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c. $4,161
d. $4,200
117. 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?
a. November 12
b. November 15
c. November 17
d. November 18
118. _____ is reported as a current asset on balance sheet.
a. Operating income
b. Cost of goods sold
c. Merchandise inventory
d. Accounts payable
119. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are _____.
a. n/30
b. FOB shipping point
c. FOB destination
d. consigned
120. Merchandise sold and delivered by the end of the year is reported on the income statement as _____.
a. cost of goods sold
b. capital stock
c. inventory
d. operating income
121. Net sales is calculated by _____.
a. subtracting cost of goods sold from total sales
b. subtracting customer refunds from total sales
c. adding ending inventory to total sales
d. adding cost of goods sold to total sales
122. For the perpetual inventory system, which of the following effects does not occur upon the return from a customer of
merchandise sold on account?
a. Increases Customer Refunds and Allowances and decreases Accounts Receivable
b. Decreases Cost of Merchandise Sold and increases Merchandise Inventory
c. Increases Purchase Returns and Allowances and decreases Merchandise Inventory
d. All of these occur.
123. Which term indicates that merchandise is free of transportation charges to the buyer?
a. FOB destination
b. Transportation out
c. FOB shipping point
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d. Transportation in
124. Sometimes a(n) _____ is offered to buyers as a means of encouraging them to pay before the end of the credit period.
a. accounts receivable
b. credit card
c. sales discount
d. cash sale
125. X. Bonds Company
The following is a single-step income statement for the X. Bonds Company:
X. Bonds Company
Income Statement
For the Year Ended December 31, 20Y8
Revenues:
Net Sales $300,000
Interest Income 20,000
Total Revenues $320,000
Expenses:
Cost of Goods Sold $60,000
Selling Expenses 25,000
General and Administrative Expenses 30,000
Interest Expense 14,000
Income Tax Expense 45,000
Total Expenses 174,000
Net Income $146,000
Refer to X. Bonds Company. If the income statement were prepared in a multiple-step format, gross profit would be ____.
a. $240,000
b. $126,000
c. $260,000
d. $185,000
126. In credit terms of 1/10, n/30, the “1” represents the _____.
a. number of days in the discount period
b. full amount of the invoice
c. number of days when the entire amount is due
d. percent of the cash discount
127. Which of the following statements is true?
a. The revenue activities of a service business involve providing services to customers.
b. The revenue activities of a retail business involve the building of a product.
c. The revenue activities of a service business involve the building of a product.
d. The revenue activities of a retail business involve providing services to customers.
128. In recording the cost of merchandise sold for cash using a perpetual inventory system, the effect on the accounts is
_____.
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a. increase Cost of Merchandise Sold; increase Cash
b. increase Cost of Merchandise Sold; decrease Merchandise Inventory
c. increase Merchandise Inventory; decrease Cost of Merchandise Sold
d. increase Accounts Receivable; decrease Merchandise Inventory
129. For a retail company, the inventory re-entered into the system to be sold again is shown on the income statement as
____.
a. cost of goods sold
b. purchases
c. purchases returns and allowances
d. net purchases
130. Zilova Inc. issues a credit memo of $850 to a customer. What is the effect of this transaction on profitability and
liquidity?
a. Both profitability and liquidity increase.
b. Profitability increases while liquidity decreases.
c. Both profitability and liquidity remain unchanged.
d. Profitability decreases while liquidity increases.
131. Calculate the markup percent if sales are $95,500 and cost of goods sold is $55,150.
a. 17.3%
b. 42.3%
c. 73.2%
d. 57.7%
132. The excess of net revenue from sales over the cost of goods sold is called _____.
a. accounts receivable
b. operating income
c. accounts payable
d. gross profit
133. Which of the following accounts is a contra account to Sales?
a. Accounts Payable
b. Sales Returns and Allowances
c. Accounts Receivable
d. Interest Revenue
134. Merchandise purchased on account by a company has no effect on its working capital because _____.
a. inventory and accounts payable are increased by the same amount
b. inventory and accounts receivable are increased by the same amount
c. cash and inventory are increased by the same amount
d. cash and inventory are decreased by the same amount
135. Which financial statement reconciles net income with net cash flows from operating activities?
a. Balance sheet
b. Statement of stockholders’ equity
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c. Statement of cash flows
d. Income statement
136. Which of the following is the effect of purchasing merchandise for cash on a company’s liquidity and profitability
metrics?
a. There is no effect on liquidity and profitability.
b. There is an increase in liquidity, while profitability remains unchanged.
c. There is an increase in profitability, while liquidity remains unchanged.
d. There is an increase in both liquidity and profitability.
137. Multiple-step income statements show ____.
a. gross profit but not net income
b. neither gross profit nor net income
c. gross profit but not cost of merchandise sold
d. gross profit, cost of merchandise sold, income from operations, and net income
138. On January 1, a company made a sale of $87,500, on credit. If the credit terms were 2/10, n/30, what would be the
amount of the sales discount be if the payment is received on January 9?
a. $26,250
b. $8,750
c. $10,000
d. $1750
139. Operating income is calculated by subtracting _____ from gross profit.
a. operating expenses
b. prepaid expenses
c. accrued expenses
d. non-operating expenses
140. Silver Co. sold merchandise to Copper Co. on account, $75,000, terms 2/10, net 30. The cost of the merchandise sold
is $55,000. Silver Co. issued a credit memorandum for $10,000 for merchandise returned that originally cost $9,000.
Copper Co. paid the invoice within the discount period. What is amount of net sales from the transactions?
a. $65,000
b. $63,500
c. $64,680
d. $63,700
141. Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet?
a. As a revenue
b. As the cost of merchandise sold
c. It does not appear on the balance sheet
d. As a current asset
142. Which of the following is an example of an administrative expense?
a. Cost of goods sold
b. Office supplies expense
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c. Loss from disposing of fixed assets
d. Advertising expense
143. As a result of inventory shrinkage, _____.
a. the working capital increases, whereas the gross profit percent decreases
b. the working capital decreases, whereas the gross profit percent increases
c. the working capital as well as the gross profit percent decreases
d. the working capital as well as the gross profit percent increases
144. Merchandise subject to the credit terms 2/10, n/30, FOB shipping point, is sold to a customer on account for $20,125.
The seller issued a credit memorandum for $4,600 prior to payment. What is the amount of the cash discount allowable if
the payment is made within 10 days of the invoice date?
a. $201.25
b. $248.75
c. $310.50
d. $402.50
145. ONI, Inc., purchased $60,000 of equipment for cash. How does this transaction impact the statement of cash flows?
a. Decreases the cash flow from operating activities by $60,000
b. Decreases equipment by $60,000
c. Decreases the cash flow from investing activities section by $60,000
d. This transaction would not affect the statement of cash flows.
146. State the section(s) of the statement of cash flows prepared by the indirect method (operating activities, investing
activities, financing activities, or not reported) and the amount that would be reported for each of the following
transactions. Enter all figures as positive amounts.
(a) Received $145,000 from the sale of land costing $70,000.
(b) Purchased investments for $50,000.
(c) Declared $35,000 cash dividends on stock. $5,000 dividends were payable at the beginning of the year, and $6,000
were payable at the end of the year.
(d) Acquired equipment for $32,000 cash.
(e) Declared and issued 100 shares of $20 par common stock as a stock dividend, when the market price of the stock
was $32 a share.
(f) Recognized by an adjusting entry depreciation for the year, $48,000.
(g) Issued 85,000 shares of $10 par common stock for $25 a share, receiving cash.
(h) Issued $500,000 of 20-year, 10% bonds payable at 99.
(i) Borrowed $43,000 from Busey National Bank, issuing a five-year, 8% note for that amount.
147. The following data for the year ended June 30, 20Y8, were extracted from the accounting records of Roof Co.:
Cost of merchandise sold $300,000
Operating expenses 95,000
Sales 450,000
Prepare a multiple-step income statement for the current year ended June 30, 20Y8.
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148. The following data for the current year ended December 31, 20Y8, was extracted from the accounting records of
Xender Co.:
Cost of merchandise sold $937,200
Operating expenses 307,500
Sales 1,230,250
Prepare a multiple-step income statement for the year ended December 31, 20Y8.
149. Selected data from the ledger of Jones Co. after adjustment at June 30, the end of the fiscal year, are listed as follows:
Accounts Receivable $25,000 Prepaid Insurance $2,250
Accumulated Depreciation 35,200 Notes Payable 60,150
Administrative Expenses 80,000 Retained Earnings 55,000
Capital Stock 40,000 Salaries Payable 3,000
Cost of Merchandise Sold 320,000 Sales (net) 550,000
Dividends 22,000 Selling Expenses 65,000
Interest Revenue 3,000 Supplies 2,750
Office Equipment 70,500
Prepare a single-step income statement for the year ended June 30, 20Y8.
150. Details of invoices for purchases of merchandise are as follows:
Merchandise Transportation Terms Returns and Allowances
a. $1,000 $25 FOB shipping point, 1/10, n/30 $200
b. 5,000 — FOB destination, n/30 400
c. 4,000 50 FOB shipping point, 2/10, n/30 150
d. 5,000 — FOB destination, 1/10, n/30 —
Determine the amount to be paid in full settlement of each of the invoices, assuming that credit for returns and allowances
was received prior to payment and that all invoices were paid within the discount period. Also assume that the seller has
prepaid the transportation expenses. Round your answers to whole dollars.
151. Based on the following data, determine the cost of merchandise sold for October.
Merchandise Inventory, October 1 $ 98,560
Merchandise Inventory, October 31 102,330
Purchases 433,880
Purchases Returns & Allowances 12,760
Purchases Discounts 9,900
Transportation In 7,620
152. Prepare a multiple-step income statement for Surry Co. from the following data for the year ended December 31,
20Y8.
Sales, $915,000; cost of merchandise sold, $670,000; administrative expenses, $30,000; interest expense, $12,000; rent
revenue, $19,000; customer refunds and allowances, $55,000; selling expenses, $120,000.
153. Gold Co. sold merchandise to Bronze Co. on account, $23,000, 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
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Co. paid the invoice within the discount period. What is the amount of net income earned by Gold Co. on the
transactions?
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Answer Key
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