Question 1

The basic purpose of a subsidiary ledger is to:

Accepted Answer

A)  Provide a chronological record of all business transactions. 
B)  Provide details about the individual items comprising the balance of a general ledger account. 
C)  Enable accountants to prepare financial statements. 
D)  Provide persons outside of the organization with detailed information about the company's operations. 
A)  Provide a chronological record of all business transactions. 
B)  Provide details about the individual items comprising the balance of a general ledger account. 
C)  Enable accountants to prepare financial statements. 
D)  Provide persons outside of the organization with detailed information about the company's operations.

Question 2

In a retail department store with an efficient perpetual inventory system, the quantities of goods actually on hand are probably somewhat more than the quantities indicated in the accounting records.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following would not tend to make a manufacturer choose a perpetual inventory system?

Accepted Answer

A)  Management wants information about quantities of specific products. 
B)  A low volume of sales transactions and a computerized accounting system. 
C)  A high volume of sales transactions and a manual accounting system. 
D)  Items in inventory with high per unit costs. 
A)  Management wants information about quantities of specific products. 
B)  A low volume of sales transactions and a computerized accounting system. 
C)  A high volume of sales transactions and a manual accounting system. 
D)  Items in inventory with high per unit costs.

Question 4

The cost of delivering merchandise to the customer is:

Accepted Answer

A)  Part of cost of goods sold. 
B)  Used in the calculation of net sales. 
C)  An operating expense. 
D)  A reduction of gross profit. 
A)  Part of cost of goods sold. 
B)  Used in the calculation of net sales. 
C)  An operating expense. 
D)  A reduction of gross profit.

Question 5

Fashion House uses a perpetual inventory system. At the beginning of the year, inventory amounted to $50,000. During the year, the company purchased merchandise for $230,000, and sold merchandise costing $245,000. A physical inventory taken at year-end indicated shrinkage losses of $4,000. Prior to recording these shrinkage losses, the year-end balance in the company's Inventory account was:

Accepted Answer

A)  $31,000. 
B)  $35,000. 
C)  $50,000. 
D)  Some other amount. 
A)  $31,000. 
B)  $35,000. 
C)  $50,000. 
D)  Some other amount.

Question 6

Best Hardware uses a periodic inventory system. Its inventory was $38,000 at the beginning of the year, and $40,000 at the end. During the year, Best made purchases of merchandise totaling $107,000. Identify all of the correct answers:

Accepted Answer

A)  To use this system, Best must take a complete physical inventory twice each year. 
B)  Prior to making adjusting and closing entries at year-end, the balance in Best's Inventory account is $38,000. 
C)  The cost of goods sold for the year is $109,000. 
D)  As sales transactions occur, Best makes no entries to update its inventory records or record the cost of goods sold. 
A)  To use this system, Best must take a complete physical inventory twice each year. 
B)  Prior to making adjusting and closing entries at year-end, the balance in Best's Inventory account is $38,000. 
C)  The cost of goods sold for the year is $109,000. 
D)  As sales transactions occur, Best makes no entries to update its inventory records or record the cost of goods sold.

Question 7

What is the gross profit?

Accepted Answer

A)  $9,800 
B)  $33,600 
C)  $32,200 
D)  $43,400 
A)  $9,800 
B)  $33,600 
C)  $32,200 
D)  $43,400

Question 8

Emerald Co. uses a perpetual inventory system and records purchases of merchandise at net cost. The company recently purchased 200 compact discs at an invoice price of $6,000 and terms of 2/10, n/30. Half of these discs had been mislabeled and were returned immediately to the supplier. The journal entry to record payment of this invoice after the discount period has expired will include a:

Accepted Answer

A)  Debit to Inventory for $3,000. 
B)  Credit to Cash for $3,000. 
C)  Debit to an expense account for $60. 
D)  Credit to Cash for $2,940. 
A)  Debit to Inventory for $3,000. 
B)  Credit to Cash for $3,000. 
C)  Debit to an expense account for $60. 
D)  Credit to Cash for $2,940.

Question 9

Instead of paying for merchandise purchased on account, Olympic Corp. returned this merchandise to the supplier. Olympic should record this transaction by debiting Accounts Payable and crediting Sales Returns and Allowances.

Accepted Answer

A) True 
 B)False

Question 10

In preparing monthly bills to be sent to individual credit customers, the billing department will use the accounts payable subsidiary ledger, rather than the general ledger.

Accepted Answer

A) True 
 B)False

Question 11

Periodic inventory systems are used primarily by:

Accepted Answer

A)  Small businesses with manual accounting systems. 
B)  Large manufacturing companies. 
C)  Small businesses that sell a low volume of high-priced items. 
D)  Companies that sell a high volume of low-priced items and record sales transactions on point-of-sale terminals. 
A)  Small businesses with manual accounting systems. 
B)  Large manufacturing companies. 
C)  Small businesses that sell a low volume of high-priced items. 
D)  Companies that sell a high volume of low-priced items and record sales transactions on point-of-sale terminals.

Question 12

In a perpetual inventory system, the entry to record the cost of goods sold always includes an entry of equal amount to the:

Accepted Answer

A)  Inventory account. 
B)  Sales account. 
C)  Purchases account. 
D)  None of the above. 
A)  Inventory account. 
B)  Sales account. 
C)  Purchases account. 
D)  None of the above.

Question 13

All of the following accounts normally have debit balances except:

Accepted Answer

A)  Transportation-in. 
B)  Cost of Goods Sold. 
C)  Sales Returns & Allowances. 
D)  Purchase Returns & Allowances. 
A)  Transportation-in. 
B)  Cost of Goods Sold. 
C)  Sales Returns & Allowances. 
D)  Purchase Returns & Allowances.

Question 14

The credit term 2/10, n/30 means:

Accepted Answer

A)  That after 10 days 2% interest is charged. 
B)  That there is a 10% discount if payment is received within 30 days. 
C)  That there is a 2% discount if payment is received within 10 days, otherwise, full payment is due within 30 days. 
D)  There is a 10% discount if paid immediately and 2% if paid within 30 days. 
A)  That after 10 days 2% interest is charged. 
B)  That there is a 10% discount if payment is received within 30 days. 
C)  That there is a 2% discount if payment is received within 10 days, otherwise, full payment is due within 30 days. 
D)  There is a 10% discount if paid immediately and 2% if paid within 30 days.

Question 15

Which of the following companies would be more likely to use a periodic inventory system?

Accepted Answer

A)  IBM. 
B)  1st Bank of New York. 
C)  Sears. 
D)  A newspaper stand. 
A)  IBM. 
B)  1st Bank of New York. 
C)  Sears. 
D)  A newspaper stand.

Question 16

Pet Foods Plus purchased bagged dog food at an invoice price of $6,000 and terms of 2/10, n/30. Half of the bags had been damaged in shipment and delivery was refused. If Pet Foods Plus pays the remaining amount of the invoice within the discount period, the amount paid should be:

Accepted Answer

A)  $2,940. 
B)  $3,000. 
C)  $5,880. 
D)  $6,000. 
A)  $2,940. 
B)  $3,000. 
C)  $5,880. 
D)  $6,000.

Question 17

In a perpetual inventory system:

Accepted Answer

A)  Merchandising transactions are recorded as they occur. 
B)  No effort is made to record the Cost of Goods Sold until year-end. 
C)  Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold. 
D)  The need for ever taking physical inventory is eliminated. 
A)  Merchandising transactions are recorded as they occur. 
B)  No effort is made to record the Cost of Goods Sold until year-end. 
C)  Entries are made in the Cost of Goods Sold account whenever merchandise is purchased or sold. 
D)  The need for ever taking physical inventory is eliminated.

Question 18

Which of the following businesses is likely to have the shortest operating cycle?

Accepted Answer

A)  A food store. 
B)  A department store. 
C)  An art store. 
D)  A car store. 
A)  A food store. 
B)  A department store. 
C)  An art store. 
D)  A car store.

Question 19

Periodic inventory system Soundview Centre uses a periodic inventory system. At the end of 2010, the accounting records include the following information:
  
Compute the following for 2010:

Accepted Answer

(a) Cost of goods so

Question 20

To arrive at net sales:

Accepted Answer

A)  Add sales discounts to sales. 
B)  Subtract the cost of goods sold from the sales price. 
C)  Subtract sales returns and sales discounts from sales. 
D)  Subtract accounts receivable from sales. 
A)  Add sales discounts to sales. 
B)  Subtract the cost of goods sold from the sales price. 
C)  Subtract sales returns and sales discounts from sales. 
D)  Subtract accounts receivable from sales.

Exam 6: Merchandising Activities

The basic purpose of a subsidiary ledger is to:

In a retail department store with an efficient perpetual inventory system, the quantities of goods actually on hand are probably somewhat more than the quantities indicated in the accounting records.

Which of the following would not tend to make a manufacturer choose a perpetual inventory system?

The cost of delivering merchandise to the customer is:

Best Hardware uses a periodic inventory system. Its inventory was $38,000 at the beginning of the year, and $40,000 at the end. During the year, Best made purchases of merchandise totaling $107,000. Identify all of the correct answers:

What is the gross profit?

Instead of paying for merchandise purchased on account, Olympic Corp. returned this merchandise to the supplier. Olympic should record this transaction by debiting Accounts Payable and crediting Sales Returns and Allowances.

In preparing monthly bills to be sent to individual credit customers, the billing department will use the accounts payable subsidiary ledger, rather than the general ledger.

Periodic inventory systems are used primarily by:

In a perpetual inventory system, the entry to record the cost of goods sold always includes an entry of equal amount to the:

All of the following accounts normally have debit balances except:

The credit term 2/10, n/30 means:

Which of the following companies would be more likely to use a periodic inventory system?

Pet Foods Plus purchased bagged dog food at an invoice price of $6,000 and terms of 2/10, n/30. Half of the bags had been damaged in shipment and delivery was refused. If Pet Foods Plus pays the remaining amount of the invoice within the discount period, the amount paid should be:

In a perpetual inventory system:

Which of the following businesses is likely to have the shortest operating cycle?

Periodic inventory system Soundview Centre uses a periodic inventory system. At the end of 2010, the accounting records include the following information: Compute the following for 2010:

To arrive at net sales:

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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