Question 1

Which of the following statements is incorrect regarding sales discounts?

Accepted Answer

A)  If a customer pays within the discount period,the selling price of the merchandise is reduced.
B)  Sales Discounts is a contra-revenue account and is subtracted from Sales Revenue.
C)  The net and gross methods have identical journal entries,just made at different points in time.
D)  If a company takes advantage of sales discounts on its purchases,the cost of the inventory is ultimately reduced as a result of the discount.E) B) and C)
F) A) and D)

Question 2

Which inventory system records a change in the Inventory account every time goods are bought,sold or returned?

Accepted Answer

A)  Periodic
B)  Perpetual
C)  FOB Shipping Point
D)  FOB DestinationE) A) and D)
F) B) and D)

Question 3

The periodic inventory system uses the Purchases account to keep track of the amount of inventory that is purchased.

Accepted Answer

A) True 
 B)False

Question 4

Hazelwood Company had beginning inventory of $54,000.During the period the company purchased $109,800 of merchandise.At the end of the period,Hazelwood's inventory was $39,600.If the gross profit percentage was 40%,what was Hazelwood's sales revenue?

Accepted Answer

A)  $82,800
B)  $32,400
C)  $135,000
D)  $207,000E) B) and C)
F) A) and B)

Question 5

The gross profit equation is:

Accepted Answer

A)  (Sales Revenue + Sales Returns & Allowances) − Cost of Goods Sold.
B)  (Sales + Sales Discounts) − Cost of Goods Sold.
C)  (Sales Revenue − Sales Returns & Allowances − Sales Discounts) − Cost of Goods Sold.
D)  (Sales Revenue − Sales Returns & Allowances − Sales Discounts) + Cost of Goods Sold.E) A) and D)
F) B) and C)

Question 6

FAD Company uses a periodic inventory system and its inventory records for the period contain the following information:  The journal entry necessary at the end of the period to transfer beginning inventory and net purchases to cost of goods sold will include which of the following?

Accepted Answer

A)  Credit Inventory for $6,250.
B)  Debit Purchases for $11,250.
C)  Debit Inventory for $6,250.
D)  Debit Cost of Goods Sold for $11,250.E) A) and C)
F) A) and D)

Question 7

The periodic inventory system uses the Inventory account to keep track of the amount of inventory that is purchased.

Accepted Answer

A) True 
 B)False

Question 8

The gross profit percentage is an indication of how:

Accepted Answer

A)  well management is controlling expenses.
B)  measures the percentage of profit earned on each dollar of sales.
C)  much cash is generated per dollar of sales.
D)  efficient management is in utilizing assets.E) A) and D)
F) B) and C)

Question 9

Alpha Company bought inventory from Omega Company,FOB shipping point.On December 31,the last day of the accounting year,the goods were on a truck owned by Theta,Inc. ,exactly halfway between Alpha and Omega.Which company should include these goods in its December 31 inventory?

Accepted Answer

A)  Omega
B)  Alpha
C)  Theta
D)  Alpha and Omega should each include half of the goods in inventory.E) All of the above
F) A) and D)

Question 10

In a retail business that uses a perpetual inventory system,scanning a bar code does not:

Accepted Answer

A)  calculate the amount owed by the customer.
B)  identify the item sold to be removed from the Inventory account.
C)  identify the item sold to be recorded in the Cost of Goods Sold account.
D)  calculate the gross profit.E) A) and B)
F) A) and C)

Question 11

Which of the following costs should be added to the buyer's Inventory account?

Accepted Answer

A)  Freight-in costs with terms FOB shipping point
B)  Freight-out costs with terms FOB destination
C)  Freight-in costs with terms FOB destination
D)  Freight-out costs with terms FOB shipping pointE) A) and B)
F) B) and D)

Question 12

Medlock Company sold inventory on credit for $3,000,terms 2/10,n/30.The cost of the merchandise to Medlock was $2,400.How much cash will Medlock receive if payment is received within the discount period?

Accepted Answer

A)  $3,000
B)  $2,352
C)  $2,400
D)  $2,940E) C) and D)
F) B) and D)

Question 13

The gross profit percentage for Elk Roofing Products is 20%.If the company has Net Sales of $850,000 for the year,what was the amount of Cost of Goods Sold?

Accepted Answer

A)  $750,000
B)  $170,000
C)  $680,000
D)  $250,000E) A) and D)
F) None of the above

Question 14

Hayward Co.reported net sales revenues of $23.76 billion and cost of goods sold of $7.2 billion.Its gross profit percentage was:

Accepted Answer

A)  30.3%.
B)  69.7%.
C)  3.3%.
D)  2.3%.E) All of the above
F) A) and B)

Question 15

Glenrosa Company bought inventory from Monterosa Company,FOB destination.On December 31,the last day of the accounting year,the goods were on a truck owned by Common Carrier,Inc. ,and not expected to arrive until January 2.Which company should include these goods in its December 31 inventory?

Accepted Answer

A)  Monterosa
B)  Glenrosa
C)  Common Carrier
D)  None of them should include these goods in inventory.E) A) and B)
F) None of the above

Question 16

The journal entry to record taking a discount when paying for goods previously purchased on account includes a:

Accepted Answer

A)  credit to two asset accounts.
B)  credit to a liability account.
C)  debit to an asset account.
D)  debit to an expense account.E) A) and C)
F) B) and C)

Question 17

Intel makes microchips from raw materials acquired from suppliers.Intel is a:

Accepted Answer

A)  service company.
B)  retail company.
C)  manufacturer.
D)  merchandising company.E) A) and B)
F) B) and C)

Question 18

On July 1,Darin Company sold inventory costing $5,000 to Dee Company for $6,000,terms 3/10,n/30.Both companies use the perpetual inventory system.Dee Company pays the invoice on July 8 and takes the appropriate discount.What journal entry will be recorded by Dee Company on July 8?

Accepted Answer

A)  Debit Accounts Payable and credit Cash for $6,000
B)  Debit Accounts Payable for $5,820,credit Inventory for $180,and credit Cash for $6,000
C)  Debit Accounts Payable for $6,000,credit Cash for $5,820,and credit Inventory for $180
D)  Debit Cost of Goods Sold and credit Cash for $5,000E) A) and D)
F) A) and C)

Question 19

Which of the following statements regarding inventory counts is not correct?

Accepted Answer

A)  Companies need to perform a physical count of their inventory at least yearly regardless of which inventory system is being used.
B)  A perpetual inventory system does not require a physical count during the accounting period to determine cost of goods sold.
C)  In a perpetual inventory system,the inventory count is compared to the inventory account balance to reveal shrinkage.
D)  If a company uses a perpetual inventory system and the inventory count at the end of the accounting period is greater than the balance in the inventory ledger account,there must have been shrinkage.E) C) and D)
F) B) and D)

Question 20

Match the term to the appropriate definition.There are more definitions than terms.
-Sales Discount

Accepted Answer

A)  Presents important subtotals,such as gross profit,to help distinguish core operating results from other,less significant items that affect net income.
B)  A reduction in the cost of inventory purchases associated with unsatisfactory goods.
C)  Refunds and price reductions given to customers after goods have been sold and found unsatisfactory.
D)  A ratio indicating the percentage of profit earned on each dollar of sales,after considering the cost of products sold.
E)  Net sales minus cost of goods sold.It is a subtotal,not an account.F) A sales price reduction given to customers for prompt payment of their account balance.G) The sum of beginning inventory and purchases for the period.H) A cash discount received for prompt payment of a purchase on account.I) Assets acquired for resale to customers.J) The cost of inventory lost to theft,fraud,and error.K) H) and J)
L) C) and I)

Exam 6: Merchandising Operations and the Multistep Income Statement

On July 1,Darin Company sold inventory costing $5,000 to Dee Company for $6,000,terms 3/10,n/30.Both companies use the perpetual inventory system.Dee Company pays the invoice on July 8 and takes the appropriate discount.What journal entry will be recorded by Dee Company on July 8?

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Intel makes microchips from raw materials acquired from suppliers.Intel is a:

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Which of the following statements is incorrect regarding sales discounts?

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FAD Company uses a periodic inventory system and its inventory records for the period contain the following information: The journal entry necessary at the end of the period to transfer beginning inventory and net purchases to cost of goods sold will include which of the following?

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Hayward Co.reported net sales revenues of $23.76 billion and cost of goods sold of $7.2 billion.Its gross profit percentage was:

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The periodic inventory system uses the Purchases account to keep track of the amount of inventory that is purchased.

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The journal entry to record taking a discount when paying for goods previously purchased on account includes a:

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Which of the following costs should be added to the buyer's Inventory account?

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The gross profit percentage is an indication of how:

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Match the term to the appropriate definition.There are more definitions than terms. -Sales Discount

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Medlock Company sold inventory on credit for $3,000,terms 2/10,n/30.The cost of the merchandise to Medlock was $2,400.How much cash will Medlock receive if payment is received within the discount period?

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Glenrosa Company bought inventory from Monterosa Company,FOB destination.On December 31,the last day of the accounting year,the goods were on a truck owned by Common Carrier,Inc. ,and not expected to arrive until January 2.Which company should include these goods in its December 31 inventory?

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Which of the following statements regarding inventory counts is not correct?

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Alpha Company bought inventory from Omega Company,FOB shipping point.On December 31,the last day of the accounting year,the goods were on a truck owned by Theta,Inc. ,exactly halfway between Alpha and Omega.Which company should include these goods in its December 31 inventory?

Correct AnswerverifiedShow Answer

The gross profit equation is:

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The periodic inventory system uses the Inventory account to keep track of the amount of inventory that is purchased.

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In a retail business that uses a perpetual inventory system,scanning a bar code does not:

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Hazelwood Company had beginning inventory of $54,000.During the period the company purchased $109,800 of merchandise.At the end of the period,Hazelwood's inventory was $39,600.If the gross profit percentage was 40%,what was Hazelwood's sales revenue?

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Which inventory system records a change in the Inventory account every time goods are bought,sold or returned?

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The gross profit percentage for Elk Roofing Products is 20%.If the company has Net Sales of $850,000 for the year,what was the amount of Cost of Goods Sold?

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