Deck 12: Completion of the Accounting Cycle for a Merchandise Company

Question 1

Johnson Supplies has $530,000 in net sales and $300,000 in gross profit. Cost of Goods Sold equals:

A) $830,000.
B) $300,000.
C) $230,000.
D) None of these is correct.

Answer 1

C

Question 2

To determine how much merchandise was returned from a company's customers, the company should review the:

A) Purchases Returns and Allowances Account.
B) Merchandise Inventory Account.
C) Sales Returns and Allowances Account.
D) Freight-in.

Answer 2

C

Question 3

Net Purchases + Purchases Returns and Allowances + Purchase Discounts equals:

A) Net Loss.
B) Net Income.
C) Gross Profit.
D) Gross Purchases.

Answer 3

D

Question 4

Net Sales are:

A) Gross Sales + Sales Discounts + Sales Returns and Allowances.
B) Gross Sales - Sales Discounts - Sales Returns and Allowances.
C) Revenue - Sales Discounts + Sales Returns and Allowances.
D) Gross Sales + Sales Discounts - Sales Returns and Allowances.

Question 5

Cost of Goods Sold includes:

A) Freight-in.
B) Freight-out.
C) Supplies Expense.
D) Sales Discounts.

Question 6

Net Sales + Sales Discounts + Sales Returns and Allowances equals:

A) Net Income.
B) Gross Sales.
C) Net Income from Operations.
D) None of the above

Question 7

Net Sales - Cost of Goods Sold is equal to:

A) Net Income from Operations.
B) Operating Expenses.
C) Gross Profit.
D) Selling Expenses.

Question 8

Which of the following is an operating expense?

A) Salaries Expense
B) Payroll Tax Expense
C) Freight-in
D) Both A and B are correct.

Question 9

The income statement is prepared from the:

A) Post-Closing Trial Balance.
B) worksheet.
C) general journal.
D) unadjusted Trial Balance.

Question 10

Gross Profit equals:

A) Net sales - Net Purchases.
B) Sales - Sales Returns and Allowances - Sales Discounts - Cost of Goods Sold.
C) Cost of Goods Sold - Other Expenses.
D) Cost of Goods Sold - Operating Expenses.

Question 11

Selling expenses include:

A) Advertising Expense.
B) Freight-in.
C) Office Supplies Expense.
D) Sales Returns and Allowances.

Question 12

In which section does Interest Revenue appear in the Income Statement?

A) Other Income
B) Other Expense
C) Revenue
D) Administrative Expenses

Question 13

What is the name of the revenue account used by merchandise companies?

A) Sales
B) Interest Income
C) Merchandise Inventory
D) Sales Discount

Question 14

Which of the following is an operating expense?

A) Interest Expense
B) Purchases Returns and Allowances
C) Salaries Expense
D) Prepaid Insurance Expense

Question 15

The calculation of Net Purchases does NOT include:

A) Purchases Returns and Allowances.
B) Purchases Discounts.
C) Purchases.
D) Merchandise Inventory.

Question 16

Which of the following is NOT an operating expense?

A) Payroll Tax Expense
B) Inventory
C) Supplies Expense
D) Depreciation Expense - Office Equipment

Question 17

Freight-in is:

A) a Cost of Selling Goods.
B) a Cost of Purchasing Goods.
C) recorded as an Operating Expense.
D) a Selling Expense.

Question 18

Cost of Goods Sold is calculated on the:

A) Post-Closing Trial Balance.
B) Trial Balance.
C) Income Statement.
D) Balance Sheet.

Question 19

Which amount is directly found on the worksheet?

A) Cost of Goods Sold
B) Gross Profit
C) Net Sales
D) None of the above

Question 20

The amount found in the Income Statement debit column on the worksheet for Income Summary is the:

A) total amount of expenses.
B) total amount of revenues.
C) beginning inventory.
D) ending inventory.

Question 21

A classified balance sheet provides more information about the company to:

A) owners.
B) creditors.
C) suppliers.
D) All of the above answers are correct.

Question 22

Barnes' Shoes allows a customer a discount from the original price for a defective product; Barnes issues the customer a(n):

A) credit memorandum.
B) debit memorandum.
C) sales invoice.
D) inventory slip.

Question 23

Merchandise purchased for resale under the perpetual inventory method is added to:

A) Merchandise Inventory.
B) Supplies.
C) Purchases.
D) Inventory Expense.

Question 24

The information to prepare the Statement of Owner's Equity comes from the:

A) income statement columns on the worksheet.
B) adjustments columns on the worksheet.
C) balance sheet columns on the worksheet.
D) general ledger.

Question 25

Other Income is used to:

A) record payments from sales customers.
B) record any revenue from activities other than sales.
C) record all revenue.
D) record owner investments.

Question 26

Merchandise purchased for resale under the perpetual inventory method is added to:

A) Merchandise Inventory.
B) Sales.
C) Purchases.
D) Supplies Expense.

Question 27

The ending merchandise inventory was understated. This error would cause:

A) assets to be understated.
B) assets to be overstated.
C) net income to be overstated.
D) Cost of Goods Sold to be overstated.

Question 28

If Net Sales is $10,500, Cost of Goods Sold is $5,400, Gross Profit is $5,100 and Operating Expenses are $1,800, what is the Net Income from Operations?

A) $6,900
B) $3,300
C) $1,800
D) $5,100

Question 29

An item that can be converted into cash or used up during the normal operating cycle is:

A) a current asset.
B) Revenue.
C) a current liability.
D) an expense.

Question 30

In what category on a classified balance sheet is Accounts Receivable found?

A) Plant, Property and Equipment
B) Current Liabilities
C) Current Assets
D) Long Term Assets

Question 31

The ending merchandise inventory was overstated. This error would cause:

A) net income to be understated.
B) revenue to be understated.
C) net income to be overstated.
D) Cost of Goods Sold to be overstated.

Question 32

A company paid next month's rent in advance. This would be classified as a(n):

A) Current asset.
B) Expense.
C) Revenue.
D) Contra-Asset.

Question 33

Administrative Expenses include:

A) Sales - Salaries Expense.
B) Delivery Expense.
C) Advertising Expense.
D) Accounting - Staff Salaries Expenses.

Question 34

Other Expense is used to record:

A) selling expenses.
B) administrative expenses.
C) operating expenses.
D) interest expenses.

Question 35

The excess of net revenue over the cost of goods sold is called:

A) operating profit.
B) net loss.
C) merchandising income.
D) gross profit.

Question 36

Plant and Equipment includes which of the following?

A) Mortgage Payable
B) Supplies
C) Accumulated Depreciation on Equipment
D) All of these are correct.

Question 37

Liquidity is:

A) the ability in which a current debt can be paid.
B) how easily an asset can be converted to cash.
C) how much cash a company has on its balance sheet.
D) how quickly customers pay.

Question 38

To determine how much merchandise a company has returned to its vendors, it should review the:

A) Purchases Returns & Allowances account.
B) Change in the Inventory balance.
C) Sales Returns & Allowances account.
D) Sales Discounts account.

Question 39

Plant, Property and Equipment is usually listed:

A) in alphabetical order.
B) in order of liquidity.
C) by how long they will last.
D) lowest to highest dollar values.

Question 40

In what category on a classified balance sheet is Store Equipment found?

A) Plant and Equipment
B) Current Liabilities
C) Current Assets
D) Long Term Liabilities

Question 41

A balance sheet where assets and liabilities are broken down into more detail is called a comprehensive balance sheet.

Question 42

The following accounts are on the Balance Sheet section of Scents Galore worksheet for the date November 30, 201X. Please prepare a Classified Balance Sheet using the information below.
Additional information: Withdrawals for the period are $4, and Net Income is $12.

Question 43

The amount for Cost of Goods Sold is found on the worksheet after Revenue.

Question 44

In what category in a classified balance sheet is Mortgage Payable found?

A) Plant and Equipment
B) Current Liabilities
C) Long-term Liabilities
D) Both B and C are correct.

Question 45

The Statement of Owner's Equity is the same for a service business as for a merchandise business.

Question 46

The formal income statement can be prepared from the balance sheet columns of the worksheet.

Question 47

Cost of goods available for sale is equal to beginning inventory + Operating Expense.

Question 48

Gross profit equals Net Sales minus Inventory Available for Sale.

Question 49

Identify the category(s) of each of the accounts below.
Current Asset
Plant and Equipment
Current Liabilities
Long-Term Liabilities

Question 50

The following amounts are on the John's Clothing worksheet for the month ended March 31
Required: Calculate the following:
a) Net sales
b) Net purchases
c) Net cost of purchases
d) Cost of goods available for sale
e) Cost of goods sold
f) Gross profit

Question 51

Identify the category(s) of each of the accounts below.
Current Asset
Plant and Equipment
Current Liabilities
Long-Term Liabilities

Question 52

When calculating Cost of Goods Sold on the Income Statement, the beginning inventory and not the ending inventory value is required.

Question 53

The left and right columns on the financial statements are used for debits and credits.

Question 54

The following accounts are on the Balance Sheet section of Great Plains Camping worksheet for the month ended January 31, 201x. Required: Prepare a classified balance sheet. Additional information: Withdrawals for the period are $2, and Net Income is $3.

Question 55

Administration expenses are found in the Operating Expense section of the income statement.

Question 56

The Statement of Owner's Equity ending capital is equal to the capital on the worksheet.

Question 57

Land is listed first under Plant, Property and Equipment.

Question 58

The following amounts are on the Bear Sporting Goods worksheet for the month ended October 31. Required: Calculate the following:
a) Net sales
b) Net purchases
c) Net cost of purchases
d) Cost of goods available for sale
e) Cost of goods sold
f) Gross profit

Question 59

The average time it takes to buy and sell merchandise and collect Accounts Receivable is the sales cycle for a business.

Question 60

Discuss the purpose of a detailed income statement. Briefly describe the major kinds of business activities covered on a detailed income statement.

Question 61

The amount shown in the balance sheet debit column of worksheet for Merchandise Inventory is:

A) the Cost of Goods Sold.
B) net purchases + beginning merchandise inventory.
C) the ending inventory.
D) the beginning inventory.

Question 62

Determine the beginning inventory of a business having:
Beginning Capital balance of $11,000
No additional investments or withdrawals
Net sales of $43,500
Net purchases $26,000
Ending inventory of $4,250
Ending Capital balance of $10,000
Operating expenses of $16,500
$ ________

Question 63

Determine the ending Capital amount of a business having:
Beginning Capital amount of $25,000
Withdrawals of $ 2,500
Net sales of $250,000
Net purchases of $85,000
Freight-in of $2,000
Beginning inventory of $6,000
Ending inventory of $7,000
Operating expenses of $ 30,000
$ ________

Question 64

The goal of closing entries does NOT include:

A) to clear revenue and expense accounts.
B) to update the Capital account balance.
C) to clear the Withdrawals account.
D) to clear the Cash account.

Question 65

Income Summary, before closing to Capital, contains a debit balance of $190 and a credit balance of $270. What is the entry to close Income Summary to Capital?

A) Debit Income Summary $190; credit Capital $270
B) Debit Income Summary $80 credit Capital $190
C) Debit Capital $80; credit Income Summary $80
D) Debit Income Summary $80; credit Capital $80

Question 66

After the closing entries have been posted:

A) the temporary accounts are zeroed out.
B) the Capital account includes the current net profit or loss.
C) the post-closing trial balance is prepared.
D) All of these answers are correct.

Question 67

The entry to close the expense account(s) was entered in reverse-Income Summary was credited and the expense account(s) was/were debited. This error would cause:

A) assets to be overstated.
B) liabilities to be overstated.
C) the Capital account to be understated.
D) the Capital account to be overstated.

Question 68

Closing entries:

A) are posted to the general ledger.
B) are done to update Cash.
C) can be done before adjusting entries.
D) are done to update the balance sheet.

Question 69

The amount shown in the adjustments credit column for Merchandise Inventory on the worksheet is:

A) beginning inventory.
B) ending inventory.
C) total purchases.
D) Cost of Goods Sold.

Question 70

The entry to close the Income Summary account to Capital was omitted, and there was a net income for the period. This error would cause:

A) the Capital account to be understated.
B) Inventory to be overstated.
C) Revenue to be understated.
D) the Capital account to be overstated.

Question 71

Determine the ending Capital balance of a business having:
Beginning Capital of $75,000
No investments or withdrawals
Beginning inventory of $10,000
Net Purchases of $100,000
Ending inventory of $12,000
Operating expenses of $70,000
Net sales $107,000
$ ________

Question 72

The entry to close the Withdrawal account was entered in reverse-the Withdrawal account was debited and Capital credited. This error would cause:

A) the income summary account to have a debit balance.
B) net income to be overstated.
C) net income to be understated.
D) Withdrawals to be overstated.

Question 73

Discuss the purpose of a classified balance sheet. Include a description of the major balance sheet classifications including: current assets, plant and equipment, current liabilities, and long-term liabilities.

Question 74

Determine the ending inventory of a business having:
Beginning Capital $6,000
Net sales of $60,000
Net purchases of $31,000
Freight-in of $2,000
Beginning inventory of $4,000
Ending Capital of $21,000
Operating expenses of $10,000
No additional investments or withdrawals.
$ ________

Question 75

How is Income Summary closed if the company had a net loss?

A) Credit Income Summary; debit Capital
B) Debit Income Summary; credit Capital
C) Debit Capital; credit Revenue
D) Debit Withdrawals; credit Capital

Question 76

The first step in the closing process is to:

A) close all balances on the income statement debit column of the worksheet except Income Summary.
B) transfer the balance from the Income Summary Account to the Capital Account.
C) close all balances on the income statement credit column of the worksheet except Income Summary.
D) transfer the balance of the Owner's Withdrawals Account to Capital.

Question 77

How is Income Summary closed if the company had a net income?

A) Debit Capital; credit Income Summary
B) Debit Income Summary; credit Capital
C) Debit Capital; credit Withdrawals
D) Debit Withdrawals; credit Capital

Question 78

The entry to adjust salaries was done twice. This error would cause:

A) assets to be understated.
B) liabilities to be overstated.
C) revenue to be understated.
D) assets to be overstated.

Question 79

Adjusting entries from the worksheet:

A) are journalized and posted to the ledger.
B) are posted directly to the ledger.
C) are closed to the Income Summary account.
D) affect only income statement accounts.

Question 80

The entry to close the Withdrawals account to Capital was omitted. This error would cause:

A) the Capital account to be understated.
B) Withdrawal to be understated.
C) Revenue to be understated.
D) the Capital account to be overstated.