978-0134125053 Chapter 4 Part 1

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Financial Accounting, 4e (Kemp)

Chapter 4 Accounting for a Merchandising Business

4.1 Describe the relationships among manufactureres, wholesalers, retailers, and customers

1) Wholesalers purchase large quantities of product from manufacturers and then sell the product

to retailers.

Question Type: Concept

2) Retailers may buy goods from the manufacturer and then sell the goods to consumers.

Question Type: Concept

3) A retailer sells goods to a wholesaler.

Question Type: Concept

4) Goods that a retailer has available to sell to its customers are classified as inventory.

Question Type: Concept

5) The general public usually purchase merchandise from wholesalers.

Question Type: Concept

6) The Sassycat Company sells custom dog gear on their website. This would most likely be

considered a retail business.

Question Type: Concept

7) Amazon.com is an example of a wholesaler.

Question Type: Concept

8) Which of the following characterizes Walmart?

A) Walmart both purchases and sells products.

B) Walmart sells products but doesn’t purchase products.

C) Walmart purchases products but doesn’t sell products.

D) Walmart neither purchases nor sells products.

Question Type: Concept

9) Inventory for a merchandising business is classified as a(n):

A) liability.

B) revenue.

C) part of Stockholders‘ Equity.

D) asset.

Question Type: Concept

10) The general public is referred to as:

A) final consumers.

B) service customers.

C) retail customers.

D) manufacturing customers.

Question Type: Concept

11) Which of the following would NOT be classified as a retailer?

A) Toys R Us

B) Ernst & Young

C) Barnes & Noble

D) PetSmart

Question Type: Concept

12) Which of the following would be classified as a retailer?

A) Greene’s Garden Care

B) Paul’s Pet Walking

C) Fiona’s Fashion Boutique

D) Taylor‘s Tax Service

Question Type: Concept

13) Macy’s.com, Walmart.com, and Target.com are examples of Internet:

A) service businesses.

B) manufacturing businesses.

C) retail businesses.

D) wholesalers.

Question Type: Concept

14) The general public most often buys products from:

A) a wholesale business.

B) a retail business.

C) a manufacturer.

D) all of the above.

Question Type: Concept

4.2 Define periodic and perpetual inventory systems

1) Most businesses today use the periodic inventory method.

Question Type: Concept

2) Because of innovative and computerized methods of tracking inventory, most businesses

today use the perpetual inventory system.

Question Type: Concept

3) In the perpetual inventory system, inventory is constantly updated through the inventory

tracking system.

Question Type: Concept

4) Under the perpetual inventory system, the need for a physical count of inventory is eliminated.

Question Type: Concept

5) When the perpetual records do not equal the physical count of the inventory, the general

ledger is updated with the differences.

Question Type: Application

6) An inventory count shows that the general ledger for inventory is understated by $5,000. The

entry to correct this would include a debit to cost of goods sold.

Question Type: Application

7) If there is a difference between the physical count and the perpetual record, the account in

which the difference is recorded is:

A) Sales.

B) Cost of Goods Sold.

C) Inventory Expense.

D) Revenue.

Question Type: Application

8) A useful tool that updates inventory is the:

A) cash register.

B) bar code scanner.

C) price tag on the merchandise.

D) UPC number.

Question Type: Concept

9) Physical inventory counts must be done:

A) when using the periodic system of inventory.

B) when using bar code scan technology.

C) when using the perpetual system of inventory.

D) regardless of inventory system.

Question Type: Concept

10) Under the periodic inventory system, the amount of inventory is:

A) constantly updated.

B) only known when a physical count is taken.

C) adjusted after each sale.

D) adjusted after each purchase.

Question Type: Concept

11) A company uses the perpetual inventory system. At year end the general ledger indicated that

this company had a balance of $47,000 in the Inventory account. Actual inventory on hand per a

physical count was $48,500. What action does the company now need to take?

A) No action is needed; the difference between the ledger and actual is less than 5%.

B) The company needs to debit Cost of Goods Sold and credit Inventory, $1,500.

C) The company needs to debit Inventory and credit Cost of Goods Sold for $1,500.

D) The company should debit the Purchases account and credit Cost of Goods Sold.

Question Type: Application

12) The Botanical Boutique uses the perpetual inventory system. At year end the general ledger

indicated that the company had a balance of $24,000 in the Inventory account. Actual inventory

on hand per a physical count was $19,000. What action does the company now need to take?

A) No action is required because the amount is not material.

B) Debit Cost of Goods Sold and credit Inventory, $5,000.

C) Debit Purchases and credit Cost of Goods Sold, $5,000.

D) Debit Inventory and credit Cost of Goods Sold, $5,000.

Question Type: Application

13) When accounting for a merchandising business, which of the following is TRUE?

A) Wholesalers must use the periodic inventory system.

B) Retailers must use the perpetual inventory system.

C) Wholesalers must use the periodic inventory system; retailers may use either the perpetual or

periodic inventory system.

D) Retailers and wholesalers may use either the perpetual or periodic inventory system.

Question Type: Concept

14) Woods Company had an inventory balance of $2,600 on January 1. During the accounting

period they made purchases of $11,500. The ending inventory balance was $1,250. If Woods Co.

uses the periodic inventory system, what is the cost of goods available for sale?

A) $2,600

B) $11,500

C) $12,850

D) $14,100

Question Type: Application

15) Woods Company had an inventory balance of $4,200 on January 1. During the accounting

period they made purchases of $12,500. The ending inventory balance was $2,250. If Woods Co.

uses the periodic inventory system, what is the cost of inventory sold during the period?

A) $12,500

B) $14,450

C) $16,700

D) $18,950

Question Type: Application

16) Smith Company had an inventory balance of $13,000 on January 1 and $16,000 on

December 31. The cost of goods sold during the period was $60,000. What is the purchase

amount?

A) $44,000

B) $31,000

C) $62,000

D) $63,000

Question Type: Application

17) TNT Inc. had an inventory balance of $19,000 on January 1, and $23,500 on December 31.

The cost of goods sold during the period was $25,250. What is the purchase amount?

A) $4,500

B) $1,750

C) $29,750

D) $34,250

Question Type: Application

18) Bach Co. had an inventory balance of $15,250 on January 1, purchased $34,000 during the

accounting period, and the cost of goods sold was $28,000. What is the ending balance in the

inventory account?

A) $21,250

B) $34,000

C) $49,250

D) Not enough information provided

Question Type: Application

4.3 Journalize transactions for the purchase of inventory

1) Both purchase returns and allowances decrease the merchandiser‘s inventory cost.

Question Type: Concept

2) The purchase of inventory affects both an asset and the Stockholders‘ Equity account.

Question Type: Concept

3) An invoice with the credit terms 3/10, n/30 means that the customer has 3 days to take a 10%

discount off of the invoice total.

Question Type: Application

4) If an invoice shows a total of $4,000 with terms 2/10, n/30, the customer may pay $3,920

within 10 days to satisfy the bill.

Question Type: Application

5) If an invoice shows a total of $3,500 with terms 3/15, n/30, the customer may pay $3,395

within 30 days to satisfy the bill.

Question Type: Application

6) Credit terms are determined by the purchaser.

Question Type: Concept

7) If an invoice reads 2/15, n/30, the 15 refers to the percent that can be taken for the discount.

Question Type: Application

8) If a customer pays within the discount period, the discount will be debited to the Inventory

account.

Question Type: Concept

9) If damaged goods are received by the merchandiser and are kept with a reduction in price, the

account to be credited by the merchandiser for the reduction in price under a perpetual inventory

system is:

A) Inventory.

B) Accounts Payable.

C) Returns.

D) Cash.

Question Type: Application

10) A company pays an invoice early and takes 4% off of the original invoice price. The account

to be credited for the discount under a perpetual inventory system is:

A) Inventory.

B) Accounts Payable.

C) Discount.

D) Cash.

Question Type: Application

11) Simmons, Inc. received an invoice from Wilson Company for $3,500 with terms of 3/10,

n/45 on March 8. If Simmons pays the bill on March 15, they will credit inventory under a

perpetual inventory system for:

A) $0.

B) $350.

C) $105.

D) $3,500.

Question Type: Application

12) Torres, Inc. purchases $4,800 of inventory on account from Leo Corp. The journal entry to

record this purchase for Torres under a perpetual inventory system is:

A) debit Inventory; credit Cash.

B) debit Accounts Payable–Leo; credit Inventory.

C) debit Inventory; credit Accounts Payable-Torres.

D) debit Inventory; credit Accounts Payable–Leo.

Question Type: Application

13) TNT Corporation pays an invoice for $4,500 in time to take a 5% discount. The journal entry

to record the payment of this invoice is:

A) debit Accounts Payable $4,500; credit Cash $4,500.

B) debit Accounts Payable $4,275; credit Cash $4,275.

C) debit Accounts Payable $4,275, debit Inventory $225; credit Cash for $4,500.

D) debit Accounts Payable $4,500; credit Inventory $225, credit Cash for $4,275.

Question Type: Application

14) TLR Productions has received an invoice for $6,500 with terms of 3/15, n/50. If TLR pays

the invoice on the seventeenth day, the Cash account will be:

A) credited for $6,500.

B) credited for $6,305.

C) debited for $6,305.

D) credited for $195.

Question Type: Application

15) If an invoice reads n/10, it means that:

A) the company has 10 days to pay the bill in full.

B) the company has 10 days to take the discount.

C) the company takes 10% off of the total of the invoice.

D) the company pays 90% of the invoice.

Question Type: Concept

16) If an invoice states 2/10, n/45, the 10 refers to the:

A) percent that can be taken for the discount.

B) days in the discount period.

C) days in which to pay the bill in full.

D) percent of the bill that has to be paid in the discount period.

Question Type: Concept

17) The amount of an invoice is $1,000, with terms 2/10, n/30. The amount to be paid within the

discount period is:

A) $1,000.

B) $980.

C) $900.

D) $700.

Question Type: Application

18) Which of the following credit terms allows a discount of 4% if payment is made within 20

days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from

the date of the invoice?

A) 4/20, EOM

B) 4/EOM, n/30

C) 4/20, n/30

D) 20/4, n/30

Question Type: Concept

19) An invoice of $2,400 is dated April 2, terms 2/10, n/30. If the invoice is paid on April 9, the

amount to be paid is:

A) $48.

B) $240.

C) $2,352.

D) $2,400.

Question Type: Application

20) Charmed, Inc. purchased merchandise from Birch Co. for cash. The journal entry for

Charmed, Inc. under a perpetual inventory system will be:

A) debit Inventory; credit Cash.

B) debit Cash; credit Inventory.

C) debit Inventory; credit Accounts Payable-Birch Co.

D) debit Inventory; credit Accounts Receivable-Birch Co.

Question Type: Application

21) A record to keep the amount owed to each supplier is called a(n):

A) Accounts Receivable subsidiary ledger.

B) Accounts Payable subsidiary ledger.

C) transportation ledger.

D) general ledger for Accounts Payable.

Question Type: Concept