63.
In a periodic inventory system, cost of goods sold is recorded as each sale of merchandise
occurs.
64.
Under both the periodic and perpetual inventory systems, the temporary account
Purchases Returns and Allowances is used to accumulate the cost of all returns and
allowances for a period.
65.
Advertising expense is reported as part of general and administrative expenses in the
seller’s multiple-step income statement.
66.
New revenue recognition rules that apply to public entities for annual periods beginning
after December 15, 2017 require sellers to report sales net of expected sales discounts in
the income statement.
67.
Under the net method of recording purchases, the Discounts Lost account is used when
the purchaser fails to take a discount offered by the seller.
68.
When using the net method of recording sales, discounts not taken by the purchaser are
recorded by the seller as Interest Revenue at the time of collection on account.
69.
Inventory Returns Estimated, which reflects an adjustment to cost of goods sold for
expected future returns, is a liability account reported in the balance sheet, usually under
Current Liabilities.
70.
Inventory Returns Estimated is a current asset account used in a period-end adjusting
entry to reflect the inventory estimated to be returned in the future.
71.
Companies that use a perpetual inventory system under the gross method debit the total
purchase invoice amount and credit cash discounts taken to the Merchandise Inventory
account.
4-24
72.
Under the gross method, if companies using a perpetual inventory system do not take
advantage of purchase discounts, a Discounts Lost account is debited at the time of
payment.
73.
Under the net method, when a company uses a perpetual inventory system, an invoice for
$2,000 with terms of 2/10, n/30 should be recorded with a debit to Merchandise Inventory
and a credit to Accounts Payable of $2,000.
Multiple Choice Questions
74.
A merchandiser:
75.
Cost of goods sold is:
76.
A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit
equals:
77.
A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold
equals:
78.
The following statements regarding gross profit are true
except
:
79.
The following statements regarding merchandise inventory are true
except
:
80.
The following statements are true regarding the operating cycle of a merchandising
company
except
:
81.
Merchandise inventory:
82.
The operating cycle for a merchandiser that makes only cash sales moves from:
83.
The current period’s ending inventory is:
84.
Beginning inventory plus net purchases equals:
85.
The acid-test ratio:
86.
Quick assets are defined as:
87.
KLM Corporation’s quick assets are $5,888,000, its current assets are $11,700,000 and its
current liabilities are $8,000,000. Its acid-test ratio equals:
88.
A company’s current assets are $17,980, its quick assets are $11,420 and its current
liabilities are $12,190. Its acid-test ratio equals:
89.
Liquidity problems are likely to exist when a company’s acid-test ratio:
90.
The acid-test ratio differs from the current ratio in that:
91.
Using the following year-end information for Calvin’s Clothing, Inc., calculate the current
ratio and acid-test ratio for the business:
Cash
$52,000
Short-term investments
12,000
Accounts receivable
54,000
Inventory
325,000
Prepaid expenses
17,500
Accounts payable
106,500
Other current payables
25,000
92.
The gross margin ratio:
93.
A company’s gross profit was $83,750 and its net sales were $347,800. Its gross margin
ratio equals:
94.
A company’s net sales were $676,600, its cost of goods sold was $236,810 and its net
income was $33,750. Its gross margin ratio equals:
95.
A company had net sales of $752,000 and cost of goods sold of $543,000. Its net income
was $17,530. The company’s gross margin ratio equals:
96.
Mega Skateboard Supplier, Inc. had net sales of $2.8 million, its cost of goods sold was
$1.6 million, and its net income was $0.9 million. Its gross margin ratio equals:
97.
The credit terms 2/10, n/30 are interpreted as:
98.
A trade discount is:
99.
Jasper Company, Inc. is a wholesaler that buys merchandise in large quantities. Its
supplier’s catalog indicates a list price of $500 per unit on merchandise Jasper intends to
purchase, and the supplier offers a 30% trade discount for large quantity purchases. The
cost of shipping the merchandise is $7 per unit. Jasper’s net purchase price per unit will
be:
100.
Fragment Company, Inc. is a wholesaler that sells merchandise in large quantities. Its
catalog indicates a list price of $300 on a particular product and a 40% trade discount is
offered for quantity purchases of 50 units or more. The cost of shipping the merchandise
is $7 per unit under terms FOB shipping point. If a customer purchases 100 units of this
product, what is the amount of sales revenue that Fragment will record from this sale?
101.
The amount recorded for merchandise inventory purchases includes all of the following
except
:
102.
A company using the gross method of accounting for purchases and a perpetual inventory
system recorded the following entry:
Accounts Payable
2,500
Merchandise Inventory
50
Cash
2,450
This entry reflects a: