Question 1

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory but not for returns of inventory.

Accepted Answer

A) True 
 B)False

Question 2

Omega Company sold merchandise that it had purchased with a list price of $6,600 and subject to terms of 2/10, n/30. Assuming that Omega paid for the merchandise during the discount period, the cost of goods sold for this transaction would be $6,468.

Accepted Answer

A) True 
 B)False

Question 3

With a perpetual inventory system, assets and equity increase by the amount of the gross margin when inventory is sold.

Accepted Answer

A) True 
 B)False

Question 4

Apex Company uses the periodic inventory cost flow method. If Apex's ending inventory is overstated due to an accounting error, what is the effect on net income and retained earnings?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 5

Indicate whether each of the following statements is true or false.
_____ a) A merchandising company generates revenue primarily by selling goods to customers.
_____ b) The supply of goods accumulated to deliver when sales are made is called Merchandise Inventory.
_____ c) Retail companies are firms that sell goods to other businesses.
_____ d) Product costs include all costs associated with the sale of products.
_____ e) JC Penney is an example of a wholesale company.

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 6

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Accepted Answer

A) True 
 B)False

Question 7

Explain the computation and the meaning of each of the following:
a. Gross margin percentage
b. Return on sales

Accepted Answer

The answer of Explain the computation and the meaning of...

Question 8

The chief advantage of the periodic system is:

Accepted Answer

A) better control over inventory. 
B) immediate feedback on the inventory on hand at any time during the period. 
C) timely discovery of losses due to theft. 
D) efficiency and ease of recording.

Question 9

The following is a partial list of account balances for the Grove Park Office Supply at December 31, 2013:

Accepted Answer

The answer of The following is a partial list of...

Question 10

The amount of gross margin from the four transactions is:

Accepted Answer

A) $7,710. 
B) $7,740. 
C) $6,000. 
D) $5,880.

Question 11

Leonard Company paid freight costs to have goods shipped to one of its customers. What effect will these freight-out costs have on the company's financial statements?

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 12

Morton Company uses the perpetual inventory method. The company purchased an item of inventory for $65 and sold the item to a customer for $100. What effect will the sale have on the company's inventory account?

Accepted Answer

A) The account will decrease by $100 
B) The account will decrease by $65 
C) The account will decrease by $35 
D) No effect

Question 13

Which of the following statements is true about period costs?

Accepted Answer

A) Operating expenses are not period costs. 
B) Period costs are expensed when the products associated with these costs are sold. 
C) Period costs are usually recorded as assets. 
D) Most period costs are expensed in the period the costs are incurreD.Most period costs, such as advertising, salaries and wages, rent, and insurance, are expensed when they are incurred.

Question 14

The following events pertain to Happy Acres Garden Shop for October 2013. The company uses the perpetual inventory method. Record the following transactions in general journal form.
1) Oct. 1 Issued $30,000 of common stock to investors.
2) Oct. 2 Purchased $25,000 of merchandise on account with the terms 2/10, n/30.
3) Oct. 3 Sold merchandise that cost $18,000 for $34,000 on account with the terms 1/10, n/30.
4) Oct. 4 Returned $2,500 of defective merchandise from the Oct. 2 purchase.
5) Oct. 5 Paid freight of $200 on goods sold to customers shipped FOB destination.
6) Oct.10 Paid the amount due on the merchandise purchased on Oct. 2.
7) Oct.12 Received cash from customers in settlement of the Oct. 3 sale.

Accepted Answer

The answer of The following events pertain to Happy Acres...

Question 15

Keezel Company experienced a transaction that had the following effect on the financial statements:  Which transaction would have this effect?

Accepted Answer

A) Paid for merchandise that had been purchased on account. 
B) Return to a supplier of merchandise purchased on account. 
C) Return by a customer of a sale that was made on account. 
D) A loss on land that was sold for cash.

Question 16

A company that purchases merchandise treats a cash discount as a reduction to the cost of merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 17

When merchandise inventory is purchased on account, how is the accounting equation
affected? (Assume a perpetual inventory system is in use.)

Accepted Answer

The answer of When merchandise inventory is purchased on account,...

Question 18

Gross margin is equal to the amount of change (increase or decrease) in Merchandise Inventory during a period.

Accepted Answer

A) True 
 B)False

Question 19

Indicate whether each of the following statements is true or false. (Assume a perpetual inventory system)
_____ a) The purchase of merchandise inventory is recorded as an expense.
_____ b) Merchandise inventory is expensed in the period it is sold.
_____ c) Merchandise Inventory is an account appearing on the balance sheet.
_____ d) Cost of goods available for sale is allotted between cost of goods sold and ending merchandise inventory.
_____ e) Cost of goods sold is a part of administrative and selling expenses.

Accepted Answer

The answer of Indicate whether each of the following statements...

Question 20

What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory method?

Accepted Answer

A) Total assets increase 
B) Total liabilities decrease 
C) Total assets decrease 
D) Both A and B

Exam 4: Accounting for Merchandising Businesses

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory but not for returns of inventory.

Omega Company sold merchandise that it had purchased with a list price of $6,600 and subject to terms of 2/10, n/30. Assuming that Omega paid for the merchandise during the discount period, the cost of goods sold for this transaction would be $6,468.

With a perpetual inventory system, assets and equity increase by the amount of the gross margin when inventory is sold.

Apex Company uses the periodic inventory cost flow method. If Apex's ending inventory is overstated due to an accounting error, what is the effect on net income and retained earnings?

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Explain the computation and the meaning of each of the following: a. Gross margin percentage b. Return on sales

The chief advantage of the periodic system is:

The following is a partial list of account balances for the Grove Park Office Supply at December 31, 2013:

The amount of gross margin from the four transactions is:

Leonard Company paid freight costs to have goods shipped to one of its customers. What effect will these freight-out costs have on the company's financial statements?

Morton Company uses the perpetual inventory method. The company purchased an item of inventory for $65 and sold the item to a customer for $100. What effect will the sale have on the company's inventory account?

Which of the following statements is true about period costs?

Keezel Company experienced a transaction that had the following effect on the financial statements: Which transaction would have this effect?

A company that purchases merchandise treats a cash discount as a reduction to the cost of merchandise inventory.

When merchandise inventory is purchased on account, how is the accounting equation affected? (Assume a perpetual inventory system is in use.)

Gross margin is equal to the amount of change (increase or decrease) in Merchandise Inventory during a period.

What is the effect of an entry to record the purchase of inventory on account under the perpetual inventory method?