Chapter 5 – Accounting for Merchandising Businesses
75. The inventory system employing accounting records that continuously disclose the amount of inventory is called
a.
retail
b.
periodic
c.
physical
d.
perpetual
76. Calculate the gross profit for Jefferson Company based on the following:
Sales
Selling expenses
Cost of goods sold
a.
$495,500
b.
$183,500
c.
$721,500
d.
$226,000
Gross profit = Sales – Cost of goods sold = $764,000 – $538,000 = $226,000
77. Calculate income from operations for Jonas Company based on the following data:
Sales
Operating expenses
Cost of goods sold
a.
$485,500
b.
$711,500
c.
$173,500
d.
$226,000
Chapter 5 – Accounting for Merchandising Businesses
78. Gross profit is equal to
a.
sales plus cost of goods sold
b.
sales plus selling expenses
c.
sales less selling expenses
d.
sales less cost of goods sold
79. When comparing a retail business to a service business, the financial statement that changes the most is the
a.
balance sheet
b.
income statement
c.
retained earnings statement
d.
statement of cash flows
80. Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. Pound Co. paid the invoice within
the discount period. What is the sales amount to be recorded in the above transactions?
a.
$25,500
b.
$26,010
c.
$24,990
d.
$16,000
Chapter 5 – Accounting for Merchandising Businesses
81. The primary difference between the periodic and perpetual inventory systems is that a
a.
periodic system determines the inventory on hand only at the end of the accounting period
b.
periodic system keeps a record showing the inventory on hand at all times
c.
periodic system provides an easy means to determine inventory shrinkage
d.
periodic system records the cost of the sale on the date the sale is made
82. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
a.
debit to Sales
b.
debit to Inventory
c.
credit to Inventory
d.
credit to Accounts Receivable
83. Which of the following accounts has a normal debit balance?
a.
Accounts Payable
b.
Inventory
c.
Sales
d.
Interest Revenue
Chapter 5 – Accounting for Merchandising Businesses
84. Merchandise is ordered on November 10; the merchandise is shipped by the seller and the invoice is prepared, dated,
and mailed by the seller on November 13; the merchandise is received by the buyer on November 18; the entry is made in
the buyer’s accounts on November 20. The credit period begins with what date?
a.
November 10
b.
November 13
c.
November 18
d.
November 20
85. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account
includes a
a.
credit to Customer Refunds Payable
b.
debit to Inventory
c.
credit to Inventory
d.
debit to Cash
86. If merchandise sold on account is returned to the seller, the seller acknowledges the return by issuing a
a.
sales invoice
b.
purchase invoice
c.
credit memo
d.
debit memo
Chapter 5 – Accounting for Merchandising Businesses
87. The arrangements between buyer and seller as to when payments for merchandise are to be made are called
a.
credit terms
b.
net cash
c.
cash on demand
d.
gross cash
88. In credit terms of 3/15, n/45, the “3” represents the
a.
number of days in the discount period
b.
full amount of the invoice
c.
number of days when the entire amount is due
d.
percent of the cash discount
89. Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale
would include a
a.
debit to Cash for $5,000
b.
debit to Customer Refunds Payable for $100
c.
credit to Sales for $4,900
d.
debit to Accounts Receivable for $4,880
The journal entry to record the sale would include a credit to Sales for $4,900.
Chapter 5 – Accounting for Merchandising Businesses
90. Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is
the amount of sales discount allowable?
a.
$260
b.
$500
c.
$460
d.
$150
Sales discount allowable = 2% × Sales = 2% × $25,000 = $500
91. Which of the following accounts has a normal credit balance?
a.
Accounts Receivable
b.
Sales
c.
Inventory
d.
Delivery Expense
92. The entry to record the return of merchandise from a customer would include a
a.
debit to Sales
b.
credit to Sales
c.
debit to Customer Refunds Payable
d.
debit to Estimated Returns Inventory
Chapter 5 – Accounting for Merchandising Businesses
93. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
a.
debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
b.
debit to Cash and a credit to Sales
c.
debit to Cash, credit to Credit Card Expense, and a credit to Sales
d.
debit to Sales, debit to Credit Card Expense, and a credit to Cash
94. Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as
a.
sales on account
b.
sales returns
c.
cash sales
d.
sales when the credit card company remits the cash
95. When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a
a.
debit to Inventory; a credit to Cash
b.
debit to Cash; a credit to Inventory
c.
debit to Cash; a credit to Sales
d.
debit to Sales; a credit to Accounts Payable
Chapter 5 – Accounting for Merchandising Businesses
96. When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit
a.
Inventory
b.
Purchases Returns and Allowances
c.
Accounts Payable
d.
Accounts Receivable
97. When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded
with which entry?
a.
debit Accounts Payable; credit Inventory
b.
debit Inventory; credit Accounts Payable
c.
debit Inventory; credit Cash Discounts
d.
debit Inventory; credit Purchases
98. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would
include a
a.
debit to Accounts Payable
b.
debit to Inventory
c.
credit to Inventory
d.
credit to Sales
Chapter 5 – Accounting for Merchandising Businesses
99. Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a
a.
debit to Cost of Goods Sold
b.
credit to Accounts Payable
c.
credit to Inventory
d.
credit to Sales
100. In recording the cost of goods sold for cash, based on data available from perpetual inventory records, the journal
entry is
a.
debit Cost of Goods Sold; credit Sales
b.
debit Cost of Goods Sold; credit Inventory
c.
debit Inventory; credit Cost of Goods Sold
d.
debit Accounts Receivable; credit Inventory
101. The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include
a.
only the list price
b.
only the sales tax
c.
the list price plus the sales tax
d.
the list price less the sales tax
Chapter 5 – Accounting for Merchandising Businesses
102. Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000. The retailer receives a 30%
trade discount and credit terms of 2/10, n/30. What amount should Norfolk debit to the Inventory account?
a.
$21,000
b.
$20,580
c.
$30,000
d.
$29,400
103. A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom; FOB shipping
point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is
granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be
received by the seller?
a.
$12,285
b.
$11,500
c.
$10,480
d.
$11,385
$120 + $900 – ($500 – $5) = $12,780 – $495 = $12,285
104. Which of the following accounts usually has a debit balance?
a.
Accounts Payable
b.
Sales Tax Payable
c.
Sales
d.
Inventory
Chapter 5 – Accounting for Merchandising Businesses
105. Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state
sales tax. The journal entry to record the sale would include a credit to
a.
Cash for $6,000
b.
Sales for $6,420
c.
Sales Tax Payable for $420
d.
Sales for $5,580
106. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
a.
FOB shipping point
b.
FOB destination
c.
FOB n/30
d.
FOB buyer
107. If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
a.
FOB shipping point
b.
FOB destination
c.
FOB n/30
d.
FOB seller
Chapter 5 – Accounting for Merchandising Businesses
108. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
a.
n/30
b.
FOB shipping point
c.
FOB destination
d.
consigned
109. When goods are shipped FOB destination and the seller pays the freight charges, the buyer
a.
journalizes a reduction for the cost of the merchandise
b.
journalizes a reimbursement to the seller
c.
does not take a discount
d.
makes no journal entry for the freight
110. Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000.
Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?
a.
Accounts Receivable—Stanton, debit $20,000; Sales, credit $20,000
b.
Accounts Receivable—Stanton, debit $19,600; Sales, credit $19,600, and
Accounts Receivable—Stanton, debit $500; Cash, credit $500
c.
Accounts Receivable—Stanton, debit $20,100; Sales, credit $20,100
d.
Accounts Receivable—Stanton, debit $20,000; Sales, credit $20,000, and
Delivery Expense, debit $500; Cash, credit $500
Chapter 5 – Accounting for Merchandising Businesses
111. Emma Co. sold to Isabella Co. merchandise on account FOB shipping point, 2/10, net 30, for $15,000. Emma
Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella
Co. make to record the payment for the merchandise if Isabella Co. pays within the discount period?
a.
Accounts Payable—Emma Co., debit $15,000; Cash, credit $15,000
b.
Accounts Payable—Emma Co., debit $15,450; Cash, credit $15,450
c.
Accounts Payable—Emma Co., debit $15,000; Freight In, debit $750; Cash, credit $15,750
d.
Accounts Payable—Emma Co., debit $15,750; Inventory, debit $300; Cash, credit $16,050
Journal entry: Accounts Payable—Emma Co., debit $15,450; Cash, credit $15,450
112. A chart of accounts for a merchandising business
a.
usually is the same as the chart of accounts for a service business
b.
usually requires more accounts than does the chart of accounts for a service business
c.
usually is standardized by the FASB for all merchandising businesses
d.
always uses a three-digit numbering system
Chapter 5 – Accounting for Merchandising Businesses
113. Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise.
Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?
a.
debit Cash, $2,000; credit Inventory, $1,250
b.
debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Goods Sold, $1,250; credit Inventory, $1,250
c.
debit Cash, $1,250; credit Sales, $1,250
d.
debit Accounts Receivable, $2,000; credit Sales, $2,000; and debit Cost of Goods Sold, $1,250; credit
Inventory, $1,250
114. Jacob Co. sells merchandise on credit to Isaiah Co. for $9,700. The invoice is dated May 1 with terms of 1/15, net
45. What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take
advantage of the discount?
a.
$194, May 15
b.
$194, May 16
c.
$97, May 15
d.
$97, May 16
Amount of discount = Sale price × 1% = $9,700 × 1% = $97
115. Kaden Co. sells merchandise on credit to Jase Co. for $9,600. The invoice is dated July 15 with terms of 1/15, net
45. If Jase Co. chooses not to take the discount, by when should the payment be made?
a.
July 30
b.
August 29
c.
August 15
d.
July 25
Final due date is August 29.
Chapter 5 – Accounting for Merchandising Businesses
116. To encourage a buyer to pay before the end of the credit period, the seller may offer a
a.
purchases discount
b.
sales discount
c.
trade discount
d.
payment discount
117. Taking advantage of a 2/10, n/30 purchases discount is equal to a yearly savings rate of approximately
a.
2%
b.
24%
c.
20%
d.
36%
118. Who is responsible for the freight costs when the terms are FOB shipping point?
a.
the ultimate customer
b.
the buyer
c.
the seller
d.
either the seller or the buyer
Chapter 5 – Accounting for Merchandising Businesses
119. Who is responsible for the freight cost when the terms are FOB destination?
a.
the seller
b.
the buyer
c.
the ultimate customer
d.
either the buyer or the seller
120. A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade discount and
has credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount period?
a.
$30,000
b.
$24,900
c.
$29,400
d.
$24,990
121. What type of company would normally offer trade discounts to its customers?
a.
service companies
b.
retailers
c.
wholesalers
d.
online retailers
Chapter 5 – Accounting for Merchandising Businesses
122. Which of the following accounts will only be found in the chart of accounts of a merchandising company?
a.
Sales
b.
Accounts Receivable
c.
Inventory
d.
Accounts Payable
123. Which of the following items would not affect the cost of inventory purchased during the period?
a.
quantity discounts
b.
sales discounts
c.
freight in
d.
sales commissions
124. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
a.
consigned
b.
n/30
c.
FOB shipping point
d.
FOB destination
Chapter 5 – Accounting for Merchandising Businesses
125. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
a.
n/30
b.
FOB shipping point
c.
FOB destination
d.
consigned
126. If merchandise sells for $3,500, with terms of 3/15, n/45, and the cost of the inventory sold is $2,100, the amount
charged to sales is
a.
$3,395
b.
$3,500
c.
$2,037
d.
$2,100
127. Under the perpetual inventory system, all purchases of merchandise are debited to the account
a.
Inventory
b.
Cost of Goods Sold
c.
Inventory Available for Sale
d.
Purchases
Chapter 5 – Accounting for Merchandising Businesses
128. When the perpetual inventory system is used, the inventory sold is debited to
a.
Supplies Expense
b.
Cost of Goods Sold
c.
Inventory
d.
Sales
129. Under a perpetual inventory system
a.
accounting records continuously disclose the amount of inventory
b.
increases in inventory resulting from purchases are debited to Purchases
c.
there is no need for a year-end physical count
d.
the purchases returns and allowances account is credited when goods are returned to vendors
130. The journal entry to record the receipt of inventory purchased for cash in a perpetual inventory system would be
a.
Jan. 1 Inventory 1,500
Cash 1,500
b.
Jan. 1 Office Supplies 1,500
Cash 1,500
c.
Jan. 1 Purchases 1,500
Accounts Payable 1,500
d.
Jan. 1 Cash 1,500
Accounts Receivable 1,500
Chapter 5 – Accounting for Merchandising Businesses
131. Which of the following items should not be included in the cost of ending inventory?
a.
purchased units in transit, shipped FOB shipping point
b.
purchased units in transit, shipped FOB destination
c.
units on hand in the warehouse
d.
sold units in transit, not invoiced, and shipped FOB destination
132. The Corbit Corp. sold merchandise for $10,000 cash. The cost of the goods sold was $7,590. The journal entries to
record this transaction under the perpetual inventory system would be
a.
Cash 10,000
Inventory 10,000
Cost of Goods Sold 7,590
Sales 7,590
b.
Cash 10,000
Sales 10,000
Cost of Goods Sold 7,590
Inventory 7,590
c.
Cash 10,000
Sales 10,000
Cost of Goods Sold 10,000
Inventory 10,000
d.
Cash 7,590
Sales 7,590
Cost of Goods Sold 7,590
Inventory 7,590