Question 1

When a company has no reportable non-operating activities, its income from operations is simply labeled net income.

Accepted Answer

A) True 
 B)False

Question 2

On March 12, Klein Company 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 and the net method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry(ies) that Klein must make on March 15 is (are):

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Accounts receivable } & 600 & \
\hline \text { Sales returns and allowances } & & 600 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 588 & \
\hline \text { Accounts receivable } & & 588 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$$ 
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)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 588 & \
\hline \text { Accounts receivable } & & 588 \
\hline \text { Merchandise inventory } & 343 & \
\hline \text { Cost of goods sold } & & 343 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Accounts receivable } & 600 & \
\hline \text { Sales returns and allowances } & & 600 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 350 & \
\hline \text { Accounts receivable } & & 350 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 588 & \
\hline \text { Accounts receivable } & & 588 \
\hline \text { Merchandise inventory } & 350 & \
\hline \text { Cost of goods sold } & & 350 \
\hline
\end{array}$$ 
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)  $$\begin{array} { | l | r | r | } 
\hline \text { Sales returns and allowances } & 588 & \
\hline \text { Accounts receivable } & & 588 \
\hline \text { Merchandise inventory } & 343 & \
\hline \text { Cost of goods sold } & & 343 \
\hline
\end{array}$$

Question 3

A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

Accepted Answer

A)  $532,500. 
B)  $157,500. 
C)  $(217,000). 
D)  $217,500. 
E)  $375,000. 
A)  $532,500. 
B)  $157,500. 
C)  $(217,000). 
D)  $217,500. 
E)  $375,000.

Question 4

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. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 28 is:

Accepted Answer

A)  Debit Accounts Payable $1,800; credit Cash $1,800. 
B)  Debit Cash $1,600; credit Accounts Payable $1,600. 
C)  Debit Merchandise Inventory $1,600; credit Cash $1,600. 
D)  Debit Accounts Payable $1,600; credit Cash $1,600. 
E)  Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. 
A)  Debit Accounts Payable $1,800; credit Cash $1,800. 
B)  Debit Cash $1,600; credit Accounts Payable $1,600. 
C)  Debit Merchandise Inventory $1,600; credit Cash $1,600. 
D)  Debit Accounts Payable $1,600; credit Cash $1,600. 
E)  Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.

Question 5

Non-operating activities that include interest, dividend, and rent revenues, and gains from asset disposals are called ________.

Accepted Answer

other reve

Question 6

Harley's Antique Shop had net sales of $772,000. The gross profit was $415,000. Calculate Harley's cost of goods sold.

Accepted Answer

Cost of Goods Sold =

Question 7

The liquidity of a company can be measured using the current ratio and the ________, which only includes the most liquid current assets in its calculation.

Accepted Answer

The answer of The liquidity of a company can be...

Question 8

The acid-test ratio is defined as current assets divided by current liabilities.

Accepted Answer

A) True 
 B)False

Question 9

On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. 
-Vander uses the periodic inventory system and the gross method of accounting for sales. On September 14, Jepson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Vander must make on September 14 is:

Accepted Answer

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

Question 10

A company that uses the net method of recording purchases and a perpetual inventory system 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 payment on July 28 is:

Accepted Answer

A)  Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. 
B)  Debit Cash $1,600; credit Accounts Payable $1,600. 
C)  Debit Merchandise Inventory $1,600; credit Cash $1,600. 
D)  Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600. 
E)  Debit Accounts Payable $1,800; credit Cash $1,800. 
A)  Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568. 
B)  Debit Cash $1,600; credit Accounts Payable $1,600. 
C)  Debit Merchandise Inventory $1,600; credit Cash $1,600. 
D)  Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600. 
E)  Debit Accounts Payable $1,800; credit Cash $1,800.

Question 11

Expenses related to accounting, human resource management, and financial management are known as selling expenses.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

Accepted Answer

A)  Combined income statement. 
B)  Simplified income statement. 
C)  Balanced income statement. 
D)  Single-step income statement. 
E)  Multiple-step income statement. 
A)  Combined income statement. 
B)  Simplified income statement. 
C)  Balanced income statement. 
D)  Single-step income statement. 
E)  Multiple-step income statement.

Question 14

Fragment Company is a wholesaler that sells merchandise in large quantities. Its catalog indicates a list price of $300 per unit on a particular product and a 40% trade discount is offered for quantity purchases of 50 units or more. The cost of shipping the merchandise is $7 per unit under terms FOB shipping point. If a customer purchases 100 units of this product, what is the amount of sales revenue that Fragment will record from this sale?

Accepted Answer

A)  $30,000 
B)  $29,300 
C)  $18,700 
D)  $30,700 
E)  $18,000 
A)  $30,000 
B)  $29,300 
C)  $18,700 
D)  $30,700 
E)  $18,000

Question 15

On March 12, Klein Company 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 and the gross method of accounting for sales. 
-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)  $7,200. 
B)  $7,800. 
C)  $7,056. 
D)  $7,644. 
E)  $7,044. 
A)  $7,200. 
B)  $7,800. 
C)  $7,056. 
D)  $7,644. 
E)  $7,044.

Question 16

A trade discount is:

Accepted Answer

A)  A reduction in price for prompt payment. 
B)  Also called a rebate. 
C)  A reduction in selling price below the list price. 
D)  A term used by a seller to describe a cash discount granted to customers for prompt payment. 
E)  A term used by a purchaser to describe a cash discount given to customers for prompt payment. 
A)  A reduction in price for prompt payment. 
B)  Also called a rebate. 
C)  A reduction in selling price below the list price. 
D)  A term used by a seller to describe a cash discount granted to customers for prompt payment. 
E)  A term used by a purchaser to describe a cash discount given to customers for prompt payment.

Question 17

Quick assets are defined as:

Accepted Answer

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

Question 18

The following statements are true regarding the operating cycle of a merchandising company except:

Accepted Answer

A)  The operating cycle is shortened by credit sales. 
B)  The operating cycle ends with the collection of cash from the sale of merchandise. 
C)  The operating cycle begins with the purchase of merchandise. 
D)  The operating cycle can vary in length among different merchandising companies. 
E)  The operating cycle sometimes involves accounts receivable. 
A)  The operating cycle is shortened by credit sales. 
B)  The operating cycle ends with the collection of cash from the sale of merchandise. 
C)  The operating cycle begins with the purchase of merchandise. 
D)  The operating cycle can vary in length among different merchandising companies. 
E)  The operating cycle sometimes involves accounts receivable.

Question 19

Discuss the period-end adjusting entries that are required in the new revenue recognition standards for estimating sales discounts and sales returns and allowances.

Accepted Answer

Sellers are required to estimate both ex

Question 20

The net method of recording purchases refers to recording:

Accepted Answer

A)  Specified amounts and timing of payments that a buyer agrees to in return for being granted credit. 
B)  Purchases at the invoice price less any cash discounts. 
C)  Inventory at the lower of cost or market. 
D)  Purchases at the full invoice price, without deducting any cash discounts. 
E)  Inventory at its selling price. 
A)  Specified amounts and timing of payments that a buyer agrees to in return for being granted credit. 
B)  Purchases at the invoice price less any cash discounts. 
C)  Inventory at the lower of cost or market. 
D)  Purchases at the full invoice price, without deducting any cash discounts. 
E)  Inventory at its selling price.

Exam 5: Accounting for Merchandising Operations

When a company has no reportable non-operating activities, its income from operations is simply labeled net income.

A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

Non-operating activities that include interest, dividend, and rent revenues, and gains from asset disposals are called ________.

Harley's Antique Shop had net sales of $772,000. The gross profit was $415,000. Calculate Harley's cost of goods sold.

The liquidity of a company can be measured using the current ratio and the ________, which only includes the most liquid current assets in its calculation.

The acid-test ratio is defined as current assets divided by current liabilities.

Expenses related to accounting, human resource management, and financial management are known as selling expenses.

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

An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

A trade discount is:

Quick assets are defined as:

The following statements are true regarding the operating cycle of a merchandising company except:

Discuss the period-end adjusting entries that are required in the new revenue recognition standards for estimating sales discounts and sales returns and allowances.

The net method of recording purchases refers to recording:

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

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