Question 1

The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income.

Accepted Answer

A) True 
 B)False

Question 2

The Sales Returns and Allowances account does not provide information to management about

Accepted Answer

A) possible inferior merchandise. 
B) the percentage of credit sales versus cash sales. 
C) inefficiencies in filling orders. 
D) errors in billing customers.

Question 3

Each of the following companies is a merchandising company except a

Accepted Answer

A) wholesale parts company. 
B) candy store. 
C) moving company. 
D) furniture store.

Question 4

A buyer borrows money at 6% interest to pay a $9,000 invoice with terms 1/10, n/30 on the 10th day of the discount period. The loan is repaid on the 30th day of the invoice. What is the buyer's net savings for this total event?

Accepted Answer

A) $0 
B) $60.00 
C) $61.20 
D) $120.00

Question 5

Which of the following statements is true regarding profit margin?

Accepted Answer

A) Profit margin can be improved by decreasing the gross profit rate and/or controlling operating expenses and other costs 
B) Profit margin does not vary across industries. 
C) Discount stores with high merchandise turnover generally have higher profit margins. 
D) If the profit margin has a higher value, this suggests favorable return on each dollar of sales.

Question 6

A merchandiser that sells directly to consumers is a

Accepted Answer

A) retailer. 
B) wholesaler. 
C) broker. 
D) service enterprise.

Question 7

The entry to record the receipt of payment within the discount period on a sale of $900 with terms of 2/10, n/30 will include a

Accepted Answer

A) credit to Sales Discounts for $18. 
B) debit to Sales Revenue for $882. 
C) credit to Accounts Receivable for $900. 
D) credit to Sales Revenue for $900.

Question 8

The computer has increased greatly the use of the periodic inventory system.

Accepted Answer

A) True 
 B)False

Question 9

An advantage of the single-step income statement over the multiple-step form is

Accepted Answer

A) the amount of information it provides. 
B) its comprehensiveness. 
C) its simplicity. 
D) its use in computing ratios.

Question 10

Nonoperating activities include revenues and expenses that are related to the company's main line of operations.

Accepted Answer

A) True 
 B)False

Question 11

The entry to record a sale of $1,800 with terms of 2/10, n/30 will include a

Accepted Answer

A) debit to Sales Discounts for $36. 
B) debit to Sales Revenue for $1,764. 
C) credit to Accounts Receivable for $1,800. 
D) credit to Sales Revenue for $1,800.

Question 12

A decline in a company's gross profit could be caused by all of the following except

Accepted Answer

A) selling products with a lower markup. 
B) clearance of discontinued inventory. 
C) paying lower prices to its suppliers. 
D) increasing competition resulting in a lower selling price.

Question 13

Farwell Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

Accepted Answer

A) 4% 
B) 24% 
C) 36% 
D) 72%

Question 14

Gross profit equals the difference between

Accepted Answer

A) net income and operating expenses. 
B) sales revenue and cost of goods sold. 
C) sales revenue and operating expenses. 
D) sales revenue and cost of goods sold plus operating expenses.

Question 15

Interest expense would be classified on a multiple-step income statement under the heading

Accepted Answer

A) Other expenses and losses. 
B) Other revenues and gains. 
C) Operating expenses. 
D) Cost of goods sold.

Question 16

Sales revenues, cost of goods sold, and gross profit are amounts on a merchandising company's income statement not commonly found on the income statement of a service company.

Accepted Answer

A) True 
 B)False

Question 17

Financial information is presented below: $\begin{array}{lr}
\text { Operating expenses } & \$ 40,000 \
\text { Sales revenue } & 200,000 \
\text { Cost of goods sold } & 150,000
\end{array}$ The gross profit rate would be

Accepted Answer

A) $75. 
B) $20 
C) $05. 
D) $25.

Question 18

Sales Discounts and Sales Returns and Allowances both have normal debit balances.

Accepted Answer

A) True 
 B)False

Question 19

What is the term applied to the excess of net sales over the cost of goods sold?

Accepted Answer

A) Income before income taxes 
B) Income from operations 
C) Net income 
D) Gross profit

Question 20

Which statement is incorrect?

Accepted Answer

A) Periodic inventory systems provide better control over inventories than perpetual inventory systems. 
B) Computers and electronic scanners allow more companies to use a perpetual inventory system. 
C) Freight-in is debited to Inventory when a perpetual inventory system is used. 
D) Regardless of the inventory system that is used, companies should take a physical inventory count.

Exam 4: Merchandising Operations and the Multiple-Step Income Statement

The multiple-step income statement is considered more useful than the single-step income statement because it highlights the components of net income.

The Sales Returns and Allowances account does not provide information to management about

Each of the following companies is a merchandising company except a

A buyer borrows money at 6% interest to pay a $9,000 invoice with terms 1/10, n/30 on the 10th day of the discount period. The loan is repaid on the 30th day of the invoice. What is the buyer's net savings for this total event?

Which of the following statements is true regarding profit margin?

A merchandiser that sells directly to consumers is a

The entry to record the receipt of payment within the discount period on a sale of $900 with terms of 2/10, n/30 will include a

The computer has increased greatly the use of the periodic inventory system.

An advantage of the single-step income statement over the multiple-step form is

Nonoperating activities include revenues and expenses that are related to the company's main line of operations.

The entry to record a sale of $1,800 with terms of 2/10, n/30 will include a

A decline in a company's gross profit could be caused by all of the following except

Farwell Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

Gross profit equals the difference between

Interest expense would be classified on a multiple-step income statement under the heading

Sales revenues, cost of goods sold, and gross profit are amounts on a merchandising company's income statement not commonly found on the income statement of a service company.

Financial information is presented below: $\begin{array}{lr}\text { Operating expenses } & \$ 40,000 \\\text { Sales revenue } & 200,000 \\\text { Cost of goods sold } & 150,000\end{array}$ The gross profit rate would be

Sales Discounts and Sales Returns and Allowances both have normal debit balances.

What is the term applied to the excess of net sales over the cost of goods sold?

Which statement is incorrect?