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
True
Easy
False
JFND-GO3A-EW4R-GPJA
2. Net sales is equal to sales plus cost of merchandise sold.
a.
True
b.
False
False
Easy
False
JFND-GO3A-EW4R-GPKG
3. The merchandise inventory account is found on the balance sheet.
a.
True
Chapter 4
b.
False
True
Easy
False
JFND-GO3A-EW4R-GPKF
4. Net income or loss may appear on the income statement of both a service business and a retail business.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-GPKR
5. Purchase discounts reduce sales.
a.
True
b.
False
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
False
Easy
False
JFND-GO3A-EW4R-EOJU
7. Gross profit percent is calculated by dividing gross profit by net sales.
a.
True
b.
False
True
Easy
Easy
False
JFND-GO3A-EW4R-EOKD
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
True
Moderate
False
JFND-GO3A-EW4R-EO1N
9. Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made.
a.
True
b.
False
True
Easy
False
False
JFND-GO3A-EW4R-EQB3
GO4W-NQNBEE
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
True
Easy
False
JFND-GO3A-EW4R-EO1R
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
False
Moderate
False
JFND-GO3A-EW4R-EOJT
4OTI-GO4W-NQNBEE
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
True
Easy
False
JFND-GO3A-EW4R-EO1F
13. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-EOTZ
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
False
Easy
False
JFND-GO3A-EW4R-EOT3
15. Purchases discounts are discounts given to the seller.
a.
True
b.
False
False
Easy
False
JFND-GO3A-EW4R-EO1D
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
False
Easy
False
JFND-GO3A-EW4R-GPJ1
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
False
Easy
False
JFND-GO3A-EW4R-EOT1
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
False
Easy
False
JFND-GO3A-EW4R-GPJU
19. Sales discounts are granted by the seller to customers for payment at the end of the month.
a.
True
b.
False
False
Easy
False
JFND-GO3A-EW4R-GPJI
JFND-GO3A-EW4R-GPKD
Chapter 4
20. Customer refunds and allowances is a contra-asset account.
a.
True
b.
False
False
Easy
False
JFND-GO3A-EW4R-GPJS
21. Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-EOTA
22. Credit memorandum is issued by the seller to customers for return of damaged or defective merchandise.
Chapter 4
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-GPJZ
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
True
Easy
False
JFND-GO3A-EW4R-EOJ1
24. When merchandise that was sold is returned, the seller decreases accounts payable.
a.
True
b.
False
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
True
Easy
False
JFND-GO3A-EW4R-EOJW
26. Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system.
a.
True
b.
False
Easy
Moderate
False
JFND-GO3A-EW4R-EOKB
Chapter 4
False
JFND-GO3A-EW4R-EO1G
27. Sales discounts is used in accounting for transactions with customers.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-EOJO
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
True
Challenging
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
False
Easy
False
JFND-GO3A-EW4R-EOJI
30. The sales discount account is a contra account to Sales.
a.
True
b.
False
True
Easy
False
False
JFND-GO3A-EW4R-EOTT
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
False
Easy
False
JFND-GO3A-EW4R-EOJS
32. A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570.
a.
True
b.
False
False
Moderate
False
JFND-GO3A-EW4R-EOJA
4OTI-GO4W-NQNBEE
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
False
Easy
False
JFND-GO3A-EW4R-EOTU
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
False
Moderate
False
JFND-GO3A-EW4R-EOJZ
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
True
Easy
False
JFND-GO3A-EW4R-EOTS
36. Freight in is the amount paid by the seller to deliver merchandise sold to a customer.
a.
True
b.
False
False
Easy
False
JFND-GO3A-EW4R-EO1B
Chapter 4
37. When the terms of sale are FOB shipping point, the buyer should pay the transportation charges.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-EOTO
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
False
Easy
False
JFND-GO3A-EW4R-EOTW
JFND-GO3A-EW4R-EOKG
Chapter 4
39. Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-EOTI
40. Merchandise inventory shrinkage will increase Merchandise Inventory.
a.
True
b.
False
False
Easy
False
JFND-GO3A-EW4R-EQNB
Chapter 4
41. Merchandise inventory shrinkage will decrease Retained Earnings.
a.
True
b.
False
True
Easy
False
JFND-GO3A-EW4R-EQNN
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
True
Easy
False
JFND-GO3A-EW4R-GPJT
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