Financial & Managerial Accounting, 6e (Miller-Nobles)
1) A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to
retailers.
2) A retailer purchases goods from a manufacturer and sells them to wholesalers.
3) A retailer can buy merchandise either from a manufacturer or a wholesaler.
4) Both wholesalers and retailers are merchandisers.
5) For a merchandiser, the term “inventory” refers to ________.
A) raw materials that are used for production
B) equipment that are used in production process
C) the cost of goods sold
D) goods held for sale to customers
6) An entity that buys goods and sells them to consumers at a markup is a ________.
A) retailer
B) wholesaler
C) manufacturer
D) producer
7) On the income statement, a merchandising company reports the cost of merchandise inventory that has
been sold to customers.
8) On the income statement, a service company reports the cost of merchandise inventory that has been
sold to customers.
9) The operating cycle of a merchandiser begins when the company purchases inventory from a vendor
and ends when the company then sells the inventory to a customer.
10) The operating cycle of a merchandiser begins when the company purchases inventory from a vendor
and ends when the company collects cash from customers.
11) Gross profit is the extra amount the company receives from the customer for merchandise sold over
what the company paid to the vendor.
12) Gross profit is the excess of cost of goods sold over net sales revenue.
13) Merchandise inventory is included in a merchandising company‘s current assets.
14) On the balance sheet, Merchandise Inventory is listed above Accounts Receivable.
15) Which of the following line items will appear on the income statement of a merchandiser but not of a
service company?
A) Salaries Expense
B) Depreciation Expense
C) Cost of Goods Sold
D) Supplies Inventory
16) Gross profit is calculated as the difference between net sales revenue and ________.
A) purchase expense
B) cost of goods sold
C) cost of merchandise inventory
D) operating expenses
17) Value Electronics, Inc. started its operations on January 1, 2019. Value engages in buying and selling
different types of electronic gadgets. The first step in its operating cycle would be to ________.
A) collect cash from customers
B) sell goods to customers
C) purchase inventory from vendors
D) record the sales in accounts
18) The main expense of a merchandiser is usually ________.
A) cost of goods sold
B) merchandise inventory
C) selling and administrative expenses
D) purchasing expense
19) Operating expenses include ________.
A) cost of goods sold
B) expenses that occur in an entity’s major line of business
C) cost of goods sold, selling expenses, and administrative expenses
D) loss on sale of plant asset
20) On the balance sheet of a retailer, the Merchandise Inventory account ________.
A) is not included because it is an income statement account
B) is included in the current assets section
C) is listed after prepaid assets
D) represents the value of inventory that has been sold during the period
21) List the three steps, in order of occurrence, of the operating cycle of a merchandising business.
22) List, and briefly discuss, two differences between the income statement of a service company and the
income statement of a merchandise company.
23) Provide definitions for the following:
Item
Definition
Cost of Goods Sold
Gross Profit
Operating Expenses
the business has sold to customers.
of Goods Sold.
25) When a company uses a perpetual inventory system, all merchandise transactions are updated as they
occur. However, the inventory account may not show the correct balance at all times.
26) Even in a perpetual inventory system, the business must count its inventory at least once in a year.
27) In a periodic inventory system, the Cost of Goods Sold account is continuously updated as and when
sales occur.
28) The perpetual inventory system keeps a running computerized record of inventory and cost of goods
sold.
29) In a periodic inventory system, the “cash register” at the store is a computer terminal that records sales
and updates inventory records.
30) In a periodic inventory system, merchandise inventory and purchasing systems are integrated with
the records for Accounts Receivable and Sales Revenue.
31) Merchandise inventory accounting systems can be broadly categorized into two types. They are
________.
A) FIFO and LIFO
B) perpetual and periodic
C) wholesale and retail
D) manufacturer and producer
32) Which of the following is NOT recorded in a modern perpetual inventory system?
A) units purchased and cost amounts
B) units sold and sales and cost amounts
C) timeliness of vendor deliveries
D) the quantity of merchandise inventory on hand and its cost
33) Which of the following statements is NOT correct?
A) In a perpetual inventory system, the “cash register” at the store is a computer terminal that records
sales and updates inventory records.
B) Even in a perpetual inventory system, a business must count inventory at least one a year.
C) Restaurants and small retail stores often use the periodic inventory system.
D) In a periodic inventory system, merchandise inventory and purchasing systems are integrated with
the records for Accounts Receivable and Sales Revenue.
34) In a perpetual inventory system, the physical count of inventory ________,
A) serves as a check of the perpetual records
B) captures transactions that are not recorded by the electronic system
C) establishes the correct amount of ending inventory for the financial statements
D) All statements are correct.
35) Regarding a periodic inventory system, which of the following statements is incorrect?
A) The periodic inventory system is normally used for relatively expensive goods.
B) Restaurants and small retail stores normally use the periodic inventory system.
C) Periodic inventory systems are becoming less and less popular.
D) The physical count of inventory is required in order to determine the quantities on hand.
36) A modern perpetual inventory system ________.
A) records the quantity, but not the cost, of merchandise inventory on hand
B) achieves better control over inventory
C) eliminates the need for a physical count of inventory
D) is required by U.S. GAAP
37) For each of the following statements, state whether it applies to a periodic inventory system (periodic)
or a perpetual inventory system (perpetual).
Statement
Periodic or Perpetual
Merchandise inventory and purchasing
systems are integrated with the records
for Accounts Receivable and Sales
Revenue.
This system is often used by restaurants
and small retail stores.
The physical count captures inventory
transactions that are not recorded by the
electronic system.
Merchandise inventory and purchasing
systems are integrated with the records
for Accounts Receivable and Sales
Revenue.
Perpetual
This system is often used by restaurants
and small retail stores.
Periodic
The physical count captures inventory
transactions that are not recorded by the
electronic system.
Perpetual