Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 4
1. Operating expenses are subtracted from fees earned for a service business and from gross profit for a merchandising
business.
a.
True
b.
False
2. Net sales is equal to sales plus cost of merchandise sold.
a.
True
b.
False
3. The merchandise inventory account is found on the balance sheet.
a.
True
Chapter 4
b.
False
4. Net income or loss may appear on the income statement of both a service business and a retail business.
a.
True
b.
False
5. Purchase discounts reduce sales.
a.
True
b.
False
Chapter 4
6. It is usual for the credit period to begin with the date the merchandise is received by the buyer.
a.
True
b.
False
7. Gross profit percent is calculated by dividing gross profit by net sales.
a.
True
b.
False
Chapter 4
8. When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to
pay within the discount period.
a.
True
b.
False
9. Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made.
a.
True
b.
False
Chapter 4
10. Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer.
a.
True
b.
False
11. If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with transportation costs of $100, is paid within 10
days, the amount of the purchases discount is $52.
a.
True
b.
False
Chapter 4
12. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 10 days after the invoice date to take
advantage of the cash discount.
a.
True
b.
False
13. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.
a.
True
b.
False
Chapter 4
14. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take
advantage of the cash discount.
a.
True
b.
False
15. Purchases discounts are discounts given to the seller.
a.
True
b.
False
Chapter 4
16. On the income statement, the merchandise inventory at the beginning of the period is added to sales to yield the cost
of merchandise sold during the period.
a.
True
b.
False
17. On the income statement, customer refunds and allowances and customer discounts are added to gross sales to yield
net sales.
a.
True
b.
False
Chapter 4
18. On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold.
a.
True
b.
False
19. Sales discounts are granted by the seller to customers for payment at the end of the month.
a.
True
b.
False
Chapter 4
20. Customer refunds and allowances is a contra-asset account.
a.
True
b.
False
21. Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller.
a.
True
b.
False
22. Credit memorandum is issued by the seller to customers for return of damaged or defective merchandise.
Chapter 4
a.
True
b.
False
23. If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/eom.
a.
True
b.
False
24. When merchandise that was sold is returned, the seller decreases accounts payable.
a.
True
b.
False
Chapter 4
25. The effect of a customer refund and allowance is a reduction in sales revenue and a decrease in cash or accounts
receivable.
a.
True
b.
False
26. Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system.
a.
True
b.
False
Chapter 4
27. Sales discounts is used in accounting for transactions with customers.
a.
True
b.
False
28. Merchandise is sold for $2,500, terms FOB destination, 2/10, n/30, with transportation costs of $150. If $500 of the
merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales
discount is $40.
a.
True
b.
False
Chapter 4
29. The document issued by the seller that informs the buyer of the details of customer refund is called a debit
memorandum.
a.
True
b.
False
30. The sales discount account is a contra account to Sales.
a.
True
b.
False
Chapter 4
31. Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.
a.
True
b.
False
32. A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570.
a.
True
b.
False
Chapter 4
33. If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms
are stated as FOB destination.
a.
True
b.
False
34. If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid
within 10 days, the amount of the purchases discount is $48.
a.
True
b.
False
Chapter 4
35. When someone purchases merchandise and incurs the cost of transportation, these costs of purchasing inventory are
added to the cost of the inventory.
a.
True
b.
False
36. Freight in is the amount paid by the seller to deliver merchandise sold to a customer.
a.
True
b.
False
Chapter 4
37. When the terms of sale are FOB shipping point, the buyer should pay the transportation charges.
a.
True
b.
False
38. In a transaction where purchased merchandise has been returned, the buyer will increase the Customer Refunds
Payable account and the seller will increase the Purchases Returns and Allowances account.
a.
True
b.
False
Chapter 4
39. Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise.
a.
True
b.
False
40. Merchandise inventory shrinkage will increase Merchandise Inventory.
a.
True
b.
False
Chapter 4
41. Merchandise inventory shrinkage will decrease Retained Earnings.
a.
True
b.
False
42. On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.
a.
True
b.
False
43. A criticism of the single-step income statement is that gross profit and income from operations are not readily
available for analysis.
a.
True
