Deck 6: Merchandising Activities

Question 1

The operating cycle of a merchandising company consists of (1)purchases of merchandise; (2)sales of the merchandise;and (3)collection of accounts receivable.

Answer 1

True

Question 2

In a periodic inventory system,cost of goods sold is the cost of goods available for sale less ending inventory.

Answer 2

True

Question 3

If ending inventory and cost of goods sold are added together,they should equal gross profit.

Answer 3

False

Question 4

In a periodic inventory system,the Cost of Goods Sold account may be created during the closing process by debiting Cost of Goods Sold and crediting the Beginning Inventory and the Purchases account.

Question 5

Inventory shrinkage refers to unrecorded decreases in inventory resulting from breakage,theft,and shoplifting.

Question 6

In a perpetual inventory system,the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Question 7

If gross profit and cost of goods sold are added together,they should equal sales.

Question 8

When an adjusting entry is made to record inventory shrinkage,the Inventory account is debited and the Cost of Goods Sold account is credited.

Question 9

In a perpetual inventory system,when merchandise is purchased,it is debited to an account called Purchases.

Question 10

The operating cycle of a merchandiser is longer and more complex than the operating cycle of a manufacturer.

Question 11

When using a perpetual inventory system,the Inventory account is credited when a sale is made.

Question 12

General ledgers contain information about specific control accounts in the company's subsidiary ledger.

Question 13

Cost of goods sold is an expense shown separately from other expenses in an income statement.

Question 14

In a periodic inventory system,the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Question 15

In a periodic inventory system,a complete physical inventory must be taken at year-end in order to compute the amount of purchases made during the period.

Question 16

In a periodic inventory system,when a sale is made there is no entry made to record the cost of goods sold.

Question 17

If a company has 240 credit customers,there are 480 individual customer accounts in the accounts receivable subsidiary ledger (one for sales for each customer,one for receipts from each customer).

Question 18

Wholesalers buy from retailers and sell to the general public.

Question 19

A perpetual inventory system requires the capability of recording the cost of the goods sold for individual sales transaction.

Question 20

Inventory is a relatively liquid asset and usually appears above Accounts Receivable on the balance sheet.

Question 21

A large company with many different kinds of low-cost items would tend to use a perpetual inventory system.

Question 22

Gross profit margin is the dollar amount of gross profit expressed as a percentage of gross sales.

Question 23

Sales returns and allowances is an expense account,and on the income statement it is added to cost of goods sold.

Question 24

If a transaction takes place with terms 2/10,n/30,the "10" refers to the percent discount a purchaser can take if payment is made within 2 days.

Question 25

If a company records a purchase at the gross invoice price and then takes advantage of the discount,the discount is treated as a reduction in the cost of goods sold.

Question 26

A factor that might suggest that a perpetual inventory system is appropriate is that inventory includes many different kinds of low-cost items.

Question 27

The terms "sales discount," "purchase discount," and "cash discount" all refer to the same discount.

Question 28

Net Sales is computed as total sales revenue less sales returns and allowances less sales discounts.

Question 29

In a retail department store with an efficient perpetual inventory system,the quantities of goods actually on hand are probably somewhat more than the quantities indicated in the accounting records.

Question 30

In preparing monthly bills to be sent to individual credit customers,the billing department will use the accounts payable subsidiary ledger,rather than the general ledger.

Question 31

Instead of paying for merchandise purchased on account,Olympic Corp.returned this merchandise to the supplier.Olympic should record this transaction by debiting Accounts Payable and crediting Sales Returns and Allowances.

Question 32

In a periodic inventory system,the ending inventory can be determined from the accounting records,and a physical count of the merchandise on hand will confirm the amount.

Question 33

A factor that might suggest that a periodic inventory system is appropriate is that all merchandise is stored at the sales site.

Question 34

Today,most large merchandising companies use a perpetual inventory system.

Question 35

In a periodic inventory system,the cost of goods sold is determined by the following end-of-period computation: Beginning Inventory + Purchases - Ending inventory = Cost of Goods Sold.

Question 36

Under the periodic inventory system,no effort is made to keep up-to-date records of either Inventory or Cost of Goods Sold as transactions occur.

Question 37

Purchase Discounts Lost is shown as a reduction of cost of goods sold in the income statement.

Question 38

If a company records a purchase at net cost and then fails to take advantage of the discount,the discount not taken is recorded in the Interest Expense account.

Question 39

Regardless of the number of special journals used,every business needs a general journal.

Question 40

The contra-revenue accounts,Sales Returns and Allowances and Sales Discounts,should be closed by crediting these accounts and debiting Income Summary for each account.

Question 41

[The following information applies to the questions displayed below.]
Washington Warehouse is a small retail business that specializes in the sale of top-of-the-line televisions.This year,the store has begun to carry the Flat TV manufactured by Bass Co.Thus far,Washington has recorded the following transactions involving the Flat TV:

If Washington uses a perpetual inventory system,the gross profit on the Flat TVs as of February 12th is:

A)$11,200.
B)$2,700.
C)$4,100.
D)$15,300.

Question 42

Jayson Products uses a perpetual inventory system.At year-end,the Inventory account had a balance of $280,000,but a complete year-end physical inventory indicated goods on hand costing only $273,000.Jayson should:

A)Reduce its cost of goods sold by $7,000.
B)Record a $7,000 current liability.
C)Reduce the balance in its Inventory control account and inventory subsidiary ledger by $7,000.
D)Reduce the balance in the Inventory control account and record a current liability,both in the amount of $7,000.

Question 43

Cumberland,Inc.has applied to its bank for a loan.The bank asks Cumberland's controller about the total amount of the company's accounts receivable.Assuming that all accounting records are up-to-date,the controller can best answer this question by referring to:

A)The Income Statement.
B)The Accounts Receivable control account.
C)The Accounts Receivable subsidiary ledger.
D)Last year's Balance Sheet.

Question 44

[The following information applies to the questions displayed below.]
World of Sound is a small retail business that specializes in the sale of top-of-the-line sound systems.This year,the store has begun to carry the Surround Sound manufactured by Carp Co.Thus far,World of Sound has recorded the following transactions involving the Surround Sound

If World of Sound uses a perpetual inventory system,the journal entry to record the sale on February 12th would include which of the following? (Assume that World of Sound uses FIFO,meaning that the first goods purchased are the first ones to be sold. )

A)A debit to the Cost of Goods Sold for $45,750.
B)A credit to the Cost of Goods Sold for $45,750.
C)A credit to Purchases for $45,750.
D)A debit to Inventory for $45,750

Question 45

[The following information applies to the questions displayed below.]
Washington Warehouse is a small retail business that specializes in the sale of top-of-the-line televisions.This year,the store has begun to carry the Flat TV manufactured by Bass Co.Thus far,Washington has recorded the following transactions involving the Flat TV:

If Washington uses a perpetual inventory system,the journal entry to record the purchase on January 18th would include which of the following?

A)A debit to the Purchases account for $7,000.
B)A debit to the Cost of Goods Sold for $7,000.
C)A credit to Inventory for $7,000.
D)A debit to Inventory for $7,000.

Question 46

Berg Tooling reports net sales of $325,000,gross profit of $175,000,and net income of $15,000.The company's cost of goods sold is:

A)$135,000.
B)$150,000.
C)$140,000.
D)$125,000.

Question 47

The Cost of Goods Sold account is closed by:

A)Debiting Cost of Goods Sold and crediting Income Summary.
B)Debiting Cost of Goods Sold and crediting Retained Earnings.
C)Debiting Income Summary and crediting Cost of Goods Sold.
D)Debiting Retained Earnings and crediting Cost of Goods Sold.

Question 48

Washington maintains a subsidiary ledger account for each type of TV carried in the store.An examination of the account for the Flat TV model at the end of February would show:

A)4 units on hand with a total value of $1,400.
B)4 units on hand with a total value of $5,600.
C)13 units on hand with a total value of $18,200.
D)The amount that Washington owes to Bass.

Question 49

VanRoy Supplies reports net sales of $1,750,000,net income of $175,000,and gross profit of $300,000.The company's cost of goods sold is:

A)$1,400,000.
B)$475,000.
C)$1,575,000.
D)$1,450,000.

Question 50

Parkside Pool reports net sales of $625,000,gross profit of $275,000,and net income of $15,000.The company's cost of goods sold is:

A)$335,000.
B)$350,000.
C)$340,000.
D)$325,000.

Question 51

[The following information applies to the questions displayed below.]
World of Sound is a small retail business that specializes in the sale of top-of-the-line sound systems.This year,the store has begun to carry the Surround Sound manufactured by Carp Co.Thus far,World of Sound has recorded the following transactions involving the Surround Sound

If World of Sound uses a perpetual inventory system,the journal entry to record the purchase on May 18th would include which of the following?

A)A debit to the Purchases account for $38,250.
B)A debit to the Cost of Goods Sold for $38,250.
C)A credit to Inventory for $38,250.
D)A debit to Inventory for $38,250.

Question 52

The purchasing agent of Superb Service Co.wants to know the dollar amount of inventory purchased on account during the year from a particular supplier.This information can be found most easily in Superb Service's:

A)Inventory subsidiary ledger.
B)Accounts payable controlling account.
C)Inventory controlling account.
D)Accounts payable subsidiary ledger.

Question 53

The basic purpose of a subsidiary ledger is to:

A)Provide a chronological record of all business transactions.
B)Provide details about the individual items comprising the balance of a general ledger account.
C)Enable accountants to prepare financial statements.
D)Provide persons outside of the organization with detailed information about the company's operations.

Question 54

Sutton Supplies reports net sales of $3,750,000,net income of $375,000,and gross profit of $900,000.The company's cost of goods sold is:

A)$1,700,000.
B)$1,900,000.
C)$3,375,000.
D)$2,850,000.

Question 55

The operating cycle:

A)Is repeated once per year for manufacturers and merchandisers.
B)Has seven steps.
C)Starts with using cash to purchase merchandise and ends with collecting the cash back from customers.
D)Is longer for a retailer than for a manufacturer.

Question 56

Which of the following should not be classified as inventory in the balance sheet of a large automobile dealership?

A)Pickup trucks offered for sale.
B)Used cars taken in trade and offered for sale on the company's used-car lot.
C)Spark plugs,oil filters,and other parts that are intended for use by the service department in repairing and servicing customers' cars.
D)"Company cars" provided to specific company executives for their personal use.

Question 57

[The following information applies to the questions displayed below.]
Washington Warehouse is a small retail business that specializes in the sale of top-of-the-line televisions.This year,the store has begun to carry the Flat TV manufactured by Bass Co.Thus far,Washington has recorded the following transactions involving the Flat TV:

If Washington uses a perpetual inventory system,the journal entry to record the sale on February 12th would include all of the following except:

A)A debit to the Cost of Goods Sold for $12,600.
B)A credit to Sales Revenue for $15,300.
C)A credit to Purchases for $15,300.
D)A credit to Inventory for $15,300.

Question 58

Hicksville's Department Store uses a perpetual inventory system.At year-end,the balance in the Inventory control account is $1,200,000.Assuming that the inventory records have been maintained properly,a year-end physical inventory:

A)Is unnecessary.
B)Is needed to establish the ending inventory,as the $1,200,000 balance in the Inventory control account represents the beginning inventory.
C)Probably will indicate more than $1,200,000 in merchandise on hand.
D)Probably will indicate less than $1,200,000 in merchandise on hand.

Question 59

The average gross profit margin is a measure of relative profitability.

Question 60

Which of the following appears in the income statement of a merchandising business,but not in the income statement of a business that renders only services?

A)Interest revenue
B)Gross profit
C)Advertising expense
D)Income tax expense

Question 61

During the year 2018,the inventory of Debra's Gift Shop decreased by $50,000.(Assume beginning inventory was zero. )If the income statement for the year 2018 reported cost of goods sold of $350,000,purchases during the year must have amounted to:

A)$400,000.
B)$310,000.
C)$300,000.
D)$350,000.

Question 62

Which of the following factors would suggest the use of a periodic inventory system?

A)A small company.
B)A high volume of sales and a manual accounting system.
C)Neither a small company nor a high volume of sales and a manual accounting system.
D)Both a small company and a high volume of sales and a manual accounting system.

Question 63

[The following information applies to the questions displayed below.]
Michael uses its periodic inventory system and the following information is available:

What is the gross profit?

A)$ 9,800
B)$33,600
C)$32,200
D)$43,400

Question 64

The credit term 2/10,n/30 means:

A)That after 10 days 2% interest is charged.
B)That there is a 10% discount if payment is received within 30 days.
C)That there is a 2% discount if payment is received within 10 days,otherwise,full payment is due within 30 days.
D)There is a 10% discount if paid immediately and 2% if paid within 30 days.

Question 65

Which of the following companies would be most likely to use a periodic inventory system?

A)IBM.
B)First Bank of New York.
C)Sears.
D)A newspaper stand.

Question 66

[The following information applies to the questions displayed below.]
Bremmer uses a periodic inventory system and the following information is available:

What is the gross profit?

A)$96,800
B)$133,600
C)$132,200
D)$230,400

Question 67

Inventory shrinkage is not caused by:

A)Shoplifting.
B)Breakage.
C)Price reductions by competitors.
D)Spoilage.

Question 68

Which of the following factors would suggest the use of a perpetual inventory system?

A)A small company.
B)Inventory items with a high per-unit cost.
C)A desire to minimize record-keeping requirements.
D)Only annual reporting is required.

Question 69

In comparing a perpetual inventory system with a periodic inventory system,which of the following statements is not correct?

A)Most large companies use perpetual inventory systems.
B)A periodic system does not include an inventory subsidiary ledger.
C)The perpetual method is easier to apply in a manual accounting system.
D)Regardless of the system in use,most businesses take a physical inventory at least once a year.

Question 70

[The following information applies to the questions displayed below.]
Michael uses its periodic inventory system and the following information is available:

What is the cost of goods sold?

A)$ 9,800
B)$33,600
C)$32,200
D)$43,400

Question 71

[The following information applies to the questions displayed below.]
Bremmer uses a periodic inventory system and the following information is available:

What is the cost of goods sold?

A)$96,800
B)$133,600
C)$132,200
D)$230,400

Question 72

In a periodic inventory system,which of the following accounts may be closed by debiting Cost of Goods Sold?

A)Sales,Inventory (beginning),and Gross Profit.
B)Inventory (beginning)and Purchases.
C)Purchases and Inventory (ending).
D)Sales,Inventory (beginning),and Cost of Goods Available for Sale.

Question 73

Which of the following companies would be most likely to use a perpetual inventory system?

A)Corner deli.
B)Home Depot.
C)James Dean,CPA.
D)A manufacturer of custom sailboats.

Question 74

Which account listed below is classified as a contra-revenue account?

A)Cost of Goods Sold.
B)Gross profit.
C)Sales Discounts.
D)Purchases.

Question 75

Which of the following statements about a periodic inventory system is not correct?

A)These systems are used primarily by small businesses with manual accounting systems.
B)The system does not include an up-to-date inventory ledger.
C)The balance in the Inventory account remains unchanged until the end of the period.
D)The Cost of Goods Sold account is updated as sales transactions occur.

Question 76

The following information is available: Gross profit is:

A)$0.
B)$1,500.
C)$450.
D)$900.

Question 77

Which of the following would not tend to make a manufacturer choose a perpetual inventory system?

A)Management wants information about quantities of specific products.
B)A low volume of sales transactions and a computerized accounting system.
C)A high volume of sales transactions and a manual accounting system.
D)Items in inventory with high per unit costs.

Question 78

Merchandising companies that are small and do not use a perpetual inventory system may elect to use:

A)A physical inventory system.
B)A periodic inventory system.
C)An inventory shrinkage method.
D)An inventory subsidiary ledger system.

Question 79

Which of the following credit terms is the most advantageous to the purchaser of merchandise?

A)1/10,n/30.
B)5/10,n/60.
C)2/10,n/30.
D)5/10,n/20.

Question 80

In a periodic inventory system,the cost of goods sold is:

A)Recorded as sales transactions occur.
B)Determined by a computation which is performed at year-end,after the taking of a complete physical inventory.
C)Equal to the beginning inventory,plus purchases made during the period,less sales revenue for the period.
D)Determined by subtracting the balance in the Gross Profit account from the amount of net sales.