Question 1

The gross method requires a period-end adjusting entry to estimate future sales discounts.

Accepted Answer

A) True 
 B)False

Question 2

The credit terms 2/10, n/30 are interpreted as:

Accepted Answer

A)  10% cash discount if the amount is paid within 2 days, or the balance due in 30 days. 
B)  2% cash discount if the amount is paid within 10 days, or the balance due in 30 days. 
C)  30% discount if paid within 10 days. 
D)  2% discount if paid within 30 days. 
E)  30% discount if paid within 2 days. 
A)  10% cash discount if the amount is paid within 2 days, or the balance due in 30 days. 
B)  2% cash discount if the amount is paid within 10 days, or the balance due in 30 days. 
C)  30% discount if paid within 10 days. 
D)  2% discount if paid within 30 days. 
E)  30% discount if paid within 2 days.

Question 3

Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise.
- On August 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:

Accepted Answer

A)  Debit Accounts Payable $1,500; credit Purchase Returns $1,500. 
B)  Debit Accounts Payable $1,500; credit Cash $1,500. 
C)  Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500. 
D)  Debit Merchandise Inventory $1,500; credit Cash $1,500. 
E)  Debit Merchandise Inventory $1,500; credit Sales Returns $1,500. 
A)  Debit Accounts Payable $1,500; credit Purchase Returns $1,500. 
B)  Debit Accounts Payable $1,500; credit Cash $1,500. 
C)  Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500. 
D)  Debit Merchandise Inventory $1,500; credit Cash $1,500. 
E)  Debit Merchandise Inventory $1,500; credit Sales Returns $1,500.

Question 4

Sales Discounts is added to the Sales account when computing a company's net sales.

Accepted Answer

A) True 
 B)False

Question 5

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Accepted Answer

A)  Reflects an increase in amount due from a customer. 
B)  Is recorded when a customer takes a discount. 
C)  Records the cost side of a sales return. 
D)  Reflects a decrease in amount due to a supplier. 
E)  Recognizes that a customer returned merchandise and/or received an allowance. 
A)  Reflects an increase in amount due from a customer. 
B)  Is recorded when a customer takes a discount. 
C)  Records the cost side of a sales return. 
D)  Reflects a decrease in amount due to a supplier. 
E)  Recognizes that a customer returned merchandise and/or received an allowance.

Question 6

Fill in the blanks (a) through (g) for the Corman Company for each of the income statements for years 1 and 2
 
$\begin{array} { c} 
 { \text { Corman Company } } \
\text { Income Statements } \
\text { For the years ended December } 31 \
\begin{array} { | l | l | l | } 
\hline  & \text { Year 1 } & \text { Year 2 } \
\hline\text { Sales }&\$10,000& \text {(e)}\
\hline \text { Cost of goods sold } & & \
\hline \text { Merchandise inventory (beginning) } & 375 & 750 \
\hline \text { Total cost of merchandise purchases } & 3,625 & 4,875 \
\hline \text { Merchandise inventory (ending) } & 750 & \text { (d) } \
\hline \text { Cost of goods sold } & \text { (a) } & 5,000 \
\hline \text { Gross profit } & 6,750 & 5,200 \
\hline \text { Operating expenses } & 3,750 & \text { (c) } \
\hline \text { Net income } & \text { (b) } & \$ 2,500 \
\hline
\end{array}\end{array}$

Accepted Answer

(a)Merchandise inventory, beginning + pu

Question 7

The gross margin ratio:

Accepted Answer

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

Question 8

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

Accepted Answer

A periodic inventory system updates the

Question 9

Distinguish between selling expenses and general and administrative expenses.

Accepted Answer

Selling expenses include the expenses of

Question 10

Prepare journal entries to record the following merchandising transactions of Margin Company, which applies the perpetual inventory system and the gross method of recording invoices. Margin Company offers all of its credit customers credit terms of 2/10, n/30.
 $\begin{array}{|l|l|}
\hline \text { May 3 } & \begin{array}{l}
\text { Sold merchandise to Sting Company for } \$ 5,600, \mathrm{FOB} \text { shipping point, } \
\text { invoice dated May 4. The merchandise had cost } \$ 3,000 .
\end{array} \
\hline \text { May 8 } & \begin{array}{l}
\text { Sold merchandise to Skeet Company for } \$ 3,300, \mathrm{FOB} \text { shipping point, } \
\text { invoice dated May 8. The merchandise had a cost of } \$ 1,500 .
\end{array} \
\hline \text { May 13 } & \text { Received the balance due from Sting Company within the discount period. } \
\hline \text { May 14 } & \begin{array}{l}
\text { Issued a credit } \$ 300 \text { credit memorandum to Skeet Company for an } \
\text { allowance on defective merchandise. }
\end{array} \
\hline \text { May 17 } & \text { Received the balance due from Skeet Company within the discount period. } \
\hline
\end{array}$

Accepted Answer

None

Question 11

Products that a company owns and intends to sell are called ________.

Accepted Answer

Merchandis

Question 12

If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

Accepted Answer

A) True 
 B)False

Question 13

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 merchandise return on July 7 is:

Accepted Answer

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

Question 14

Beginning inventory plus net purchases equals merchandise available for sale.

Accepted Answer

A) True 
 B)False

Question 15

The following statements regarding merchandise inventory are true except:

Accepted Answer

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

Question 16

________ inventory system updates the accounting record for inventory only at the end of an accounting period.

Accepted Answer

The answer of ________ inventory system updates the accounting record...

Question 17

A company has net sales of $752,000 and cost of goods sold of $543,000. Its net income is $17,530. The company's gross margin and operating expenses, respectively, are:

Accepted Answer

A)  $227,000 and $525,470 
B)  $209,000 and $191,470 
C)  $191,470 and $209,000 
D)  $525,470 and $227,000 
E)  $734,000 and $191,470 
A)  $227,000 and $525,470 
B)  $209,000 and $191,470 
C)  $191,470 and $209,000 
D)  $525,470 and $227,000 
E)  $734,000 and $191,470

Question 18

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

Accepted Answer

A)  The beginning inventory amount. 
B)  Equal to the cost of goods sold. 
C)  Equal to the gross profit. 
D)  Equal to the cost of goods purchased. 
E)  The ending inventory amount. 
A)  The beginning inventory amount. 
B)  Equal to the cost of goods sold. 
C)  Equal to the gross profit. 
D)  Equal to the cost of goods purchased. 
E)  The ending inventory amount.

Question 19

Purchase discounts are the same as trade discounts.

Accepted Answer

A) True 
 B)False

Question 20

Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles.

Accepted Answer

A) True 
 B)False

Exam 5: Accounting for Merchandising Operations

The gross method requires a period-end adjusting entry to estimate future sales discounts.

The credit terms 2/10, n/30 are interpreted as:

Sales Discounts is added to the Sales account when computing a company's net sales.

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

The gross margin ratio:

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

Distinguish between selling expenses and general and administrative expenses.

Products that a company owns and intends to sell are called ________.

If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

Beginning inventory plus net purchases equals merchandise available for sale.

The following statements regarding merchandise inventory are true except:

________ inventory system updates the accounting record for inventory only at the end of an accounting period.

A company has net sales of $752,000 and cost of goods sold of $543,000. Its net income is $17,530. The company's gross margin and operating expenses, respectively, are:

When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

Purchase discounts are the same as trade discounts.

Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles.

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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