Question 1

Under the periodic inventory system:

Accepted Answer

A)  inventory records are updated immediately after each purchase. 
B)  inventory must be counted at the end of each accounting period. 
C)  inventory does not have to be counted. (It can be taken from the accounting records.) 
D)  inventory levels must be counted every day.

Question 2

Ace Electronics uses a perpetual inventory system.On May 1,beginning inventory was $100,000.During May,Ace purchased $35,000 of inventory and sold $71,000 of inventory.After the store closed on May 31,employees counted the inventory in the store and found that $60,000 of inventory remained unsold.What was Ace's inventory shrinkage?

Accepted Answer

A)  $4,000 
B)  $64,000 
C)  $75,000 
D)  $46,000

Question 3

The purchase of merchandise on account in a perpetual system is recorded with a debit to ______ and a credit to ______:

Accepted Answer

A)  Inventory; Accounts Payable 
B)  Accounts Payable; Inventory 
C)  Inventory; Accounts Receivable 
D)  Accounts Receivable; Inventory

Question 4

Beginning inventory was $5,000.During the month,the company purchased an additional $25,000 of inventory and sold goods that cost $20,000.Ending inventory was:

Accepted Answer

A)  $5,000 
B)  $50,000 
C)  $10,000 
D)  $0

Question 5

A retailer using a periodic inventory system returned $3,000 of defective inventory which was purchased on account from one of its wholesale suppliers.The entry to record this transaction on the retailer's books would include a debit to:

Accepted Answer

A)  Accounts Receivable. 
B)  Cost of Goods Sold. 
C)  Accounts Payable. 
D)  Inventory.

Question 6

Gross profit is not a ledger account name.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements about the multistep income statement is not correct?

Accepted Answer

A)  The multistep income statement provides a subtotal of Income before Income Tax Expense. 
B)  Income from Operations is the amount of revenues minus expenses from the company's main business activities. 
C)  Any revenues and/expenses from activities other than the company's main business are peripheral results and are included in Income from Operations. 
D)  Income before Income Tax Expense and Income from Operations are different if there are any peripheral revenues and expenses.

Question 8

Bennett's Clothing purchased goods on credit costing $50,000 with terms of 3/10 n/30.Payment is made to the seller 7 days after the purchase.How would the payment be recorded?

Accepted Answer

A)  Debit Inventory for $1,500, debit Cash for $48,500, and credit Accounts Payable for $50,000 
B)  Debit Accounts Payable for $50,000, credit Cash for $48,500, and credit Cost of Goods Sold for $1,500 
C)  Debit Accounts Payable for $50,000 credit Cash for $48,500, and credit Inventory for $1,500 
D)  Debit Accounts Payable and credit Cash for $50,000

Question 9

Carrington Inc.reported net sales revenues of $19.8 billion and cost of goods sold of $6.0 billion.Its gross profit percentage was:

Accepted Answer

A)  30.3%. 
B)  69.7%. 
C)  3.3%. 
D)  2.3 %

Question 10

Inventory shrinkage is the difference between inventory recorded and inventory counted.

Accepted Answer

A) True 
 B)False

Question 11

When using a perpetual inventory system,the Cost of Goods Sold is recorded:

Accepted Answer

A)  each time a sale is made. 
B)  at the end of each month. 
C)  at the end of the accounting period. 
D)  at the end of each day.

Question 12

East Corp.sold $1,000 of merchandise to a customer on terms of 2/10,n/30.Its customer paid within the discount period.As a result of its customer making the payment within the discount period,East's total assets will:

Accepted Answer

A)  increase by $980. 
B)  increase by $1,000. 
C)  decrease by $20. 
D)  remain the same.

Question 13

Angle Inc.announces that its gross profit rose 5% but its income before income taxes fell.Which of the following statements is correct?

Accepted Answer

A)  This is not possible given that net income is determined by gross profit. 
B)  This must mean that selling, general, and administrative expenses increased by more than 5%. 
C)  This must mean that sales revenue rose more than expenses. 
D)  This must mean that cost of goods sold fell.

Question 14

On October 1,Robertson Company sold inventory in the amount of $5,800 to Alberta,Inc.with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Robertson uses a periodic inventory system.Alberta pays the invoice on October 8 and takes the appropriate discount.What journal entry will be recorded by Robertson on October 8?

Accepted Answer

A)  Debit Cash and credit Accounts Receivable for $5,800 
B)  Debit Cash and credit Accounts Receivable for $4,000 
C)  Debit Cash for $3,920, debit Sales Discounts for $80, and credit Accounts Receivable for $4,000 
D)  Debit Cash for $5,684, debit Sales Discounts for $116, and credit Accounts Receivable for $5,800

Question 15

When a customer returns for credit a defective product it had purchased,the seller would record the transaction using which of the following accounts?

Accepted Answer

A)  Purchase Returns & Allowances 
B)  Sales Returns & Allowances 
C)  Sales Revenue 
D)  Sales Discounts

Question 16

The operating cycle involves:

Accepted Answer

A)  generating revenues and collecting from customers 
B)  purchasing of long-term assets 
C)  borrowing and repaying of long-term debt 
D)  issuing of stock

Question 17

After performing a physical count of inventory at the end of the accounting period,it was discovered that the amount of inventory on hand was less than the accounting records reported.The entry to record this inventory shrinkage includes:

Accepted Answer

A)  credit to Cost of Goods Sold 
B)  debit to Inventory 
C)  credit to Purchase Discounts 
D)  credit to Inventory

Question 18

Sales Returns and Allowances are reported on the:

Accepted Answer

A)  income statements as a contra-revenue account 
B)  balance sheet as a contra-inventory account 
C)  income statement as a reduction to Cost of Goods Sold 
D)  balance sheet as a reduction to Gross Profit

Question 19

B-Mart has a perpetual inventory system.B-Mart sells $5,000 of blue jeans.The customer later brings $600 of blue jeans back to B-Mart because they are defective.Those blue jeans had a cost of $200.The customer agrees to keep the blue jeans and B-Mart agrees to a $200 allowance.Which of the following is one of the entries that B-Mart will use to record the return?

Accepted Answer

A)  Debit Accounts Receivable for $200 and credit Inventory for $200 
B)  Debit Inventory for $200 and credit Accounts Receivable for $200 
C)  Debit Accounts Receivable for $200 and credit Sales Returns & Allowances for $200 
D)  Debit Sales Returns & Allowances for $200 and credit Accounts Receivable for $200

Question 20

Sinton Inc.uses a periodic inventory system.During the current year,its beginning inventory was $5,200 and net purchases amounted to $24,600.At the end of the year,after counting its inventory,the company determined that the dollar valuation of its ending inventory was $4,100.
Required:
Prepare the two journal entries that will be recorded on Stinton's books on the last day of the year.Include explanations.

Accepted Answer

The answer of Sinton Inc.uses a periodic inventory system.During the...

Exam 6: Internal Control and Financial Reporting for Cash and Merchandising Operations