Question 1

A credit memorandum from a seller informs a buyer of the seller's credit to its Accounts Payable account arising from a sales return or allowance.

Accepted Answer

A) True 
 B)False

Question 2

A trade discount is:

Accepted Answer

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

Question 3

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 4

A single-step income statement includes cost of goods sold as another expense, and shows only one subtotal for total expenses.

Accepted Answer

A) True 
 B)False

Question 5

A company's current assets were $17,980, its quick assets were $11,420 and its current liabilities were $12,190. Its quick ratio equals:

Accepted Answer

A)  0.94. 
B)  1.07. 
C)  1.48. 
D)  1.57. 
E)  2.40. 
A)  0.94. 
B)  1.07. 
C)  1.48. 
D)  1.57. 
E)  2.40.

Question 6

Quick assets include cash, inventory, and current receivables.

Accepted Answer

A) True 
 B)False

Question 7

A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is:

Accepted Answer

A)  $3,725.00. 
B)  $3,925.00. 
C)  $3,995.00. 
D)  $4,000.50. 
E)  $4,075.00. 
A)  $3,725.00. 
B)  $3,925.00. 
C)  $3,995.00. 
D)  $4,000.50. 
E)  $4,075.00.

Question 8

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

Accepted Answer

The answer of How do closing entries for a merchandising...

Question 9

Cost of goods sold represents the cost of buying and preparing merchandise for sale.

Accepted Answer

A) True 
 B)False

Question 10

A company reported the following year-end information:   Required:
1. Explain the purpose of the acid-test ratio.
2. Calculate the acid-test ratio for this company.
3. What does the acid-test ratio reveal about this company?

Accepted Answer

The answer of A company reported the following year-end information:...

Question 11

When a credit customer returns merchandise to the seller, under a perpetual inventory system, the seller would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

Accepted Answer

A) True 
 B)False

Question 12

A company had net sales and cost of goods of $545,000 and $345,000, respectively. Its gross margin equals $890,000.

Accepted Answer

A) True 
 B)False

Question 13

Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:

Accepted Answer

A)  Cost of goods sold. 
B)  Selling expenses. 
C)  Purchasing expenses. 
D)  General and administrative expenses. 
E)  Nonoperating activities. 
A)  Cost of goods sold. 
B)  Selling expenses. 
C)  Purchasing expenses. 
D)  General and administrative expenses. 
E)  Nonoperating activities.

Question 14

Delivery expense is reported as part of general and administrative expense in the seller's income statement.

Accepted Answer

A) True 
 B)False

Question 15

Under the ___________ system, each purchase, purchase return and allowance, purchase discount, and transportation-in transaction is recorded in a separate temporary account.

Accepted Answer

The answer of Under the ___________ system, each purchase, purchase...

Question 16

Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

Accepted Answer

A) True 
 B)False

Question 17

Cost of goods sold:

Accepted Answer

A)  Is another term for merchandise sales. 
B)  Is the term used for the cost of buying and preparing merchandise for sale. 
C)  Is another term for revenue. 
D)  Is also called gross margin. 
E)  Is a term only used by service firms. 
A)  Is another term for merchandise sales. 
B)  Is the term used for the cost of buying and preparing merchandise for sale. 
C)  Is another term for revenue. 
D)  Is also called gross margin. 
E)  Is a term only used by service firms.

Question 18

Describe the recording process (including costs) for sales of merchandise inventory using a perpetual inventory system.

Accepted Answer

The answer of Describe the recording process (including costs) for...

Question 19

Beginning merchandise inventory plus the net cost of purchases is the merchandise available for sale.

Accepted Answer

A) True 
 B)False

Question 20

A common rule of thumb is that a company's acid-test ratio should be at least 2 or a company may face near-term liquidity problems.

Accepted Answer

A) True 
 B)False

Exam 5: Accounting for Merchandising Operations

A credit memorandum from a seller informs a buyer of the seller's credit to its Accounts Payable account arising from a sales return or allowance.

A trade discount is:

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.

A single-step income statement includes cost of goods sold as another expense, and shows only one subtotal for total expenses.

A company's current assets were $17,980, its quick assets were $11,420 and its current liabilities were $12,190. Its quick ratio equals:

Quick assets include cash, inventory, and current receivables.

A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is:

How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?

Cost of goods sold represents the cost of buying and preparing merchandise for sale.

A company reported the following year-end information: Required: 1. Explain the purpose of the acid-test ratio. 2. Calculate the acid-test ratio for this company. 3. What does the acid-test ratio reveal about this company?

When a credit customer returns merchandise to the seller, under a perpetual inventory system, the seller would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

A company had net sales and cost of goods of $545,000 and $345,000, respectively. Its gross margin equals $890,000.

Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:

Delivery expense is reported as part of general and administrative expense in the seller's income statement.

Under the ___________ system, each purchase, purchase return and allowance, purchase discount, and transportation-in transaction is recorded in a separate temporary account.

Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

Cost of goods sold:

Describe the recording process (including costs) for sales of merchandise inventory using a perpetual inventory system.

Beginning merchandise inventory plus the net cost of purchases is the merchandise available for sale.

A common rule of thumb is that a company's acid-test ratio should be at least 2 or a company may face near-term liquidity problems.

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 Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

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