College Accounting, 14e (Slater)
Chapter 11 Preparing a Worksheet for a Merchandise Company
11.1 Learning Objective 11-1
1) What inventory method is used when the inventory balance is updated only at the end of the
accounting period?
A) Periodic
B) Perpetual
C) Interim
D) Cost of Goods Sold
2) When using a periodic inventory method, what account is increased when you buy merchandise
inventory?
A) Cost of Goods Sold
B) Inventory
C) Supplies
D) Purchases
3) Cost of Goods Sold (under the Periodic Method) equals:
A) Beginning Inventory + Net Purchases + Freight-in + Freight-out + Ending Inventory.
B) Beginning Inventory – Net Purchases – Freight-in + Ending Inventory.
C) Beginning Inventory + Net Purchases + Freight-in – Ending Inventory.
D) Beginning Inventory – Net Purchases + Freight-in + Ending Inventory.
4) Net Income equals:
A) Net Sales – Cost of Goods Sold – Operating Expenses.
B) Gross Profit – Operating Expenses.
C) Sales – Sales Returns & Allowances – Sales Discounts – Cost of Goods Sold – Operating Expenses.
D) All of the above are correct.
5) Ending inventory:
A) increases Cost of Goods Sold.
B) decreases Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) increases Purchases.
6) If gross profit exceeds operating expenses, the company:
A) had a net loss.
B) broke even.
C) had a net income.
D) liabilities are greater than assets.
7) Beginning inventory was $3,600, purchases totaled $20,200 and and Cost of Goods Sold was $17,200.
What is the ending inventory? Assume gross profit is $0.
A) $3,000
B) $600
C) $6,600
D) $13,600
8) If $6,700 was the beginning inventory, purchases were $12,000 and sales were $6,000. How much was
ending inventory last accounting period?
A) $12,700
B) $6,700
C) $0
D) $6,000
9) The normal balance of Income Summary is:
A) debit.
B) credit.
C) The account does not have a normal balance.
D) It depends on the change of the inventory balance.
10) The first entry to adjust Merchandise Inventory includes:
A) a debit to Merchandise Inventory.
B) a credit to Merchandise Inventory.
C) a credit to Income Summary.
D) a credit to Purchases.
11) The second entry to adjust Merchandise Inventory includes:
A) a debit to Merchandise Inventory.
B) a credit to Merchandise Inventory.
C) a debit to Income Summary.
D) None of these is correct.
12) Unearned Rent is what type of account?
A) Asset
B) Revenue
C) Liability
D) Contra-Asset
13) As Unearned Rent Revenue is earned, it becomes:
A) an asset.
B) a revenue.
C) a liability.
D) an expense.
14) Sam received $8,000 in advance for renting part of his building. What is the entry to record the
receipt?
A) Debit Cash; credit Rent Expense
B) Debit Cash; credit Prepaid Rent Expense
C) Debit Cash; credit Unearned Rent Revenue
D) Debit Cash; credit Rental Income
15) Tim received $3,000 in advance for renting part of his building for 4 months. What is the entry to
record the adjustment after one month has passed?
A) Debit Cash; credit Rental Income
B) Debit Cash; credit Unearned Rent Revenue
C) Debit Unearned Rent, credit Rental Income
D) Debit Unearned Rent, credit Cash
16) When the adjustment for Unearned Rent Revenue is made:
A) liabilities decrease.
B) revenue increases.
C) assets decrease.
D) Both A and B are correct.
17) Which of the following accounts is NOT a liability?
A) Accounts Payable
B) Salaries Payable
C) Unearned Rent
D) All of the above answers are liabilities.
18) Rental Income is what type of account?
A) Asset
B) Revenue
C) Expense
D) Contra-Sales
19) The normal balance for Unearned Rent Revenue is:
A) a credit.
B) a debit.
C) zero.
D) dependent on circumstances.
20) Unearned Rent Revenue results because:
A) no fee has been paid, and the service is not complete.
B) the fee is earned but not collected.
C) the fee has been collected before the service has been provided.
D) the fee has been paid, and the service is complete.
21) As the Unearned Rent Revenue is earned:
A) the liability account is decreased and the revenue account is increased.
B) the asset account is increased and the revenue account is decreased.
C) the revenue account is decreased and the revenue account is not affected.
D) the liability account is not affected but the revenue account is decreased.
22) From the following items, which would most likely cause the recording of unearned revenue?
A) Receipt of a purchase order
B) Purchase of merchandise on account
C) Legal fees collected after work is performed
D) Subscriptions collected in advance for a magazine
23) The financial statement on which Unearned Rent Revenue would appear is:
A) the income statement.
B) the balance sheet.
C) the owner’s equity statement.
D) the trial balance.
24) The financial statement on which Rental Income would appear is the:
A) income statement.
B) owner’s equity statement.
C) balance sheet.
D) trial balance.
25) The normal balance of Rental Income is:
A) a credit.
B) a debit.
C) zero.
D) dependent on the circumstances.
26) Mortgage Payable is what type of account?
A) Asset
B) Liability
C) Revenue
D) Contra-Asset
27) As supplies are used, they become:
A) inventory.
B) a liability.
C) an expense.
D) contra-asset.
28) What financial statement shows the amount for Freight-In?
A) Balance Sheet
B) Statement of Owner’s Equity
C) Income Statement
D) Trial Balance
29) The adjustment for supplies used would be to:
A) debit Supplies Expense; credit Supplies.
B) debit Supplies; credit Cash.
C) debit Supplies Expense; credit Inventory.
D) debit Inventory; credit Supplies.
30) The adjustment for Accrued Salaries would be to:
A) debit Salaries Expense; credit Cash.
B) debit Salaries Payable; credit Prepaid Salaries.
C) debit Salaries Expense; credit Salaries Payable.
D) debit Salaries Payable; credit Cash.
31) The adjustment for Unearned Rent Revenue is recorded when:
A) cash is received.
B) rent is earned.
C) revenue is received.
D) payment is made for rent.
32) Accumulated Depreciation – Buildings should be shown on the:
A) Income Statement.
B) post-closing trial-balance.
C) Statement of Owner’s Equity.
D) The account does not appear on a financial statement since it is a temporary account.
33) An account never used in an adjusting entry is:
A) Consulting Fees-Revenue.
B) Interest Payable.
C) Cash.
D) Accumulated Depreciation – Equipment.
34) On November 1, Call Center received $4,800 for two years’ rent in advance from Garrett Company.
The November 30 adjusting entry that Call Center should make is to:
A) debit Rental Income; credit Unearned Rent $4,800.
B) debit Cash; credit Rental Income $4,800.
C) debit Unearned Rent; credit Rental Income $200.
D) debit Unearned Rent; credit Rent Expense $200.
35) Doug paid $3,000 on a one-year insurance policy on March 1. The entry included a debit to Prepaid
Insurance. The adjusting entry on December 31 of Year 1 would include a:
A) debit to Prepaid Insurance for $2,500; and a credit to Cash for $2,500.
B) debit to Insurance Expense for $2,500; and a credit to Prepaid Insurance for $2,500.
C) debit to Insurance Expense for $3,000; and a credit to Prepaid Insurance for $3,000.
D) debit to Cash for $3,000; and a credit to Prepaid Insurance for $3,000.
36) Green Realty paid $6,000 rent on a building in advance for two years on May 1. The amount that
should be recorded as rent expense as of December 31 at the end of Year 1 is:
A) $2,000.
B) $6,000.
C) $3,000.
D) $1,750.
37) The adjustment for salaries is necessary:
A) because the employer did not have enough cash to write the paychecks.
B) to recognize the revenue in the period earned.
C) to recognize the expense in the period incurred.
D) only in the month of a holiday.
38) When the adjustment for depreciation is made:
A) total assets decrease.
B) total expenses decrease.
C) total liabilities increase.
D) total revenue decreases.
39) The goods a company has available to sell to customers are called:
A) Supplies.
B) Freight-in.
C) Cost of Goods Sold.
D) Merchandise Inventory.
40) The adjustment for accrued wages was NOT done; this would cause:
A) liabilities to be overstated.
B) liabilities to be understated.
C) assets to be understated.
D) net income to be understated.
41) When counting supplies, several boxes were missed. This would cause:
A) Supplies to be overstated.
B) Supplies Expense to be overstated.
C) net income to be overstated.
D) Inventory to be understated.
42) The physical count of inventory was incorrect, which overstated the ending inventory. This would
cause:
A) Cost of Goods Sold to be overstated.
B) Cost of Goods Sold to be understated.
C) gross profit to be understated.
D) operating expenses to be understated.
43) The adjustment for depreciation expense was omitted; this would:
A) overstate the period’s expenses and overstate the period end liabilities.
B) overstate the period’s expenses and understate the period end liabilities.
C) understate the period‘s expenses and overstate the period’s assets.
D) understate the period’s expenses and understate the period’s assets.
44) At the start of the year, Southern Lights had $5,000 worth of merchandise. This Merchandise is called:
A) Cost of Goods Sold.
B) beginning inventory.
C) ending inventory.
D) Purchases.
45) Depreciation on equipment was recorded twice this period. This would cause:
A) expenses to be overstated and total assets to be overstated.
B) expenses to be overstated and total assets to be understated.
C) expenses to be understated and total assets to be overstated.
D) expenses to be understated and total assets to be understated.
46) Recording the adjustment for supplies used will:
A) increase the total liability and increase the total expenses.
B) increase the total assets and increase the total liabilities.
C) decrease the total assets and increase the total expenses.
D) decrease the merchandise inventory and decrease the total expenses.
47) Freight-in:
A) adds to the Cost of Goods Sold.
B) reduces the Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) increases operating expenses.
48) This amount does NOT change during the period and is added to purchases when computing the cost
of goods available for sale.
A) Beginning inventory
B) Ending inventory
C) Supplies
D) Freight-in
49) The perpetual inventory method:
A) is used by more and more companies, large and small due to increasing computerization.
B) is not used by many companies today.
C) is used by companies with a variety of merchandise with low unit prices.
D) does not ever require a physical inventory.
50) Gross profit less operating expenses equals:
A) Cost of Goods Sold.
B) general administrative expenses.
C) net purchases.
D) net income.
51) Interest Expense:
A) is a cost of borrowing money.
B) is included in the “Other Expenses” on the Income Statement.
C) has a normal debit balance.
D) All of the above are correct.
52) Mortgage Payable:
A) has a debit balance.
B) has a credit balance.
C) shows the amount expected to be paid within the current period.
D) is an unsecured loan.
53) When using the Periodic method, Merchandise Inventory (ending) appears on both the Income
Statement and the Balance Sheet.
54) If ending inventory is overstated this period, beginning inventory will be understated in the next
period.
55) The ending inventory in Year 1 is the beginning inventory in Year 2.
56) The Income Summary account is used to adjust beginning and ending inventories.
57) In the perpetual inventory system, it is not necessary to take a physical inventory at the end of the
period.
58) The beginning inventory is assumed to be sold; therefore, it is added to cost of goods sold.
59) Unearned Rent Revenue is a balance sheet account.
60) When the adjustment is made for depreciation, the Depreciation Expense account is increased and the
Accumulated Depreciation account is decreased.
61) The amount of supplies used causes an increase in Supplies and a decrease in Expense.
62) Unearned Revenue is a liability account used to record rent fees received in advance.
63) The amount for beginning inventory is used when calculating Cost of Goods Sold.
64) Under the periodic inventory system, an adjustment is not made on the worksheet for inventory.
65) Beginning inventory is adjusted by crediting Merchandise Inventory and debiting Income Summary.
66) Under the periodic inventory method, the ending inventory is adjusted by debiting Income Summary
and crediting Merchandise Inventory.
67) Under the accrual system, revenue is recognized when cash is paid.
68) Adjustments are journalized before recording them in the worksheet.
69) Under the accrual system, expenses are recorded when incurred.
70) Under the periodic inventory method, the beginning and ending inventories are combined and an
average calculated to determine the balance sheet inventory amount.
71) The Freight-in account is an operating expense account.
72) Mortgage Payable is a contra-liability account.
73) Mortgage Payable is found on the balance sheet.
74) Sales Discount is used when calculating Gross Profit.
75) Indicate the normal balance of each of the following accounts:
a) Purchases Returns and Allowances
b) Merchandise Inventory
c) Freight-In
d) Sales Returns and allowances
e) Unearned Revenue