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114. An account used in the periodic inventory system that is not used in the perpetual
inventory system is
A. Merchandise Inventory
B. Sales
C. Sales Returns and Allowances
D. Accounts Payable
E. Purchases
115. When preparing an unadjusted trial balance using a periodic inventory system, the
amount shown for Merchandise Inventory is:
A. The ending inventory amount.
B. The beginning inventory amount.
C. Equal to the cost of goods sold.
D. Equal to the cost of goods purchased.
E. Equal to the gross profit.
116. On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses
the periodic inventory system. The journal entry or entries that Courtland will make on
October 1 is:
A. Sales 5,800
Accounts receivable
5,800
B. Sales 5,800
Accounts receivable
5,800
Cost of goods sold 4,000
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Merchandise Inventory
4,000
C. Accounts receivable 5,800
Sales 5,800
D. Accounts receivable 5,800
Sales 5,800
Cost of goods sold 4,000
Merchandise inventory
4,000
E. Accounts receivable 4,000
Sales 4,000
117. On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses
the periodic inventory system. Carter pays the invoice on October 8, and takes the appropriate
discount. The journal entry that Courtland makes on October 8 is:
A. Cash 5,800
Accounts receivable
5,800
B. Cash 4,000
Accounts receivable
4,000
C. Cash 3,920
Sales discounts 80
Accounts receivable
4,000
D. Cash 5,684
Accounts receivable
5,684
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E. Cash 5,684
Sales discounts 116
Accounts receivable
5,800
118. On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses
the periodic inventory system. On October 4, Carter returns some of the merchandise. The
selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The
entry or entries that Courtland must make on October 4 is:
A. Sales returns and allowances 500
Accounts receivable
500
Merchandise inventory 350
Cost of goods sold
350
B. Sales returns and allowances 500
Accounts receivable
500
C. Accounts receivable 500
Sales returns and allowances
500
D. Accounts receivable 500
Sales returns and allowances
500
Cost of goods sold 350
Merchandise inventory
350
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E. Sales returns and allowances 350
Accounts receivable
350
119. On October 1, Courtland Company sold merchandise in the amount of $5,800 to Carter
Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Courtland uses
the periodic inventory system. On October 4, Carter returns some of the merchandise. The
selling price of the merchandise is $500 and the cost of the merchandise returned is $350.
Carter pays the invoice on October 8, and takes the appropriate discount. The journal entry
that Courtland makes on October 8 is:
A. Cash 5,800
Accounts receivable
5,800
B. Cash 4,000
Accounts receivable
4,000
C. Cash 5,194
Sales discounts 106
Accounts receivable
5,300
D. Cash 5,684
Accounts receivable
5,684
E. Cash 5,684
Sales discounts 116
Accounts receivable
5,800
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120. Brig Company had $800,000 in net sales, $350,000 in gross profit, and $200,000 in
operating expenses. Cost of goods sold equals:
A. $150,000.
B. $450,000.
C. $800,000.
D. $350,000.
E. $200,000.
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121. Brig Company had $800,000 in sales, sales discounts of $12,000, sales returns and
allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses.
Gross profit equals:
A. $770,000.
B. $115,000.
C. $390,000.
D. $402,000.
E. $408,000.
122. Brig Company had $800,000 in sales, sales discounts of $12,000, sales returns and
allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses.
Net income equals:
A. $770,000.
B. $402,000.
C. $390,000.
D. $115,000.
E. $408,000.
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123. A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On
June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the
merchandise taking any discount it is entitled to. The cash paid on June 24 equals:
A. $8,924.
B. $9,700.
C. $10,000.
D. $9,800.
E. $8,724.
124. A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and
FOB shipping point. The freight charge was $500. On June 20, it returned $800 of that
merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it
is entitled to. The cash paid on June 24 equals:
A. $9,224.
B. $10,200.
C. $10,500.
D. $10,300.
E. $9,424.
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125. A company’s current assets are $23,420, its quick assets were $13,890 and its current
liabilities were $12,220. Its acid-test ratio equals:
A. 0.88.
B. 1.91.
C. 1.14.
D. .52.
E. 1.41.
126. Using the following year-end information for Brim, LLC, calculate the current ratio and
acid-test ratio:
Cash $ 48,000
Short-term investments 12,000
Accounts receivable 45,000
Inventory 225,000
Prepaid expenses 12,500
Accounts payable 86,500
Other current payables 22,000
A. 3.01 and 1.21
B. 3.16 and .97
C. 3.04 and 1.21
D. 1.09 and 4.77
E. None of the answers are correct.
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127. A company’s net sales are $775,420, its costs of goods sold are $413,890, and its net
income is $117,220. Its gross margin ratio equals:
A. 46.6%.
B. 53.4%.
C. 28.3%.
D. 31.5%.
E. 40.5%.
128. All of the following statements related to U.S. GAAP and IFRS are true except:
A. Accounting for basic inventory transactions is the same under the two systems.
B. The closing process for merchandisers is the same under both systems.
C. U.S. GAAP offers little guidance about the presentation order of expenses.
D. Neither system requires separate disclosure of items when their size, nature, or frequency
are important for proper interpretation.
E. Neither system defines operating income.
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129. A company purchases merchandise with a catalog price of $20,000. The company
receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10, n/30.
Assuming no returns were made and that payment was made on within the discount period,
what is the net cost of the merchandise?
A. $13,720.
B. $19,600.
C. $6,860.
D. $13,000.
E. $12,740.
130. A company has net sales and cost of goods sold of $825,000 and $547,000, respectively.
Its net income is $98,500. The company’s gross margin and operating expenses are ________
and ____________, respectively.
A. $209,000; $191,470
B. $278,000; $179,500
C. $278,000; $98,500
D. $179,500; $98,500
E. $645,500; $179,500
131. Match the following definitions and terms by placing the letter for the terms A through J
in the blank space next to the best definition.
A. List price
B. Merchandise inventory
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C. EOM
D. Single-step income statement
E. FOB
F. Acid-test ratio
G. Inventory shrinkage
H. Selling expenses
I. Multiple-step income statement
J. General and administrative expenses
___1. A ratio used to assess a company’s ability to pay its current liabilities; defined as quick
assets divided by current liabilities.
___2. An income statement format that shows only one subtotal for total expenses.
___3. The abbreviation for free on board; refers to the point when ownership of goods passes
to the buyer.
___4. Products a company owns and intends to sell.
___5. Expenses that support overall operations and includes expenses related to accounting,
human resource management and financial management.
___6. The abbreviation for end-of-month; used to describe credit terms for some transactions.
___7. Inventory losses that can occur as a result of theft or deterioration.
___8. An income statement format that shows detailed computations of net sales and other
costs and expenses, and reports subtotals for various classes of items.
___9. The catalog price of an item before any trade discount is deducted.
___10. The expenses of promoting sales by displaying and advertising merchandise, making
sales, and delivering goods to customers.
132. Match the following terms with the appropriate definition.
A. Credit memorandum
B. Credit period
C. Credit terms
D. Debit memorandum
E. Discount period
F. Gross profit
G. Periodic inventory system
H. Perpetual inventory system
I. Sales discount
J. Selling expenses
__1. An accounting method that continually updates accounting records for merchandise
transactions.
__2. An accounting method that updates the accounting records for merchandise transactions
only at the end of a period.
__3. The time period in which a cash discount is available and a reduced payment can be
made by the buyer.
__4. A notification that the sender has debited the recipient’s account kept by the sender.
__5. The expenses of promoting sales, by displaying and advertising merchandise, making
sales, and delivering goods to customers.
__6. A notification that the sender has credited the recipient’s account kept by the sender.
__7. A cash discount granted to customers for paying within the discount period.
__8. Net sales less cost of goods sold.
__9. The description of the amounts and timing of payments from a buyer to a seller.
__10. The amount of time allowed before full payment is due.
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133. Identify and explain the key components of income for a merchandising company.
134. Describe the difference between wholesalers and retailers.
135. Describe the key attributes of inventory for a merchandising company.
136. List the steps of the operating cycle for a merchandiser with credit sales.
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137. What is the difference between the periodic and perpetual inventory systems?
138. Explain the cost flows and operating activities of a merchandising company.
139. What is the acid-test ratio? How does it measure a company’s liquidity?
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140. What is gross margin ratio? How is it used as an indicator of profitability?
141. What does FOB stand for? Differentiate between FOB shipping point (or FOB factory)
and FOB destination.
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142. Describe the recording process (including costs) for purchasing merchandise inventory
using a perpetual inventory system.
143. Describe the recording process (including costs) for sales of merchandise inventory using
a perpetual inventory system.
144. What is inventory shrinkage? How do managers account for shrinkage?
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145. How do closing entries for a merchandising company that uses the perpetual inventory
system differ from the closing entries for a service company?
146. Explain the difference between the single-step and multiple-step income statements.
147. Distinguish between selling expenses and general and administrative expenses.
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148. What are the difference(s) between the periodic and the perpetual inventory systems?
149. Describe how tracking inventory activities are necessary for a merchandising company.
Problems
150. Nichole Company had net sales of $500,000 and cost of goods sold of $350,000.
Calculate Nichole’s gross profit.
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151. Harriet’s Toy Shop had net sales of $852,000. The gross profit was $230,000. Calculate
Harriet’s cost of goods sold.
152. Fill in the blanks (a) through (g) for the Hendricks Company for each of the income
statements for 2012, 2013, and 2014.
Hendricks Company
Income Statements
For the years ended December 31
2012 2013 2014
Sales $7,500 $10,000 (f)
Cost of goods sold
Merchandise inventory (beginning) (a) 375 750
Total cost of merchandise purchases 2,400 3,625
4,875
Merchandise inventory (ending) (b) ____ 750
625
Cost of goods sold 2,770 (d)____
5,000
Gross profit (c) 6,750
5,200
Operating expenses 3,750 3,750
(g)____
Net income $ 980 (e) . $ 2,500
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153. The following information is available for Trico and its two main competitors in the
industry (Duco and Unico):
Trico Duco Unico
Cash $9,800 $10,500 $26,500
Short-term investments 6,400 8,200 12,500
Accounts receivable 12,500 8,500 14,350
Merchandise inventory 30,150 40,000 40,150