Question 1

If cost of goods sold is $480,000 and the gross profit rate is 40%, what is the gross profit?

Accepted Answer

A)  $320,000. 
B)  $288,000. 
C)  $480,000. 
D)  $1,200,000. 
A)  $320,000. 
B)  $288,000. 
C)  $480,000. 
D)  $1,200,000.

Question 2

The accounting cycle of a merchandising business is the length of time covered by the company's income statement.

Accepted Answer

A) True 
 B)False

Question 3

Net Sales is computed as total sales revenue less sales returns and allowances less sales discounts.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following appears in the income statement of a merchandising business, but not in the income statement of a business that renders only services?

Accepted Answer

A)  Interest revenue. 
B)  Gross profit. 
C)  Advertising expense. 
D)  Income tax expense. 
A)  Interest revenue. 
B)  Gross profit. 
C)  Advertising expense. 
D)  Income tax expense.

Question 5

Which of the following statements about a periodic inventory system is not correct?

Accepted Answer

A)  These systems are used primarily by small businesses with manual accounting systems. 
B)  The system does not include an up-to-date inventory ledger. 
C)  The balance in the Inventory account remains unchanged until the end of the period. 
D)  The Cost of Goods Sold account is updated as sales transactions occur. 
A)  These systems are used primarily by small businesses with manual accounting systems. 
B)  The system does not include an up-to-date inventory ledger. 
C)  The balance in the Inventory account remains unchanged until the end of the period. 
D)  The Cost of Goods Sold account is updated as sales transactions occur.

Question 6

If World of Sound uses a perpetual inventory system, the journal entry to record the sale on February 12th would include which of the following?

Accepted Answer

A)  A debit to the Cost of Goods Sold for $45,750. 
B)  A credit to the Cost of Goods Sold for $45,750. 
C)  A credit to Purchases for $45,750. 
D)  A debit to Inventory for $45,750 
A)  A debit to the Cost of Goods Sold for $45,750. 
B)  A credit to the Cost of Goods Sold for $45,750. 
C)  A credit to Purchases for $45,750. 
D)  A debit to Inventory for $45,750

Question 7

Jayson Products uses a perpetual inventory system. At year-end, the Inventory account had a balance of $280,000, but a complete year-end physical inventory indicated goods on hand costing only $273,000. Jayson should:

Accepted Answer

A)  Reduce its cost of goods sold by $7,000. 
B)  Record a $7,000 current liability. 
C)  Reduce the balance in its Inventory controlling account and inventory subsidiary ledger by $7,000. 
D)  Reduce the balance in the Inventory controlling account and record a current liability, both in the amount of $7,000. 
A)  Reduce its cost of goods sold by $7,000. 
B)  Record a $7,000 current liability. 
C)  Reduce the balance in its Inventory controlling account and inventory subsidiary ledger by $7,000. 
D)  Reduce the balance in the Inventory controlling account and record a current liability, both in the amount of $7,000.

Question 8

Which of the following statements about merchandising activities is true? (More than one answer may be correct)

Accepted Answer

A)  As inventory is purchased, the Inventory Expense account is debited and Cash (or Accounts Payable) is credited. 
B)  Inventory is recorded as an asset when it is first purchased. 
C)  As inventory is sold, its cost is transferred from the balance sheet to the income statement. 
D)  As inventory is sold, its cost is transferred from the income statement to the balance sheet. 
A)  As inventory is purchased, the Inventory Expense account is debited and Cash (or Accounts Payable) is credited. 
B)  Inventory is recorded as an asset when it is first purchased. 
C)  As inventory is sold, its cost is transferred from the balance sheet to the income statement. 
D)  As inventory is sold, its cost is transferred from the income statement to the balance sheet.

Question 9

At the beginning of 2011, Midway Hardware has an inventory of $400,000. Because sales growth was strong during 2011, the owner wants to increase inventory on hand to $450,000 at December 31, 2011. If net sales for 2011 are expected to be $1,600,000, and the gross profit rate is expected to be 35%, compute the cost of the merchandise the owner should expect to purchase during 2011.

Accepted Answer

A)  $1,490,000. 
B)  $1,040,000. 
C)  $1,090,000. 
D)  $1,600,000. 
A)  $1,490,000. 
B)  $1,040,000. 
C)  $1,090,000. 
D)  $1,600,000.

Question 10

In a perpetual inventory system, two entries usually are made to record each sales transaction. The purposes of these entries are best described as follows:

Accepted Answer

A)  One entry recognizes the sales revenue, and the other recognizes the cost of goods sold. 
B)  One entry records the purchase of the merchandise, and the other records the sale. 
C)  One entry records the cost of goods sold, and the other reduces the balance in the Inventory account. 
D)  One entry updates the general ledger, and the other updates the subsidiary ledgers. 
A)  One entry recognizes the sales revenue, and the other recognizes the cost of goods sold. 
B)  One entry records the purchase of the merchandise, and the other records the sale. 
C)  One entry records the cost of goods sold, and the other reduces the balance in the Inventory account. 
D)  One entry updates the general ledger, and the other updates the subsidiary ledgers.

Question 11

The balance in the Inventory account at January 31 was:

Accepted Answer

A)  $35,000. 
B)  $205,000. 
C)  $95,000. 
D)  Some other answer. 
A)  $35,000. 
B)  $205,000. 
C)  $95,000. 
D)  Some other answer.

Question 12

Inventories are assets that a company holds for sale in the ordinary course of business.

Accepted Answer

A) True 
 B)False

Question 13

Prior to taking a physical inventory at year-end, the perpetual inventory records of Athena Designs showed an inventory of $26,000, sales of $358,000, and a cost of goods sold of $215,000. The year-end physical inventory indicated merchandise on hand costing $24,000. The company's gross profit for the year was:

Accepted Answer

A)  $334,000. 
B)  $145,000. 
C)  $141,000. 
D)  Some other amount. 
A)  $334,000. 
B)  $145,000. 
C)  $141,000. 
D)  Some other amount.

Question 14

Perpetual inventory system: transactions and closing entries Danny's Wholesale Company uses a perpetual inventory system. A partial chart of accounts is shown below, followed by a series of merchandising transactions. Indicate the accounts that should be debited and credited in recording each transaction. (Ignore sales taxes.)
 $$\begin{array} { | l | l | l | l | } 
\hline 1 & \text { Cash } & 50 & \text { Sales } \
\hline 2 & \text { Accounts Receivable } & 60 & \text { Cost of Goods Sold } \
\hline 5 & \text { Inventory } & 99 & \text { Income Summary } \
\hline 30 & \text { Accounts Payable } & & \
\hline 40 & \text { Retained Earnings } & & \
\hline
\end{array}$$

Accepted Answer

The answer of Perpetual inventory system: transactions and closing entries...

Question 15

Effects of transactions upon the accounting equation Listed below are selected transactions of Simon's, a retail store which uses a perpetual inventory system:
(a) Purchased merchandise on account.
(b) Made an entry to recognize the revenue from a sale of merchandise on account. (Ignore the cost of goods sold.)
(c) Recognized the cost of goods sold relating to the sale in Transaction b.
(d) Collected in cash the account receivable from the customer in Transaction b.
(e) Following the taking of a physical inventory at year-end, made an adjusting entry to record a normal amount of inventory shrinkage.
Indicate the effects of each of these transactions upon the elements of the company's financial statements. Organize your answer in tabular form, using the column headings shown below. (Notice that the cost of goods sold is shown separately from all other expenses.) Use the code letters I for increase, D for decrease, and NE for no effect. The answer for Transaction a is provided as an example.

Accepted Answer

The answer of Effects of transactions upon the accounting equation...

Question 16

Parkside Pool reports net sales of $625,000, gross profit of $275,000, and net income of $15,000. The company's cost of goods sold is:

Accepted Answer

A)  $335,000. 
B)  $350,000. 
C)  $340,000. 
D)  $325,000. 
A)  $335,000. 
B)  $350,000. 
C)  $340,000. 
D)  $325,000.

Question 17

Wholesalers buy from retailers and sell to the general public.

Accepted Answer

A) True 
 B)False

Question 18

Gross profit is the difference between:

Accepted Answer

A)  Net sales and the cost of goods sold. 
B)  The cost of merchandise purchased and the cost of merchandise sold. 
C)  Net sales and net income. 
D)  Net sales and all expenses. 
A)  Net sales and the cost of goods sold. 
B)  The cost of merchandise purchased and the cost of merchandise sold. 
C)  Net sales and net income. 
D)  Net sales and all expenses.

Question 19

Which of the following credit terms is the most advantageous to the purchaser of merchandise?

Accepted Answer

A)  1/10, n/30. 
B)  5/10, n/60. 
C)  2/10, n/30. 
D)  5/10, n/20. 
A)  1/10, n/30. 
B)  5/10, n/60. 
C)  2/10, n/30. 
D)  5/10, n/20.

Question 20

In comparing a perpetual inventory system with a periodic inventory system, which of the following statements is not correct?

Accepted Answer

A)  Most large companies use perpetual inventory systems. 
B)  A periodic system does not include an inventory subsidiary ledger. 
C)  The perpetual method is easier to apply in a manual accounting system. 
D)  Regardless of the system in use, most businesses take a physical inventory at least once a year. 
A)  Most large companies use perpetual inventory systems. 
B)  A periodic system does not include an inventory subsidiary ledger. 
C)  The perpetual method is easier to apply in a manual accounting system. 
D)  Regardless of the system in use, most businesses take a physical inventory at least once a year.

Exam 6: Merchandising Activities

If cost of goods sold is $480,000 and the gross profit rate is 40%, what is the gross profit?

The accounting cycle of a merchandising business is the length of time covered by the company's income statement.

Net Sales is computed as total sales revenue less sales returns and allowances less sales discounts.

Which of the following appears in the income statement of a merchandising business, but not in the income statement of a business that renders only services?

Which of the following statements about a periodic inventory system is not correct?

If World of Sound uses a perpetual inventory system, the journal entry to record the sale on February 12th would include which of the following?

Jayson Products uses a perpetual inventory system. At year-end, the Inventory account had a balance of $280,000, but a complete year-end physical inventory indicated goods on hand costing only $273,000. Jayson should:

Which of the following statements about merchandising activities is true? (More than one answer may be correct)

In a perpetual inventory system, two entries usually are made to record each sales transaction. The purposes of these entries are best described as follows:

The balance in the Inventory account at January 31 was:

Inventories are assets that a company holds for sale in the ordinary course of business.

Parkside Pool reports net sales of $625,000, gross profit of $275,000, and net income of $15,000. The company's cost of goods sold is:

Wholesalers buy from retailers and sell to the general public.

Gross profit is the difference between:

Which of the following credit terms is the most advantageous to the purchaser of merchandise?

In comparing a perpetual inventory system with a periodic inventory system, which of the following statements is not correct?

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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