61)
When a company has no reportable non-operating activities, its income from operations is simply
labeled net income.
A)
True
B)
False
62)
A single-step income statement includes cost of goods sold as another expense and shows only one
subtotal for total expenses.
A)
True
B)
False
63)
Under a periodic inventory system, purchases, purchases returns and allowances, purchase
discounts, and transportation in transactions are recorded in the Merchandise Inventory account.
A)
True
B)
False
64)
The periodic inventory system requires updating the inventory account only at the end of the period
to reflect the quantity and cost of goods available for sale and the cost of goods sold.
A)
True
B)
False
65)
In a periodic inventory system, cost of goods sold is recorded as each sale occurs.
A)
True
B)
False
66)
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.
A)
True
B)
False
67)
Delivery expense is reported as part of general and administrative expense in the seller’s income
statement.
A)
True
B)
False
68)
New revenue recognition rules require that sellers report sales net of expected sales discounts.
A)
True
B)
False
69)
The gross method requires a period-end adjusting entry to estimate future sales discounts.
A)
True
B)
False
70)
Inventory Returns Estimated, which reflects an adjustment to inventory for expected future returns,
is a liability account reported in the balance sheet, usually under Current Liabilities.
A)
True
B)
False
71)
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.
A)
True
B)
False
72)
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.
A)
True
B)
False
73)
When purchases are recorded at net amounts, any discounts lost as a result of late payments are
reported as an operating expense.
A)
True
B)
False
74)
The net method initially records the invoice at its net amount (net of any cash discount).
A)
True
B)
False
75)
Either the gross method or net method may be used to record sales with cash discounts, but the net
method requires a period-end adjusting entry to estimate expected future sales discounts taken.
A)
True
B)
False
76)
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.
A)
True
B)
False
77)
A merchandiser:
A)
Earns net income by buying and selling merchandise.
B)
Earns profit from fares only.
C)
Earns profit from commissions only.
D)
Receives fees only in exchange for services.
E)
Buys products from consumers.
78)
Cost of goods sold:
A)
Is another term for revenue.
B)
Is another term for merchandise sales.
C)
Is also called gross margin.
D)
Is a term only used by service firms.
E)
Is the term used for the expense of buying and preparing merchandise for sale.
79)
A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:
A) $(417,000).
B) $973,000.
C) $695,000.
D) $417,000.
E) $278,000.
80)
A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:
A) $532,500.
B) $157,500.
C) $(217,000).
D) $217,500.
E) $375,000.
81)
The following statements regarding gross profit are true except:
A)
Gross profit less other operating expenses equals income from operations.
B)
Gross profit is not calculated on the multiple-step income statement.
C)
Gross profit equals net sales less cost of goods sold.
D)
Gross profit is also called gross margin.
E)
Gross profit must cover all operating expenses to yield a return for the owner of the business.
82)
The following statements regarding merchandise inventory are true except:
A)
Merchandise inventory refers to products a company owns and intends to sell.
B)
Merchandise inventory appears on the balance sheet of a service company.
C)
Purchasing merchandise inventory is part of the operating cycle for a business.
D)
Merchandise inventory is reported on the balance sheet as a current asset.
E)
Merchandise inventory may include the costs of freight in and making them ready for sale.
83)
The following statements are true regarding the operating cycle of a merchandising company
except:
A)
The operating cycle is shortened by credit sales.
B)
The operating cycle ends with the collection of cash from the sale of merchandise.
C)
The operating cycle begins with the purchase of merchandise.
D)
The operating cycle can vary in length among different merchandising companies.
E)
The operating cycle sometimes involves accounts receivable.
84)
Merchandise inventory:
A)
Is a long-term asset.
B)
Is classified with investments on the balance sheet.
C)
Is a current asset.
D)
Must be sold within one month.
E)
Includes supplies the company will use in future periods.
85)
The operating cycle for a merchandiser that sells only for cash moves from:
A)
Accounts receivable to inventory to cash sales.
B)
Accounts receivable to purchases of merchandise to inventory to cash sales.
C)
Inventory to purchases of merchandise to cash sales.
D)
Purchases of merchandise to inventory to accounts receivable to cash sales.
E)
Purchases of merchandise to inventory to cash sales.
86)
The current period‘s ending inventory is:
A)
The current period’s cost of goods sold.
B)
The current period’s net purchases.
C)
The prior period’s beginning inventory.
D)
The current period‘s beginning inventory.
E)
The next period’s beginning inventory.
87)
Beginning inventory plus net purchases is:
A)
Ending inventory.
B)
Cost of goods sold.
C)
Shown on the balance sheet.
D)
Merchandise (goods) available for sale.
E)
Sales.
88)
The acid-test ratio:
A)
Measures return on assets.
B)
Is also called the quick ratio.
C)
Is generally greater than the current ratio.
D)
Measures profitability.
E)
Measures inventory turnover.
89)
Quick assets are defined as:
A)
Cash, noncurrent receivables, and prepaid expenses.
B)
Accounts receivable, inventory, and prepaid expenses.
C)
Cash, inventory, and current receivables.
D)
Cash, short-term investments, and current receivables.
E)
Cash, short-term investments, and inventory.
90)
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:
A) 1.50. B) 0.74. C) 0.50. D) 0.68. E) 2.20.
91)
A company’s current assets are $17,980, its quick assets are $11,420 and its current liabilities are
$12,190. Its quick ratio equals:
A) 2.40. B) 0.94. C) 1.48. D) 1.57. E) 1.07.
92)
Liquidity problems are likely to exist when a company’s acid-test ratio:
A)
Is substantially lower than 1.
B)
Is less than the current ratio.
C)
Equals 1.
D)
Is higher than the current ratio.
E)
Is higher than 1.
93)
The acid-test ratio differs from the current ratio in that:
A)
The acid-test ratio measures profitability and the current ratio does not.
B)
The acid-test ratio excludes short-term investments from the calculation.
C)
The acid-test ratio is a measure of liquidity but the current ratio is not.
D)
Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio.
E)
Liabilities are divided by current assets.
94)
Using the following year-end information for Calvin’s Clothing, 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
A) 1.97 and 1.52
B) 1.80 and 0.90
C) 3.50 and 0.90
D)
1.80 and 1
E) 2.73 and 1.52
95)
The gross margin ratio:
A)
Indicates the percent of sales revenue remaining after covering the cost of the goods sold.
B)
Should be greater than 1 for merchandising companies.
C)
Is a measure of liquidity and should exceed 2.0 to be acceptable.
D)
Is also called the net profit ratio.
E)
Is also called the profit margin.
96)
A company’s gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio
equals:
A) 24.1%. B) $264,050. C) 75.9%. D) 4.2%. E) $83,750.
97)
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:
A) 35%. B) 9.6%. C) 5%. D) 285.7%. E) 65%.
98)
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:
A) 18.9% B) 34.7% C) 35.2% D) 27.8% E) 24.5%
99)
Mega Skateboard Supplier 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:
A) 175%. B) 32%. C) 43%. D) 57%. E) 56%.
100)
The credit terms 2/10, n/30 are interpreted as:
A)
10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
B)
2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
C)
30% discount if paid within 10 days.
D)
2% discount if paid within 30 days.
E)
30% discount if paid within 2 days.
101)
A trade discount is:
A)
A reduction in price for prompt payment.
B)
Also called a rebate.
C)
A reduction in selling price below the list price.
D)
A term used by a seller to describe a cash discount granted to customers for prompt payment.
E)
A term used by a purchaser to describe a cash discount given to customers for prompt
payment.
102)
Jasper Company 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 offers a 30%
trade discount for large quantity purchases. The cost of shipping for the merchandise is $7 per unit.
Jasper’s total purchase price per unit will be:
A) $350 B) $507 C) $343 D) $357 E) $493
103)
Fragment Company is a wholesaler that sells merchandise in large quantities. Its catalog indicates a
list price of $300 per unit 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?
A) $30,000 B) $29,300 C) $18,700 D) $30,700 E) $18,000