Question 1

Grayson Company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
A)3%
B)8%
C)36% d 54%

Accepted Answer

The answer of Grayson Company purchased merchandise with an invoice...

Question 2

Net sales minus cost of goods sold is called gross profit.

Accepted Answer

A) True 
 B)False

Question 3

When sales of merchandise are made for cash, the transaction may be recorded by the following entry:

Accepted Answer

A) Debit Sales Revenue, credit Cash 
B) Debit Cash, credit Sales Revenue 
C) Debit Sales Revenue, credit Cash Discounts 
D) Debit Sales Revenue, credit Sales Returns and Allowances

Question 4

Under IFRS, companies must classify income statement items by

Accepted Answer

A) function. 
B) nature. 
C) nature or function 
D) date incurred.

Question 5

Which of the following companies would be most likely to use a perpetual inventory system?

Accepted Answer

A) Grain company 
B) Beauty salon 
C) Clothing store 
D) Fur dealer

Question 6

When using the periodic inventory system, which of the following is not a step in determining cost of goods purchased?

Accepted Answer

A) Add freight-in 
B) Subtract purchase returns and allowances 
C) Subtract cost of ending inventory 
D) All of these are necessary steps

Question 7

Indicate which one of the following would not appear on both a single-step income statement and a multiple-step income statement.

Accepted Answer

A) Gross profit 
B) Operating expenses 
C) Sales revenue 
D) Cost of goods sold

Question 8

Rains Company is a furniture retailer. On January 14, 2017, Rains purchased merchandise inventory at a cost of $60,000. Credit terms were 2/10, n/30. The inventory was sold on account for $100,000 on January 21, 2017. Credit terms were 1/10, n/30. The accounts payable was settled on January 23, 2017 and the accounts receivables were settled on January 30, 2017. Which statement is correct?

Accepted Answer

A) Cash flows were affected on January 14 and January 21. 
B) Gross profit percentage is 60%. 
C) On January 30, 2017, customers should remit cash in the amount of $99,000. 
D) There is not enough information available to answer this question.

Question 9

Operating expenses are subtracted from revenue for a service enterprise and from gross profit for a merchandising enterprise.

Accepted Answer

A) True 
 B)False

Question 10

If a company is given credit terms of 2/10, n/30, it should

Accepted Answer

A) hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time. 
B) pay within the discount period and recognize a savings. 
C) pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill. 
D) recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.

Question 11

The collection of an $1,500 account within the 2 percent discount period will result in a

Accepted Answer

A) debit to Sales Discounts for $30. 
B) debit to Accounts Receivable for $1,470. 
C) credit to Cash for $1,470. 
D) credit to Accounts Receivable for $1,470.

Question 12

Generally, the revenue account for a merchandising enterprise is called

Accepted Answer

A) Sales Revenue or Sales. 
B) Investment Income. 
C) Gross Profit. 
D) Net Sales.

Question 13

Conway Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

Accepted Answer

A) $12,000 
B) $11,760 
C) $10,800 
D) $11,040

Question 14

Merchandising companies that sell to retailers are known as

Accepted Answer

A) brokers. 
B) corporations. 
C) wholesalers. 
D) service firms.

Question 15

Under the perpetual inventory system, in addition to making the entry to record a sale, a company would

Accepted Answer

A) debit Inventory and credit Cost of Goods Sold. 
B) debit Cost of Goods Sold and credit Purchases. 
C) debit Cost of Goods sold and credit Inventory. 
D) make no additional entry until the end of the period.

Question 16

A company shows the following balances: $\begin{array}{lr}
\text { Sales Revenue } & \$ 1,000,000 \
\text { Sales Returns and Allowances } & 175,000 \
\text { Sales Discounts } & 25,000 \
\text { Cost of Goods Sold } & 600,000
\end{array}$ What is the gross profit rate?

Accepted Answer

A) 60% 
B) 75% 
C) 40% 
D) 25%

Question 17

Freight costs incurred by a seller on merchandise sold to customers will cause an increase

Accepted Answer

A) in the selling expenses of the buyer. 
B) in operating expenses for the seller. 
C) to the cost of goods sold of the seller. 
D) to a contra-revenue account of the seller.

Question 18

Indicate which one of the following would appear on the income statement of both a merchandising company and a service company.

Accepted Answer

A) Gross profit 
B) Operating expenses 
C) Sales revenue 
D) Cost of goods sold

Question 19

A quality of earnings ratio significantly less than 1 suggests that a company may be using more aggressive accounting techniques in order to accelerate income recognition.

Accepted Answer

A) True 
 B)False

Question 20

Under IFRS, income statement items classified by nature are generally described as

Accepted Answer

A) administration, distribution, manufacturing, etc. 
B) salaries, depreciation, utilities, etc. 
C) administration, depreciation, manufacturing, etc. 
D) salaries, distribution, utilities, etc.

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

Grayson Company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? A)3% B)8% C)36% d 54%

Net sales minus cost of goods sold is called gross profit.

When sales of merchandise are made for cash, the transaction may be recorded by the following entry:

Under IFRS, companies must classify income statement items by

Which of the following companies would be most likely to use a perpetual inventory system?

When using the periodic inventory system, which of the following is not a step in determining cost of goods purchased?

Indicate which one of the following would not appear on both a single-step income statement and a multiple-step income statement.

Operating expenses are subtracted from revenue for a service enterprise and from gross profit for a merchandising enterprise.

If a company is given credit terms of 2/10, n/30, it should

The collection of an $1,500 account within the 2 percent discount period will result in a

Generally, the revenue account for a merchandising enterprise is called

Conway Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

Merchandising companies that sell to retailers are known as

Under the perpetual inventory system, in addition to making the entry to record a sale, a company would

A company shows the following balances: $\begin{array}{lr}\text { Sales Revenue } & \$ 1,000,000 \\\text { Sales Returns and Allowances } & 175,000 \\\text { Sales Discounts } & 25,000 \\\text { Cost of Goods Sold } & 600,000\end{array}$ What is the gross profit rate?

Freight costs incurred by a seller on merchandise sold to customers will cause an increase

Indicate which one of the following would appear on the income statement of both a merchandising company and a service company.

A quality of earnings ratio significantly less than 1 suggests that a company may be using more aggressive accounting techniques in order to accelerate income recognition.

Under IFRS, income statement items classified by nature are generally described as