Chapter 6: Accounting for Merchandising Businesses
62.
As we compare a merchandise business to a service business, the financial statement that changes the most is the
balance sheet.
a.
True
b.
False
63.
Cost of merchandise sold is often the largest expense on a merchandising company income statement.
a.
True
b.
False
64.
When a merchandising business is compared to a service business, the financial statement that is not affected by
that change is the statement of owner’s equity.
a.
True
b.
False
Chapter 6: Accounting for Merchandising Businesses
65.
Other income and expenses are items that are not related to the primary operating activity.
a.
True
b.
False
66.
The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.
a.
True
b.
False
67.
Closing entries for a merchandising business are not similar to those for a service business.
a.
True
b.
False
Chapter 6: Accounting for Merchandising Businesses
68.
The ratio of sales to assets measures how effectively a business is using its assets to generate sales.
a.
True
b.
False
69.
Under the periodic inventory system, the cost of merchandise sold is equal to the beginning merchandise
inventory
plus the cost of merchandise purchased plus the ending merchandise inventory.
a.
True
b.
False
70.
In a periodic inventory system, the cost of merchandise purchased includes the cost of freight in.
a.
True
b.
False
Chapter 6: Accounting for Merchandising Businesses
71.
In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.
a.
True
b.
False
72.
Under the periodic inventory system, the cost of merchandise sold is recorded when sales are made.
a.
True
b.
False
73.
The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Freight In are found on
the balance sheet.
a.
True
b.
False
Chapter 6: Accounting for Merchandising Businesses
74.
Merchandise inventory is classified on the balance sheet as a
a.
current liability
b.
current asset
c.
long-term asset
d.
long-term liability
75.
Which of the following is not a difference between a retail business and a service business?
a.
in what is sold
b.
the inclusion of gross profit on the income statement
c.
accounting equation
d.
merchandise inventory included on the balance sheet
76.
Net income plus operating expenses is equal to
a.
cost of merchandise sold
b.
cost of merchandise available for sale
c.
sales
d.
gross profit
Chapter 6: Accounting for Merchandising Businesses
77.
What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
a.
gross profit
b.
income from operations
c.
net income
d.
gross sales
78.
The inventory system employing accounting records that continuously disclose the amount of inventory is called
a.
retail
b.
periodic
c.
physical
d.
perpetual
79.
Calculate income from operations for Jonas Company based on the following data:
Sales
$764,000
Operating expenses
52,500
Cost of merchandise sold
538,000
a. $485,500
b. $711,500
c. $173,500
d. $226,000
Chapter 6: Accounting for Merchandising Businesses
80.
Gross profit is equal to
a.
sales plus cost of merchandise sold
b.
sales plus selling expenses
c.
sales less selling expenses
d.
sales less cost of merchandise sold
81.
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.
statement of owner’s equity
d.
statement of cash flows
Chapter 6: Accounting for Merchandising Businesses
82.
Calculate the gross profit for Jefferson Company based on the following:
Sales
$764,000
Selling Expenses
42,500
Cost of Merchandise Sold
538,000
a. $495,500
b. $183,500
c. $721,500
d. $226,000
83.
Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. The Pound Co. paid the
invoice
within the discount period. What is amount of sales from the above transactions?
a. $25,500
b. $26,010
c. $24,990
d. $16,000
84.
The primary difference between a periodic and perpetual inventory system 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
Chapter 6: Accounting for Merchandising Businesses
85.
Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
a.
debit to Sales
b.
debit to Merchandise Inventory
c.
credit to Merchandise Inventory
d.
credit to Accounts Receivable
86.
Which of the following accounts has a normal debit balance?
a.
Accounts Payable
b.
Merchandise Inventory
c.
Sales
d.
Interest Revenue
87.
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
Chapter 6: Accounting for Merchandising Businesses
88.
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 Merchandise Inventory
c.
credit to Merchandise Inventory
d.
debit to Cash
89.
If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by
issuing
a
a.
sales invoice
b.
purchase invoice
c.
credit memo
d.
debit memo
90.
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
Chapter 6: Accounting for Merchandising Businesses
91.
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
92.
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 Sales Discounts for $100
c.
credit to Sales for $4,900
d.
debit to Accounts Receivable for $4,880
93.
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 the sales discount allowable?
a. $260
b. $500
c. $460
d. $150
Chapter 6: Accounting for Merchandising Businesses
94.
Which of the following accounts has a normal credit balance?
a.
Accounts Receivable
b.
Sales
c.
Merchandise Inventory
d.
Delivery Expense
95.
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
96.
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
Chapter 6: Accounting for Merchandising Businesses
97.
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
98.
When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a
a.
debit to Merchandise Inventory; a credit to Cash
b.
debit to Cash; a credit to Merchandise Inventory
c.
debit to Cash; a credit to Sales
d.
debit to Sales; a credit to Accounts Payable
99.
When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit
a.
Merchandise Inventory
b.
Purchases Returns and Allowances
c.
Accounts Payable
d.
Accounts Receivable
Chapter 6: Accounting for Merchandising Businesses
100.
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 Merchandise Inventory
b.
debit Merchandise Inventory; credit Accounts Payable
c.
debit Merchandise Inventory; credit Cash Discounts
d.
debit Merchandise Inventory; credit Purchases
101.
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 Merchandise Inventory
c.
credit to Merchandise Inventory
d.
credit to Sales
102.
Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a
a.
debit to Cost of Merchandise Sold
b.
credit to Accounts Payable
c.
credit to Merchandise Inventory
d.
credit to Sales
Chapter 6: Accounting for Merchandising Businesses
103.
In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records,
the
journal entry is
a.
debit Cost of Merchandise Sold; credit Sales
b.
debit Cost of Merchandise Sold; credit Merchandise Inventory
c.
debit Merchandise Inventory; credit Cost of Merchandise Sold
d.
debit Accounts Receivable; credit Merchandise Inventory
104.
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
105.
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 Merchandise
Inventory
account?
a. $21,000
b. $20,580
c. $30,000
d. $29,400
Chapter 6: Accounting for Merchandising Businesses
106.
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
107.
Which of the following accounts usually has a debit balance?
a.
Accounts Payable
b.
Sales Tax Payable
c.
Sales
d.
Merchandise Inventory
Chapter 6: Accounting for Merchandising Businesses
108.
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 $6,240
c.
sales tax payable for $420
d.
sales for $5,580
109.
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
110.
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 6: Accounting for Merchandising Businesses
111.
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
112.
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
113.
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 6: Accounting for Merchandising Businesses
114.
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 payment of 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; Merchandise Inventory, debit $300; Cash, credit $16,050
115.
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 6: Accounting for Merchandising Businesses
116.
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 Merchandise Inventory, $1,250
b.
debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit
Merchandise
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 Merchandise Sold, $1,250;
credit
Merchandise Inventory, $1,250
117.
Jacob Co. sells merchandise on credit to Isaiah Co. in the amount of $9,700. The invoice is dated on 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
118.
Kaden Co. sells merchandise on credit to Jase Co. in the amount of $9,600. The invoice is dated on 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