Quizlet ACCT 2810 – Chapter 4
Which of the following statements is true?
The revenue activities of a service business involve providing services to cus- tomers.
Which of the following businesses is a merchandising business?
Kohl’s
Gross profit is determined by subtracting the cost of merchandise sold from what?
Net sales
Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet?
As a current asset
Generally, the revenue account for a merchandising business is entitled
Sales.
Which of the following statements is TRUE?
Sales is the total amount charged customers, including cash sales and sales on account.
The di!erence between sales and cost of merchandise sold for a merchan- dising business is
gross pro&t.
What is subtracted from sales to arrive at net sales?
Both sales discounts and sales returns and allowances
East, Inc. had beginning inventory of $10,000, purchases of $25,000, and ending inventory of $5,000.
What is East’s cost of merchandise sold?
$30,000
Dig, Inc. had the following merchandise transactions in October:
Purchases
$50,000
Purchase returns
$ 4,000
Purchase discounts
$ 1,000
Transportation in
$ 2,000
What is the total cost of merchandise purchased for Dig, Inc.?
$47,000
Which expenses are subtracted from gross profit to arrive at income from operations?
Operating expenses
Which of the following is NOT an example of selling expenses?
O.ce salaries
Which of the following accounts is a contra account to Sales?
Sales Returns and Allowances
Which of the following is NOT an administrative expense?
Salespersons’ salaries
NBC Company had $32,000 in net sales, $15,000 in cost of merchandise sold, $18,000 in operating
expenses, and $2,000 in other income. What is NBC Company’s gross profit?
$17,000
When the perpetual inventory system is used, the inventory sold is shown on the income statement as
cost of merchandise sold.
What is the term applied to the excess of net revenue from sales over the cost
of merchandise sold?
Gross pro&t
Expenses that are incurred directly or entirely in connection with the sale
of merchandise are classified as
selling expenses.
O6ce salaries, depreciation of o6ce equipment, and o6ce supplies are examples of what type of
expense?
Administrative expense
The form of income statement that derives its name from the fact that the total of all expenses is
deducted from the total of all revenues is called a
single-step statement.
Multiple-step income statements show:
both gross pro&t and income from operations.
Which of the following would be subtracted from gross profit to reach operating income?
Operating expenses
Inventory NOT sold at the end of the period is reported as
merchandise inventory.
Which of the following is NOT a subsection in a multiple-step income statement?
Purchase discounts
Which of the following are subtracted from sales to arrive at net sales?
Sales returns
Gross profit is equal to:
sales less (sales discounts and sales returns and allowances) less cost of merchan- dise sold.
Which of the following is NOT considered when figuring net purchases?
Cost of goods sold
Which of the following accounts will NOT be found in the Cost of Merchandise Sold section on the
income statement?
Sales Returns and Allowances
Multiple-step income statements show
gross pro&t, cost of merchandise sold, income from operations and net income.
Under a perpetual inventory system,
accounting records continuously disclose the amount of inventory.
Where are selling and administrative expenses found on the multi-step income statement?
After gross pro&t
Gold Co. sold merchandise to Bronze Co. on account, $25,000, terms 2/15, net 45. The cost of the
merchandise sold is $18,500. Gold Co. issued a credit memorandum for $2,500 for merchandise
returned that originally cost $1,900. Bronze Co. paid the invoice within the discount period. What is
amount of net sales from the transactions?
$22,050
Expenses that CANNOT be traced directly to operations are identified as
other expenses.
What is one criticism of the single-step income statement?
Gross pro&t and income from operations are not available for analysis.
Which financial statement reconciles net income with net cash =ows from operating activities?
Statement of cash 6ows
If Martin, Inc. sold $550,000 worth of merchandise, had $50,000 returned, and then the balance paid
during the 2% discount period, how much was Martin’s net sales?
$490,000
The credit terms of a sale are normally indicated on a(n)
invoice.
Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is
prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer
on November 17; the transaction is recorded in the buyer’s accounts on November 18. The credit period
begins with what date?
November 15
Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is
prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer
on November 17; the transaction is recorded in the seller’s accounts on November 15. If the credit
terms are 1/10, n/30, the credit period begins with what date?
November 15
A sales invoice included the following information: merchandise price, $4,500; transportation, $300;
terms 1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $600 is
granted prior to payment, that the transportation is prepaid by the seller, and that the invoice is paid
within the discount period, what is the amount of cash received by the seller?
$4,161
Sometimes a(n) __________ is o!ered to buyers as a means of encourag- ing them to pay before the end
of the credit period.
sales discount
The arrangements between buyer and seller as to when payments for merchandise are to be made are
called
credit terms.
If a $20,000 sale is made on January 1, with terms of 2/10, n/30, how much would the discount be if
payment is made on January 9?
$400
In credit terms of 1/10, n/30, the “1” represents the
percent of the cash discount.
Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by
a(n):
increase in Cash and increase in Sales.
In recording the cost of merchandise sold for cash using a perpetual inventory system, the e!ect on
the accounts is
increase Cost of Merchandise Sold; decrease Merchandise Inventory.
When merchandise that was sold on account is returned, which accounts are a!ected?
Sales returns, accounts receivable, merchandise inventory, and cost of goods sold
For the perpetual inventory system, which of the following e!ects does NOT occur upon the return from
a customer of merchandise sold on account?
Increases Purchase Returns and Allowances and decreases Merchandise Inventory
If merchandise sold on account is returned to the seller, the seller may inform the customer of the
details by issuing a
credit memorandum.
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for
$20,000. The seller paid transportation costs of $1,000 and issued a credit memorandum for $5,000
prior to payment. What is the amount of the cash discount allowable?
$150
Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on
September 15 with terms of 1/15, net 45. What is the amount of the discount, and up to what date
must the invoice be paid in order for the buyer to take advantage of the discount?
$90, September 30
Based on the following information, what would be recorded as purchases discount if the invoice is
paid within the discount period?
1. $5,000 of merchandise inventory was ordered on April 2, 2010.
2. $2,000 of this merchandise was received on April 5, 2010.
3. On April 6, 2010, an invoice dated April 4, 2010, with terms of 2/10, net 30 for $2,150 which
included a $150 prepaid freight cost, was received.
4. On April 10, 2010, $500 of the merchandise was returned to the seller.
$30
In credit terms of 1/10, n/30, the “10” represents the
number of days in the discount period.
When purchases of merchandise are made for cash, the transaction
increases Merchandise Inventory; decreases Cash.
When merchandise is purchased to resell to customers, it is recorded in the account entitled
Merchandise Inventory.
Using a perpetual inventory system, the purchase of $30,000 of merchandise on account would include
a (n)
increase in Merchandise Inventory.
Using a perpetual inventory system, the return of merchandise purchased on account includes a(n)
decrease in Merchandise Inventory.
would normally include
The amount of the total cash paid to the seller for merchandise purchased
the list price plus the sales tax.
A sales invoice included the following information: merchandise price, $5,000; terms 1/10, n/eom.
Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the
invoice is paid within the discount period, what is the amount of cash received by the seller?
$4,356
A sales invoice included the following information: merchandise price, $6,000; terms 2/10, n/eom.
Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the
invoice is paid within the discount period, what is the amount of cash received by the seller?
$5,292
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for
$17,500. The seller issued a credit memorandum for $4,000 prior to payment. What is the amount of
the cash discount allowable?
$135
If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as
FOB shipping point.
If the seller is to pay the delivery expense of delivering merchandise, the delivery terms are stated as
FOB destination.
If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the
terms are
FOB shipping point.
If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the
terms are
FOB destination.
Merchandise with an invoice price of $6,000 is purchased subject to terms of 2/10, n/30, FOB
destination. Transportation costs paid by the seller totaled $125.
What is the net cost of the merchandise?
$5,880
Which term indicates that merchandise is free of transportation charges to the buyer?
FOB destination
Inventory shortage is recorded when
there is a difference between a physical count of inventory and inventory records.
Cash paid to purchase long-term investments would be reported in the statement of cash =ows in
the cash 6ows from investing activities section.
Which of the following should be shown on a statement of cash =ows under the financing activity
section?
The payment of cash to retire a long-term note
Under the indirect method for preparing the statement of cash =ows, increases in current liabilities are
__________ net income in the cash =ows from operating activities section.
added to
Which of the following would NOT a!ect the operating activities section of the statement of cash =ows,
using the indirect method?
Payment on a note payable
Using the indirect method for preparing the statement of cash =ows, what is the net cash =ow from
operating activities if net income is $39,000; depreciation expense is $9,000; and the decrease in
accounts payable is $5,000.
$43,000
Under the indirect method for preparing the statement of cash =ows, decreases in current assets are
__________ net income in the cash =ows from operating activities section.
added to
A payment of dividends decreases which section on the statement of cash =ows?
Financing activities
Investing activities include
collecting cash on loans made.
Question 1
A sales invoice included the following information: merchandise price, $5,000; freight, $900; terms 1/10, n/eom, FOB
shipping point. Assuming that a credit for merchandise returned of $700 is granted prior to payment and that the
invoice is paid within the discount period, what is the amount of cash that should be received by the seller?
Answer
$5,157
$4,300
$4,257
$4,950
2 points
Question 2
Anthony Company sold Madison Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000.
Anthony prepaid the $300 shipping charge. Which of the following entries does Anthony make to record this sale?
Answer
Accounts Receivable-Madison, debit $20,000; Sales, credit $20,000
Accounts Receivable-Madison, debit $20,000; Sales, credit $20,000, and
Accounts Receivable-Madison, debit $300; Cash, credit $300
Accounts Receivable-Madison, debit $20,500; Sales, credit $20,500
Accounts Receivable-Madison, debit $20,000; Sales, credit $20,000, and
Freight Out, debit $300; Cash, credit $300
2 points
Question 3
Cumberland Co. sells $1,200 of inventory to Hancock Co. for cash. Cumberland paid $850 for the merchandise.
Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?
Answer
Cash $1,200 Dr, Merchandise Inventory $850 Cr
Cash $1,200 Dr, Sales $1,200 Cr, Cost of Merchandise Sold $850 Dr, Merchandise Inventory $850 Cr.
Cash $1,200 Dr, Sales $1,200 Cr
Accounts Receivable $1,200 Dr, Sales $1,200 Cr, Cost of Merchandise Sold $850 Dr, Merchandise Inventory $850 Cr.
2 points
Question 4
Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as
Answer
Purchases discount
Sales discount
Trade discount
Early payment discount
2 points
Question 5
Dorman Co. sold merchandise to Smith Co. on account, $18,000, terms 2/15, net 45. The cost of the merchandise
sold is $15,500. Dorman Co. issued a credit memo for $1,750 for merchandise returned that originally cost $1,400.
The Smith Co. paid the invoice within the discount period. What is amount of net sales from the above transactions?
Answer
$16,250
$14,100
$15,925
$13,818
2 points
Question 6
Expenses that are incurred directly or entirely in connection with the sale of merchandise are classi&ed as
Answer
selling expenses
general expenses
other expenses
administrative expenses
2 points
Question 7
Generally, the revenue account for a merchandising business is entitled
Answer
Sales
Net Sales
Gross Sales
Gross Pro&t
2 points
Question 8
Gross pro&t is equal to:
Answer
sales plus (sales discounts and sales returns and allowances) plus cost of merchandise sold
sales plus sales returns and allowances less sales discounts less cost of merchandise sold
sales plus sales discounts less sales returns and allowances less cost of merchandise sold
sales less (sales discounts and sales returns and allowances) less cost of merchandise sold
2 points
Question 9
If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
Answer
FOB shipping point
FOB destination
FOB n/30
FOB buyer
2 points
Question 10
If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
Answer
FOB shipping point
FOB destination
FOB n/30
FOB seller
2 points
Question 11
If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
Answer
consigned
n/30
FOB shipping point
FOB destination
2 points
Question 12
If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
Answer
n/30
FOB shipping point
FOB destination
consigned
2 points
Question 13
In credit terms of 3/15, n/45, the “3” represents the
Answer
number of days in the discount period
full amount of the invoice
number of days when the entire amount is due
percent of the cash discount
2 points
Question 14
Inventory shortage is recorded when
Answer
merchandise is returned by a buyer.
merchandise purchased from a seller is incomplete or short.
merchandise is returned to a seller.
there is a difference between a physical count of inventory and inventory records.
2 points
Question 15
Merchandise inventory is classi&ed on the balance sheet as a
Answer
Current Liability
Current Asset
Long-Term Asset
Long-Term Liability
2 points
Question 16
Merchandise with an invoice price of $5,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB
destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September
12, assuming the discount is taken?
Answer
$5,200
$5,096
$4,704
$4,900
2 points
Question 17
Multiple-step income statements show
Answer
gross pro&t but not income from operations
neither gross pro&t nor income from operations
both gross pro&t and income from operations
income from operations but not gross pro&t
2 points
Question 18
O.ce salaries, depreciation of o.ce equipment, and o.ce supplies are examples of what type of expense?
Answer
selling expense
miscellaneous expense
administrative expense
other expense
2 points
Question 19
Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
Answer
debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
debit to Cash and a credit to Sales
debit to Cash, credit to Credit Card Expense, and a credit to Sales
debit to Sales, debit to Credit Card Expense, and a credit to Cash
2 points
Question 20
The arrangements between buyer and seller as to when payments for merchandise are to be made are called
Answer
credit terms
net cash
cash on demand
gross cash
