Deck 6: Accounting for Merchandising Operations

Question 1

Sales returns and allowances are deducted from gross sales on the income statement.

Answer 1

True

Question 2

Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

Answer 2

True

Question 3

A company would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.

Answer 3

False

Question 4

Under the perpetual inventory system,when merchandise is sold,its cost is transferred from the Merchandise Inventory account to the Sales account.

Question 5

A retail operation would not have to take a physical inventory if it uses a perpetual inventory system.

Question 6

The perpetual inventory system provides an up-to-date amount of inventory on hand.

Question 7

General and administrative expenses are a category of operating expense.

Question 8

For a merchandising company,the difference between net sales and operating expenses is called gross margin.

Question 9

Under the periodic inventory system,the amount for inventory on hand is accurate only on the balance sheet date.

Question 10

Under the periodic inventory system,Cost of goods sold must be computed because it is not updated for sales and other transactions during the accounting period.

Question 11

An advantage of using the perpetual inventory system is that it requires less recordkeeping than the periodic inventory system.

Question 12

The perpetual inventory system relies on a physical count of merchandise for its balance sheet amount.

Question 13

Operating expenses include cost of goods sold.

Question 14

Companies that sell goods that have a high unit value tend to use the perpetual inventory system.

Question 15

Income from operations is the difference between gross margin and operating expenses.

Question 16

On a multistep income statement,other revenues and expenses are a component of income from operations.

Question 17

Computerization has led to a large increase in the use of the perpetual inventory system.

Question 18

Delivery expense is a selling expense on the income statement.

Question 19

When the periodic inventory system is used,a physical inventory should be taken at the end of the fiscal year.

Question 20

Under the perpetual inventory system,the Cost of Goods Sold account is updated continually throughout the period.

Question 21

Other revenues and expenses appears as a separate section on a single-step income statement.

Question 22

Terms of "2/10,n/30" are an example of a sales discount.

Question 23

An advantage of the single-step income statement is that it is less complex than the multistep form.

Question 24

The terms "2/10,n/30" mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.

Question 25

Freight paid on goods shipped to customers is classified as a selling expense.

Question 26

Freight-in is considered a cost of merchandise purchased.

Question 27

Advertising expense appears as a general and administrative expense on the income statement.

Question 28

Cost of goods sold would not be found on a single-step income statement.

Question 29

Dividend income and interest income are examples of nonoperating revenues.

Question 30

A trade discount is the same as a sales discount.

Question 31

Sales Discounts and Sales Returns and Allowances have normal credit balances.

Question 32

Terms of "n/10 eom" mean that payment is due 10 days after the end of the month.

Question 33

When the buyer bears the transportation charge,it is called freight-out.

Question 34

If a retailer makes a sale of $100 on a MasterCard,and MasterCard takes a 5 percent discount on the sale,the retailer would record Cash for $100 and Accounts Payable for $5.

Question 35

If insured goods are shipped FOB destination,the seller should file a claim for goods damaged in transit.

Question 36

Sale and purchase of goods should be recorded at their list price,less any trade discount involved.

Question 37

The single-step and multistep income statements result in different net income amounts.

Question 38

When the terms of sale include a sales discount,it usually is advisable for the buyer to pay within the discount period.

Question 39

FOB shipping point means that the seller incurs the shipping costs.

Question 40

Cost of goods sold is a type of expense.

Question 41

Under the perpetual inventory system,the purchase of merchandise is recorded with a debit to Purchases.

Question 42

With the periodic inventory system,cost of goods available for sale must be calculated after cost of goods sold.

Question 43

On the income statement,freight-out is included as part of cost of goods sold.

Question 44

When the terms are FOB destination,the title passes at the destinationand the seller pays the transportation costs.

Question 45

The difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.

Question 46

Under the perpetual inventory system,the Cost of Goods Sold and Merchandise Inventory accounts are updated with each sale.

Question 47

When the terms are FOB destination,the title passes at the point of origin and the buyer pays the transportation costs.

Question 48

Under the perpetual inventory system,the return of goods to the supplier is recorded with a credit to Merchandise Inventory.

Question 49

Under the perpetual inventory system,the return of goods from a customer is recorded with a debit to Sales Returns and Allowances.

Question 50

Adding together the ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.

Question 51

Purchase discounts are discounts that a buyer takes for the early payment of merchandise.

Question 52

On the income statement,freight-in is treated as an operating expense.

Question 53

When the terms are FOB shipping point,the title passes at the point of origin and the buyer pays the transportation costs.

Question 54

The use of major credit cards does not require sellers to establish the customer's credit.

Question 55

The fee paid by a retailer to a credit card company is considered a contra-revenue account by the retailer.

Question 56

Under the periodic inventory system,the Purchases account is used to accumulate all purchases of merchandise for resale.

Question 57

Under the perpetual inventory system,the return of goods from a customer would increase Cost of Goods sold and decrease Merchandise Inventory.

Question 58

When the terms are FOB shipping point,the title passes at the destinationand the seller pays the transportation costs.

Question 59

Sales Discounts and Sales Returns and Allowances are contra-revenue accounts.

Question 60

Upon making a credit card sale,a business should record the sale as an accounts receivable until the customer pays his or her credit card bill.

Question 61

If it takes 30 days to sell inventory,60 days to collect for the sale,and creditors' terms are 10 days,the financing period is 80 days.

Question 62

If it takes 45 days to sell inventory,30 days to collect for the sale,and creditors' payment terms are 60 days,the financing period is 135 days.

Question 63

Exchange gains and losses are reported on the income statement.

Question 64

The net cost of purchases is found by adding freight-in to net purchases.

Question 65

The financing period is also referred to as the cash gap.

Question 66

If a U.S.company sells goods for a fixed number of British pounds,and the exchange rate has risen from $1.60 per pound to $1.65 per pound by the time collection is made,the U.S.company would record an exchange loss.

Question 67

The operating cycle is the average days' inventory on hand minus the average number of days to collect credit sales.

Question 68

Under the periodic inventory system,the return of goods to the supplier is recorded with a debit to Purchases Returns and Allowances.

Question 69

Adding freight-out expenses to net purchases gives net cost of purchases.

Question 70

The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.

Question 71

If a U.S.company purchases goods for a fixed number of British pounds,and the exchange rate has fallen from $1.55 per pound to $1.50 per pound by the time payment is made,the U.S.company would record an exchange gain.

Question 72

The calculation of cost of goods available for sale during the year is not affected by the previous year's ending merchandise inventory.

Question 73

If a U.S.company purchases goods from a British supplier for a fixed number of U.S.dollars,an exchange gain or loss would not arise for the U.S.company,even if the exchange rate has changed between the time of purchase and the time of payment.

Question 74

The change in merchandise inventory level from the beginning to the end of the year affects cost of goods sold.

Question 75

Freight-in is treated as an addition in the cost of goods sold section of the income statement.

Question 76

When customers pay with bank credit cards,cash sales are considered to have taken place.

Question 77

The faster goods are sold and collection is made,the shorter the financing period.

Question 78

Ending merchandise inventory is not included in the calculation of cost of goods available for sale.

Question 79

A merchandiser's operating cycle concludes with the sale of goods.

Question 80

When a U.S.company does business with a British company and payment is in British pounds,an exchange gain or loss occurs if the exchange rate between dollars and pounds changes between the date of sale and the date of payment.