Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Chapter 05 Accounting for Merchandising Operations
MULTIPLE CHOICE QUESTIONS
1)
Merchandise inventory refers to products that a company owns and intends to sell to customers.
A)
True
B)
False
2)
A service company earns net income by buying and selling merchandise.
A)
True
B)
False
3)
Gross profit is also called gross margin.
A)
True
B)
False
4)
Cost of goods sold is also called cost of sales.
A)
True
B)
False
5)
A wholesaler buys products from manufacturers or other wholesalers and sells them to consumers.
A)
True
B)
False
6)
A retailer buys products from manufacturers and sells them to wholesalers.
A)
True
B)
False
7)
Cost of goods sold represents the cost of buying and preparing merchandise for sale.
A)
True
B)
False
8)
A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals
$150,000.
A)
True
B)
False
9)
A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross margin equals
$890,000.
A)
True
B)
False
10)
A company had a gross profit of $300,000 based on sales of $400,000. Its cost of goods sold equals
$700,000.
A)
True
B)
False
11)
A merchandising company's operating cycle begins with the purchase of merchandise and ends
with the collection of cash from the sale.
A)
True
B)
False
12)
Merchandise inventory is reported in the long-term assets section of the balance sheet.
A)
True
B)
False
13)
Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles.
A)
True
B)
False
14)
Cost of goods sold is an expense, and is reported on the income statement.
A)
True
B)
False
15)
A periodic inventory system requires updating of the inventory account only at the beginning of an
accounting period.
A)
True
B)
False
16)
A perpetual inventory system continually updates accounting records for merchandising
transactions.
A)
True
B)
False
17)
Beginning inventory plus net purchases equals merchandise available for sale.
A)
True
B)
False
18)
The acid-test ratio is also called the quick ratio.
A)
True
B)
False
19)
Quick assets include cash and cash equivalents, inventory, and current receivables.
A)
True
B)
False
20)
The acid-test ratio is defined as current assets divided by current liabilities.
A)
True
B)
False
21)
A common rule of thumb is that a company's acid-test ratio should have a value near or higher than
1 to conclude that a company is unlikely to face near-term liquidity problems.
A)
True
B)
False
22)
Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the
current ratio.
A)
True
B)
False
23)
A company's quick assets are $147,000 and its current liabilities are $143,000. This company's
acid-test ratio is 1.03.
A)
True
B)
False
24)
A company's current ratio is 1.2 and its quick ratio is 0.25. This company is probably an excellent
credit risk because the ratios reveal no indication of liquidity problems.
A)
True
B)
False
25)
The gross margin ratio is defined as gross margin divided by net sales.
A)
True
B)
False
26)
The profit margin ratio is the same as the gross profit ratio.
A)
True
B)
False
27)
A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was
$13,750. The company's gross margin ratio equals 24.5%.
A)
True
B)
False
28)
The Merchandise Inventory account balance at the beginning of the current period is equal to the
amount of ending Merchandise Inventory from the previous period.
A)
True
B)
False
29)
Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.
A)
True
B)
False
30)
Purchase returns refer to merchandise a buyer acquires but then returns to the seller.
A)
True
B)
False
31)
Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.
A)
True
B)
False
32)
Purchase allowances refer to a price reduction (allowance) granted to a buyer of defective or
unacceptable merchandise.
A)
True
B)
False
33)
Under the perpetual inventory system, the cost of merchandise purchased is recorded in the
Merchandise Inventory account.
A)
True
B)
False
34)
Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the
amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.
A)
True
B)
False
35)
Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.
A)
True
B)
False
36)
Purchase discounts are the same as trade discounts.
A)
True
B)
False
37)
If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the
discount period is 60 days.
A)
True
B)
False
38)
The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit
if goods are shipped FOB destination.
A)
True
B)
False
39)
If goods are shipped FOB destination, the seller does not record revenue from the sale until the
goods arrive at their destination because the transaction is not complete until that point.
A)
True
B)
False
40)
If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the
goods arrive at their destination because the transaction is not complete until that point.
A)
True
B)
False
41)
A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases
in a Delivery Expense account.
A)
True
B)
False
42)
If a buyer does not take advantage of a supplier's credit terms of 2/10, n/30, and instead pays the
invoice in full at the end of 30 days, by not taking the discount the buyer loses the equivalent of
18% annual interest on the amount of the purchase.
A)
True
B)
False
43)
FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's
place of business.
A)
True
B)
False
44)
Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both
revenue and cost of merchandise sold.
A)
True
B)
False
45)
Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving
cash and reducing future collections efforts.
A)
True
B)
False
46)
Sales Discounts is added to the Sales account when computing a company's net sales.
A)
True
B)
False
47)
Sales discounts has a normal debit balance because it decreases Sales, which has a normal credit
balance.
A)
True
B)
False
48)
Under a perpetual inventory system, when a credit customer returns non-defective merchandise to
the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also
debits Merchandise Inventory and credits Cost of Goods Sold.
A)
True
B)
False
49)
Each sale of merchandise has two parts: the revenue side and the cost side.
A)
True
B)
False
50)
A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to
Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early
payment.
A)
True
B)
False
51)
Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.
A)
True
B)
False
52)
A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there
is no need for a physical count of inventory.
A)
True
B)
False
53)
Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to
close the accounts during the closing process.
A)
True
B)
False
54)
Cost of Goods Sold is debited to close the account during the closing process.
A)
True
B)
False
55)
In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of
the accounting period.
A)
True
B)
False
56)
The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to
Inventory Shrinkage Expense.
A)
True
B)
False
57)
A multiple-step income statement format shows detailed computations of net sales and other costs
and expenses, and reports subtotals for various classes of items.
A)
True
B)
False
58)
Operating expenses are classified into two categories: selling expenses and cost of goods sold.
A)
True
B)
False
59)
A merchandiser's classified balance sheet reports merchandise inventory as a current asset.
A)
True
B)
False
60)
Expenses related to accounting, human resource management, and financial management are
known as selling expenses.
A)
True
B)
False
