Question 1

The gross profit margin:

Accepted Answer

A) Is the dollar amount of gross profit expressed as a percentage of cost of sales. 
B) May indicate popular products and successful marketing strategies. 
C) Must be computed for the business as a whole rather than for specific sales departments. 
D) Is equal to cost of goods sold plus gross operating expenses. 
A) Is the dollar amount of gross profit expressed as a percentage of cost of sales. 
B) May indicate popular products and successful marketing strategies. 
C) Must be computed for the business as a whole rather than for specific sales departments. 
D) Is equal to cost of goods sold plus gross operating expenses.

Question 2

In a perpetual inventory system,the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Accepted Answer

A) True 
 B)False

Question 3

During the year 2018,the inventory of Debra's Gift Shop decreased by $50,000.(Assume beginning inventory was zero. )If the income statement for the year 2018 reported cost of goods sold of $350,000,purchases during the year must have amounted to:

Accepted Answer

A) $400,000. 
B) $310,000. 
C) $300,000. 
D) $350,000. 
A) $400,000. 
B) $310,000. 
C) $300,000. 
D) $350,000.

Question 4

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 5

When an adjusting entry is made to record inventory shrinkage,the Inventory account is debited and the Cost of Goods Sold account is credited.

Accepted Answer

A) True 
 B)False

Question 6

The following information is available:   Gross profit is:

Accepted Answer

A) $0. 
B) $1,500. 
C) $450. 
D) $900. 
A) $0. 
B) $1,500. 
C) $450. 
D) $900.

Question 7

If sales discounts are shown as a separate item in financial statements,they should be shown as a(n):

Accepted Answer

A) Deduction from accounts receivable. 
B) Deduction from gross sales revenue. 
C) Operating expense. 
D) Current liability. 
A) Deduction from accounts receivable. 
B) Deduction from gross sales revenue. 
C) Operating expense. 
D) Current liability.

Question 8

[The following information applies to the questions displayed below.]
World of Sound is a small retail business that specializes in the sale of top-of-the-line sound systems.This year,the store has begun to carry the Surround Sound manufactured by Carp Co.Thus far,World of Sound has recorded the following transactions involving the Surround Sound
  
-If World of Sound uses a perpetual inventory system,the journal entry to record the purchase on May 18th would include which of the following?

Accepted Answer

A) A debit to the Purchases account for $38,250. 
B) A debit to the Cost of Goods Sold for $38,250. 
C) A credit to Inventory for $38,250. 
D) A debit to Inventory for $38,250. 
A) A debit to the Purchases account for $38,250. 
B) A debit to the Cost of Goods Sold for $38,250. 
C) A credit to Inventory for $38,250. 
D) A debit to Inventory for $38,250.

Question 9

[The following information applies to the questions displayed below.]
World of Sound is a small retail business that specializes in the sale of top-of-the-line sound systems.This year,the store has begun to carry the Surround Sound manufactured by Carp Co.Thus far,World of Sound has recorded the following transactions involving the Surround Sound
  
-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? (Assume that World of Sound uses FIFO,meaning that the first goods purchased are the first ones to be sold. )

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 10

A perpetual inventory system requires the capability of recording the cost of the goods sold for individual sales transaction.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Periodic inventory system
Armstrong Creation uses a periodic inventory system.During the current year,the company purchased merchandise at a cost of $245,000.You are to compute the cost of goods sold under each of the following alternative assumptions:

Accepted Answer

The answer of Periodic inventory system
Armstrong Creation uses a periodic...

Question 13

Gross profit rates - A practical application
Note to instructor: The following exercise requires students to use gross profit rates in a manner not specifically illustrated in the chapter.We view this as an exercise in critical thinking and,as such,it is more challenging than the typical exercise.Part d requires an expository answer.Some instructors may choose to omit part d.
Your store sells computers and software.The average computer sells for $1,350,but the customer buying a computer also buys an average of $750 in software.You earn only 10% gross profit rate on sales of computers,but you make a 40% gross profit rate on software.You currently are selling 150 computers per month.
(A)What is the total amount of your monthly gross profit? $________
(B)To increase sales,you are thinking about selling computers at cost ($1,215. )This would be the "cheapest price in town," and should attract more customers.You expect each customer who buys a computer to also buy $750 worth of software.Under these assumptions,how many computers must you sell each month in order to earn the same amount of gross profit as you are earning now?
(C)Assume that as a result of reducing the sales price of computers to cost ($1,215),you are able to sell 250 computers each month,and that each customer now buys $850 worth of software.What will be the total amount of your monthly gross profit?
(D)Assume that you achieve the results specified in part c (250 sales transactions per month,including an average of $850 in software).Would you consider the policy of selling computers at cost successful or unsuccessful? Explain specifically why this strategy is working out favorably or unfavorably.

Accepted Answer

@#IMG-DLM& Note to instructor: You may wish to poi

Question 14

When making sales,the sales taxes received are:

Accepted Answer

A) Revenue. 
B) A liability. 
C) An expense if incurred. 
D) A reduction in inventory value. 
A) Revenue. 
B) A liability. 
C) An expense if incurred. 
D) A reduction in inventory value.

Question 15

At the beginning of 2018,Midway Hardware has an inventory of $400,000.Because sales growth was strong during 2018,the owner wants to increase inventory on hand to $450,000 at December 31,2018.If net sales for 2018 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 2018.

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 16

The cost of the transportation of inventory purchased:

Accepted Answer

A) Are expensed in the current period. 
B) Increases income. 
C) Becomes part of the cost of inventory. 
D) Reduces the sales price. 
A) Are expensed in the current period. 
B) Increases income. 
C) Becomes part of the cost of inventory. 
D) Reduces the sales price.

Question 17

A customer purchased merchandise for $400,which cost the seller $200.The customer was dissatisfied with some of the goods and thus returned $100 worth of merchandise and received a cash refund.
(a)What journal entries should the seller make when the merchandise is sold and at the time of the return? Assume that the seller uses a perpetual inventory system.
(b)If the seller uses a periodic inventory system,what entries would be made?

Accepted Answer

The answer of A customer purchased merchandise for $400,which cost...

Question 18

Subsidiary ledgers
Listed below are several merchandising transactions of Siegel's Garden Center,a garden supply store.
(a)Purchased merchandise from Bayview Wholesale on account.
(b)Sold merchandise for cash.
(c)Sold merchandise on account to Dom's Landscaping Co.
(d)Paid the account payable to Bayview Wholesale.
(e)Collected the account receivable from Dom's Landscaping Co.
Among the accounting records maintained by Siegel's are subsidiary ledgers for inventory,accounts receivable,and accounts payable.
For each of the five transactions,you are to indicate any subsidiary ledger (or ledgers)to which the transaction would be posted.Use the code:
Inv = Inventory subsidiary ledger
AR = Accounts receivable subsidiary ledger
AP = Accounts payable subsidiary ledger
Also indicate whether each posting causes the balance in the subsidiary ledger account to increase or decrease.Organize your answer in tabular form as illustrated below.The answer for transaction a is provided as an example.

Accepted Answer

The answer of Subsidiary ledgers
Listed below are several merchandising transactions...

Question 19

Today,most large merchandising companies use a perpetual inventory system.

Accepted Answer

A) True 
 B)False

Question 20

Inventory is a relatively liquid asset and usually appears above Accounts Receivable on the balance sheet.

Accepted Answer

A) True 
 B)False

Exam 6: Merchandising Activities

The gross profit margin:

In a perpetual inventory system,the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

During the year 2018,the inventory of Debra's Gift Shop decreased by $50,000.(Assume beginning inventory was zero. )If the income statement for the year 2018 reported cost of goods sold of $350,000,purchases during the year must have amounted to:

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.

When an adjusting entry is made to record inventory shrinkage,the Inventory account is debited and the Cost of Goods Sold account is credited.

The following information is available: Gross profit is:

If sales discounts are shown as a separate item in financial statements,they should be shown as a(n):

A perpetual inventory system requires the capability of recording the cost of the goods sold for individual sales transaction.

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

Periodic inventory system Armstrong Creation uses a periodic inventory system.During the current year,the company purchased merchandise at a cost of $245,000.You are to compute the cost of goods sold under each of the following alternative assumptions:

When making sales,the sales taxes received are:

The cost of the transportation of inventory purchased:

Today,most large merchandising companies use a perpetual inventory system.

Inventory is a relatively liquid asset and usually appears above Accounts Receivable on the balance sheet.

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

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

the Time Value of Money: Future Amounts and Present Values

Forms of Business Organization

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