inventory system:

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

Question 80

A merchandising company:

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