Question 1

If a company is given credit terms of 2/10, n/30, it should

Accepted Answer

A)  hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time. 
B)  pay within the discount period and recognize a savings. 
C)  pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill. 
D)  recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price. 
A)  hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time. 
B)  pay within the discount period and recognize a savings. 
C)  pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill. 
D)  recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.

Question 2

Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

Accepted Answer

A) True 
 B)False

Question 3

Reese Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

Accepted Answer

A)  20% 
B)  24% 
C)  36% 
D)  72% 
A)  20% 
B)  24% 
C)  36% 
D)  72%

Question 4

Under a perpetual inventory system, acquisition of merchandise for resale is debited to the

Accepted Answer

A)  Merchandise Inventory account. 
B)  Purchases account. 
C)  Supplies account. 
D)  Cost of Goods Sold account. 
A)  Merchandise Inventory account. 
B)  Purchases account. 
C)  Supplies account. 
D)  Cost of Goods Sold account.

Question 5

A credit memorandum is prepared when

Accepted Answer

A)  an employee does a good job. 
B)  goods are sold on credit. 
C)  goods that were sold on credit are returned. 
D)  customers refuse to pay their accounts. 
A)  an employee does a good job. 
B)  goods are sold on credit. 
C)  goods that were sold on credit are returned. 
D)  customers refuse to pay their accounts.

Question 6

Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

Accepted Answer

A) True 
 B)False

Question 7

All of the following are contra revenue accounts except

Accepted Answer

A)  sales. 
B)  sales allowances. 
C)  sales discounts. 
D)  sales returns. 
A)  sales. 
B)  sales allowances. 
C)  sales discounts. 
D)  sales returns.

Question 8

During the year, Carla's Pet Shop's merchandise inventory decreased by $20,000. If the company's cost of goods sold for the year was $300,000, purchases must have been

Accepted Answer

A)  $320,000. 
B)  $280,000. 
C)  $260,000. 
D)  Unable to determine. 
A)  $320,000. 
B)  $280,000. 
C)  $260,000. 
D)  Unable to determine.

Question 9

Which of the following is not a true statement about a multiple-step income statement?

Accepted Answer

A)  Operating expenses are similar for merchandising and service enterprises. 
B)  There may be a section for nonoperating activities. 
C)  There may be a section for operating assets. 
D)  There is a section for cost of goods sold. 
A)  Operating expenses are similar for merchandising and service enterprises. 
B)  There may be a section for nonoperating activities. 
C)  There may be a section for operating assets. 
D)  There is a section for cost of goods sold.

Question 10

The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

Accepted Answer

A) True 
 B)False

Question 11

Sales revenue

Accepted Answer

A)  may be recorded before cash is collected. 
B)  will always equal cash collections in a month. 
C)  only results from credit sales. 
D)  is only recorded after cash is collected. 
A)  may be recorded before cash is collected. 
B)  will always equal cash collections in a month. 
C)  only results from credit sales. 
D)  is only recorded after cash is collected.

Question 12

Powers Company has the following account balances:   The cost of goods purchased for the period is

Accepted Answer

A)  $52,000. 
B)  $47,000. 
C)  $51,000. 
D)  $44,600. 
A)  $52,000. 
B)  $47,000. 
C)  $51,000. 
D)  $44,600.

Question 13

When a seller grants credit for returned goods, the account that is credited is

Accepted Answer

A)  Sales. 
B)  Sales Returns and Allowances. 
C)  Merchandise Inventory. 
D)  Accounts Receivable. 
A)  Sales. 
B)  Sales Returns and Allowances. 
C)  Merchandise Inventory. 
D)  Accounts Receivable.

Question 14

After gross profit is calculated, operating expenses are deducted to determine

Accepted Answer

A)  gross margin. 
B)  net income. 
C)  gross profit on sales. 
D)  net margin. 
A)  gross margin. 
B)  net income. 
C)  gross profit on sales. 
D)  net margin.

Question 15

The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are

Accepted Answer

A)  credit, credit, debit. 
B)  debit, credit, credit. 
C)  debit, credit, debit. 
D)  debit, debit, debit. 
A)  credit, credit, debit. 
B)  debit, credit, credit. 
C)  debit, credit, debit. 
D)  debit, debit, debit.

Question 16

A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

Accepted Answer

A) True 
 B)False

Question 17

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

Accepted Answer

A)  Accounts Payable. 
B)  Purchase Returns and Allowances. 
C)  Sales. 
D)  Merchandise Inventory. 
A)  Accounts Payable. 
B)  Purchase Returns and Allowances. 
C)  Sales. 
D)  Merchandise Inventory.

Question 18

The entry to record the receipt of payment within the discount period on a sale of $750 with terms of 2/10, n/30 will include a credit to

Accepted Answer

A)  Sales Discounts for $15. 
B)  Cash for $735. 
C)  Accounts Receivable for $750. 
D)  Sales for $750. 
A)  Sales Discounts for $15. 
B)  Cash for $735. 
C)  Accounts Receivable for $750. 
D)  Sales for $750.

Question 19

A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.

Accepted Answer

A) True 
 B)False

Question 20

Rasner Co. returned defective goods costing $3,000 to Markum Company on March 19, for credit. The goods were purchased April 10, on credit, terms 3/10, n/30. The entry by Rasner Co. on April 19, in receiving full credit is:

Accepted Answer

The answer of Rasner Co. returned defective goods costing $3,000...

Exam 5: Accounting for Merchandising Operations

If a company is given credit terms of 2/10, n/30, it should

Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

Reese Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

Under a perpetual inventory system, acquisition of merchandise for resale is debited to the

A credit memorandum is prepared when

Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

All of the following are contra revenue accounts except

During the year, Carla's Pet Shop's merchandise inventory decreased by $20,000. If the company's cost of goods sold for the year was $300,000, purchases must have been

Which of the following is not a true statement about a multiple-step income statement?

The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

Sales revenue

Powers Company has the following account balances: The cost of goods purchased for the period is

When a seller grants credit for returned goods, the account that is credited is

After gross profit is calculated, operating expenses are deducted to determine

The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are

A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

The entry to record the receipt of payment within the discount period on a sale of $750 with terms of 2/10, n/30 will include a credit to

A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.

Rasner Co. returned defective goods costing $3,000 to Markum Company on March 19, for credit. The goods were purchased April 10, on credit, terms 3/10, n/30. The entry by Rasner Co. on April 19, in receiving full credit is:

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

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