Question 1

Frisco Company Inc.'s Merchandise Inventory account at the end of year 2015 has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is:

Accepted Answer

A) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Merchandise } \
\text { Invertory }
\end{array} & 215 & \
\hline \begin{array} { l } 
\text { Irvertory } \
\text { shrinkage } \
\text { expense }
\end{array} & &215 \
\hline 
\end{array}$$ 
B) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Purchases } \
\text { discounts }
\end{array} & 215 & \
\hline \begin{array} { l } 
\text { cost of } \
\text {  goods } \
\text {sold }
\end{array} & &215 \
\hline 
\end{array}$$ 
C) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Cost of } \
\text { goods sold }
\end{array} & 215 & \
\hline \begin{array} { c } 
\text { Purchases } \
\text { discourts }
\end{array} && 215 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Inventory } \
\text { shrinkage } \
\text { expense }
\end{array} & 215 & \
\hline \begin{array} { l } 
\text { Cost of } \
\text { goods } \
\text { sold }
\end{array} & &215 \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Cost of Goods } \
\text { Sold }
\end{array} & 215 & \
\hline \begin{array} { c } 
\text { Mer chandise } \
\text { Invertory }
\end{array} & &215 \
\hline
\end{array}$$

Question 2

A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has taken what percentage cash discount for early payment?

Accepted Answer

A) 1% 
B) 2% 
C) 5% 
D) 10% 
E) 15%

Question 3

Describe the difference between the periodic and perpetual inventory accounting systems.

Accepted Answer

The answer of Describe the difference between the periodic and...

Question 4

Describe the difference(s) between the periodic and the perpetual inventory accounting systems.

Accepted Answer

The answer of Describe the difference(s) between the periodic and...

Question 5

On March 12, Klein Company, Inc. sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system. On March 15, Babson returns some of the merchandise. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry or entries that Klein must make on March 15 is:

Accepted Answer

A) $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 600 & \
\hline \text { Accounts receivable } & & 600 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 600 & \
\hline \text { Accounts receivable } & & 600 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts receivable } & 600 & \
\hline \text { Sales returns and allowances } & & 600 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts receivable } & 600 & \
\hline \text { Sales returns and allowances } & & 600 \
\hline \text { Cost of goods sold } & 350 & \
\hline \text { Merchandise inventory } & & 350 \
\hline
\end{array}$$ 
E) $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$$

Question 6

On March 12, Klein Company, Inc. sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The amount that Klein receives from Babson on March 20 is:

Accepted Answer

A) $7,800. 
B) $7,644. 
C) $7,044. 
D) $7,056. 
E) $7,200.

Question 7

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

Accepted Answer

A) $200. 
B) $1,564. 
C) $1,568. 
D) $1,600. 
E) $1,800.

Question 8

Purchase returns refer to merchandise a buyer acquires but then returns to the seller.

Accepted Answer

A) True 
 B)False

Question 9

Quick assets are defined as:

Accepted Answer

A) Cash, short-term investments, and inventory. 
B) Cash, short-term investments, and current receivables. 
C) Cash, inventory, and current receivables. 
D) Cash, noncurrent receivables, and prepaid expenses. 
E) Accounts receivable, inventory, and prepaid expenses.

Question 10

Under a perpetual inventory system, when a credit customer returns merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

Accepted Answer

A) True 
 B)False

Question 11

The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

Accepted Answer

A) True 
 B)False

Question 12

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the purchase on July 5 is:

Accepted Answer

A) Debit Merchandise Inventory $1,600; credit Cash $1,600. 
B) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800. 
C) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600. 
D) Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800. 
E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

Question 13

On July 1, Ferguson Company, Inc. sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferguson uses the perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 is:

Accepted Answer

A) $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$$ 
B) $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 500 & \
\hline \text { Accounts receivable } & & 500 \
\hline
\end{array}$$ 
C) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts receivable } & 500 & \
\hline \text { Sales returns and allowances } & & 500 \
\hline
\end{array}$$ 
D) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts receivable } & 500 & \
\hline \text { Sales returns and allowances } & & 500 \
\hline \text { Cost of goods sold } & 350 & \
\hline \text { Merchandise inventory } & & 350 \
\hline 
\end{array}$$ 
E) $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$$

Question 14

The gross margin ratio:

Accepted Answer

A) Is also called the net profit ratio. 
B) Indicates the percent of sales revenue remaining after covering the cost of the goods sold. 
C) Is also called the profit margin. 
D) Is a measure of liquidity and should exceed 2.0 to be acceptable. 
E) Should be greater than 1 for merchandising companies.

Question 15

The following statements regarding merchandise inventory are true except:

Accepted Answer

A) Merchandise inventory is reported on the balance sheet as a current asset. 
B) Merchandise inventory refers to products a company owns and intends to sell. 
C) Merchandise inventory may include the costs of freight in and making them ready for sale. 
D) Merchandise inventory appears on the balance sheet of a service company. 
E) Purchasing merchandise inventory is part of the operating cycle for a business.

Question 16

Describe the recording process (including costs) for the types of transactions involved in purchasing merchandise inventory when a perpetual inventory system is used.

Accepted Answer

The answer of Describe the recording process (including costs) for...

Question 17

Describe why tracking inventory activities are necessary for a merchandising company.

Accepted Answer

The answer of Describe why tracking inventory activities are necessary...

Question 18

The following statements regarding gross profit are true except:

Accepted Answer

A) Gross profit is also called gross margin. 
B) Gross profit less other operating expenses equals income from operations. 
C) Gross profit is not calculated on the multiple-step income statement. 
D) Gross profit must cover all operating expenses to yield a return for the owner of the business. 
E) Gross profit equals net sales less cost of goods sold.

Question 19

Sales less sales discounts less sales returns and allowances equals:

Accepted Answer

A) Net purchases. 
B) Cost of goods sold. 
C) Net sales. 
D) Gross profit. 
E) Net income.

Question 20

The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.

Accepted Answer

A) True 
 B)False

Exam 4: Accounting for Merchandising Operations

Frisco Company Inc.'s Merchandise Inventory account at the end of year 2015 has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is:

A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has taken what percentage cash discount for early payment?

Describe the difference between the periodic and perpetual inventory accounting systems.

Describe the difference(s) between the periodic and the perpetual inventory accounting systems.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

Purchase returns refer to merchandise a buyer acquires but then returns to the seller.

Quick assets are defined as:

Under a perpetual inventory system, when a credit customer returns merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the purchase on July 5 is:

The gross margin ratio:

The following statements regarding merchandise inventory are true except:

Describe the recording process (including costs) for the types of transactions involved in purchasing merchandise inventory when a perpetual inventory system is used.

Describe why tracking inventory activities are necessary for a merchandising company.

The following statements regarding gross profit are true except:

Sales less sales discounts less sales returns and allowances equals:

The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.