College Accounting, 12e (Slater)
Chapter 11 Preparing a Worksheet for a Merchandise Company
11.1 Learning Objective 11-1
1) What inventory method is used when the inventory balance is updated only at the end of the
accounting period?
A) Periodic
B) Perpetual
C) Net Income
D) Cost of Goods Sold
2) A characteristic of a perpetual inventory method is:
A) it keeps continual track of inventory.
B) it records units on hand at the beginning of the period.
C) it records units sold immediately.
D) All of these answers are correct.
3) When using a periodic inventory method, what account is increased when you buy merchandise
inventory?
A) Cost of Goods Sold
B) Beginning Inventory
C) Ending Inventory
D) Purchases
4) Cost of Goods Sold equals:
A) Beginning Inventory + Net Purchases + Freight-in + Ending Inventory.
B) Beginning Inventory – Net Purchases – Freight-in + Ending Inventory.
C) Beginning Inventory + Net Purchases + Freight-in – Ending Inventory.
D) Beginning Inventory – Net Purchases + Freight-in + Ending Inventory.
5) Net Income equals:
A) Net Sales – Cost of goods sold – Operating expenses.
B) Gross Profit – Operating expenses.
C) Sales – Sales Returns & Allowances – Sales Discount – Cost of goods sold – Operating Expenses.
D) All of the above are correct.
6) Ending inventory:
A) increases Cost of Goods Sold.
B) decreases Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) increases liabilities.
7) If gross profit exceeds operating expenses, the company:
A) had a net loss.
B) broke even.
C) had a net income.
D) Not enough information given.
8) Beginning inventory was $4,000, purchases totaled $22,000 and sales were $20,000. What is the ending
inventory?
A) $2,000
B) $4,000
C) $6,000
D) $8,000
9) If $6,000 was the beginning inventory, purchases were $10,000 and sales were $7,000. How much was
ending inventory last accounting period?
A) $9,000
B) $6,000
C) $0
D) $3,000
10) The normal balance of Income Summary is:
A) debit.
B) credit.
C) The account does not have a normal balance.
D) It depends on which financial statement it appears.
11) The first entry to adjust Merchandise Inventory includes:
A) a debit to Merchandise Inventory.
B) a credit to Merchandise Inventory.
C) a credit to Income Summary.
D) None of these are correct.
12) The second entry to adjust Merchandise Inventory includes:
A) a debit to Merchandise Inventory.
B) a credit to Merchandise Inventory.
C) a debit to Income Summary.
D) None of these are correct.
13) Unearned Rent is what type of account?
A) Asset
B) Revenue
C) Liability
D) Expense
14) As Unearned Rent is earned, it becomes:
A) an asset.
B) a revenue.
C) a liability.
D) an expense.
15) Joe received $5,000 in advance for renting part of his building. What is the entry to record the receipt
of payment?
A) Debit Cash; credit Rent Expense
B) Debit Cash; credit Prepaid Rent
C) Debit Cash; credit Unearned Rent
D) Debit Cash; credit Rental Income
16) Joe received $5,000 in advance for renting part of his building for 4 months. What is the entry to
record the adjustment after one month has passed?
A) debit Cash; credit Rental Income
B) debit Cash; credit Unearned Rent
C) debit Unearned Rent, credit Rental Income
D) debit Unearned Rent, credit Cash
17) When the adjustment for Unearned Rent is made:
A) liabilities decrease.
B) revenue increases.
C) assets decrease.
D) Both A and B are correct.
18) Which of the following accounts is not a liability?
A) Accounts Payable
B) Salaries Payable
C) Unearned Rent
D) All of the above answers are liabilities.
19) Rental Income is what type of account?
A) Asset
B) Revenue
C) Expense
D) Liability
20) The normal balance for Unearned Rent is:
A) a credit.
B) a debit.
C) zero.
D) dependent on circumstances.
21) Unearned Rent results because:
A) no fee has been paid, but the service is complete.
B) the fee is earned but not collected.
C) the fee has been collected before the service has been provided.
D) the fee has been paid, and the service is complete.
22) As the Unearned Rent is earned:
A) the liability account is decreased and the revenue account is increased.
B) the liability account is increased and the revenue account is decreased.
C) the liability account is decreased and the revenue account is not affected.
D) the liability account is not affected but the revenue account is decreased.
23) From the following items, which would most likely cause the recording of unearned revenue?
A) Potential sale of merchandise
B) Purchase of merchandise on account
C) Legal fees collected after work is performed
D) Subscriptions collected in advance for a magazine
24) The financial statement on which Unearned Rent would appear is:
A) the income statement.
B) the balance sheet.
C) the owner’s equity statement.
D) Unearned Rent is not reported until earned.
25) The financial statement on which Rental Income would appear is the:
A) income statement.
B) owner’s equity statement.
C) balance sheet.
D) operations statement.
26) The normal balance of Rental Income is:
A) a credit.
B) a debit.
C) zero.
D) dependent on the circumstances.
27) Mortgage Payable is what type of account?
A) Asset
B) Liability
C) Expense
D) Capital
28) As supplies are used, they become:
A) an asset.
B) a liability.
C) an expense.
D) a revenue.
29) What financial statement shows the amount for Freight-In?
A) Balance Sheet
B) Statement of Owner’s Equity
C) Income Statement
D) Trial balance
30) The adjustment for supplies used would be to:
A) debit Supplies Expense; credit Supplies.
B) debit Supplies; credit Cash.
C) debit Supplies; credit Supplies Expense.
D) debit Supplies; credit Accounts Payable.
31) The adjustment for accrued salaries would be to:
A) debit Salaries Expense; credit Cash.
B) debit Salaries Payable; credit Salaries Expense.
C) debit Salaries Expense; credit Salaries Payable.
D) debit Salaries Payable; credit Cash.
32) The adjustment for unearned rent is recorded when:
A) cash is received.
B) rent is earned.
C) revenue is received.
D) closing entries are prepared.
33) Accumulated Depreciation-Buildings should be shown on the:
A) income statement.
B) balance sheet.
C) statement of owner’s equity.
D) The account does not appear on a financial statement since it is a temporary account.
34) An account never used in an adjusting entry is:
A) Consulting Fees-Revenue.
B) Interest Payable.
C) Equipment.
D) Accumulated Depreciation – Equipment.
35) On December 1, Phone Center received $4,800 for two years’ rent in advance from Garrison Company.
The December 31 adjusting entry that Phone Center should make is to:
A) debit Rental Income; credit Unearned Rent $2,400.
B) debit Cash; credit Rental Income $2,400.
C) debit Unearned Rent; credit Rental Income $200.
D) debit Unearned Rent; credit Rent Expense $200.
36) Doug paid $1,200 on a one-year insurance policy on March 1. The entry included a debit to Prepaid
Insurance. The adjusting entry on December 31 would include a:
A) debit to Prepaid Insurance for $1,000; and a credit to Cash for $1,000.
B) debit to Insurance Expense for $1,000; and a credit to Prepaid Insurance for $1,000.
C) debit to Insurance Expense for $1,200; and credit to Prepaid Insurance for $1,200.
D) debit to Cash for $1,200; and credit to Prepaid Insurance for $1,200.
37) Prime Realty paid $2,400 rent on a building in advance for two years on May 1. The amount that
should be recorded as rent expense as of December 31 is:
A) $800.
B) $2,400.
C) $1,200.
D) $525.
38) The adjustment for salaries is necessary:
A) because the employer did not have enough cash to write the paychecks.
B) to recognize the revenue in the period earned.
C) to recognize the expense in the period incurred.
D) None of the above answers are correct.
39) When the adjustment for depreciation is made:
A) total assets decrease.
B) total expenses decrease.
C) total liabilities increase.
D) None of the answers are correct.
40) The goods a company has available to sell to customers are called:
A) Supplies.
B) Sales.
C) Cost of Goods Sold.
D) Merchandise Inventory.
41) The adjustment for accrued wages was not done; this would cause:
A) liabilities to be overstated.
B) liabilities to be understated.
C) expenses to be overstated.
D) net income to be understated.
42) When counting supplies, several boxes were missed. This would cause:
A) Supplies to be overstated.
B) Supplies Expense to be understated.
C) Net Income to be overstated.
D) All of the above are correct.
43) The physical count of inventory was incorrect, which overstated the ending inventory. This would
cause:
A) Cost of Goods Sold to be overstated.
B) Cost of Goods Sold to be understated.
C) gross profit to be understated.
D) net income to be understated.
44) The adjustment for depreciation expense was omitted; this would:
A) overstate the period’s expenses and overstate the period end liabilities.
B) overstate the period’s expenses and understate the period end liabilities.
C) understate the period‘s expenses and overstate the period’s assets.
D) understate the period’s expenses and understate the period’s assets.
45) At the start of the year, Northern Lights had $8,000 worth of merchandise. This is called:
A) Cost of Goods Sold.
B) beginning inventory.
C) ending inventory.
D) Purchases.
46) Depreciation on equipment was recorded twice this period. This would cause:
A) expenses to be overstated and total assets to be overstated
B) expenses to be overstated and total assets to be understated.
C) expenses to be understated and total assets to be overstated.
D) expenses to be understated and total assets to be understated.
47) Recording the adjustment for supplies will:
A) increase the total liability and increase the total expenses.
B) increase the total assets and increase the total expenses.
C) decrease the total assets and increase the total expenses.
D) decrease the total assets and decrease the total expenses.
48) Freight-in:
A) adds to the Cost of Goods Sold.
B) reduces the Cost of Goods Sold.
C) does not affect Cost of Goods Sold.
D) increases other expenses.
49) This amount does not change during the period and is added to purchases when computing the cost
of goods available for sale.
A) Beginning inventory
B) Ending inventory
C) Periodic inventory
D) Freight-in
50) The perpetual inventory method is:
A) used by companies with a variety of merchandise with low unit prices.
B) used by companies with high amounts of inventory.
C) not used by many companies today.
D) does not ever require a physical inventory.
51) Gross profit less operating expenses equals:
A) Cost of Goods Sold.
B) net sales.
C) net purchases.
D) net income.
52) Interest Expense is:
A) a cost of borrowing money.
B) included in the “Other Expenses” on the income statement.
C) has a normal debit balance.
D) All of the above are correct.
53) Mortgage Payable:
A) has a debit balance.
B) has a credit balance.
C) shows the amount owed on a mortgage.
D) Both B and C are correct.
54) Merchandise Inventory (ending) appears on both the Income Statement and the Balance Sheet.
55) If ending inventory is overstated this period, beginning inventory will be overstated in the next
period.
56) The ending inventory in Year 1 is the beginning inventory in Year 2.
57) The Income Summary account is used to adjust beginning and ending inventories.
58) In the perpetual inventory system, it is necessary to take a physical inventory at the end of the period.
59) The beginning inventory is assumed to be sold; therefore, it is added to cost of goods sold.
60) Unearned Rent Revenue is a balance sheet account.
61) When the adjustment is made for depreciation, both the Depreciation Expense account and
Accumulated Depreciation account are increased.
62) The amount of supplies used causes a decrease in Supplies and an increase in expense.
63) Unearned Revenue is a liability account used to record rent fees received in advance.
64) The amount for beginning inventory is needed when calculating Cost of Goods Sold.
65) Under the periodic inventory system, an adjustment is not made on the worksheet for inventory.
66) The beginning inventory is adjusted by crediting Merchandise Inventory and debiting Income
Summary.
67) The ending inventory is adjusted by debiting Income Summary and crediting Merchandise Inventory.
68) Under the accrual system, revenue is recognized when earned.
69) Adjustments are journalized before recording them in the worksheet.
70) Under the accrual system, expenses are recorded when incurred.
71) The beginning and ending inventories are combined to determine the balance sheet inventory
amount.
72) The Freight-in account is a Cost of Goods Sold account.
73) Mortgage Payable is an expense account.
74) Mortgage Payable is found on the income statement.
75) Sales Discount is used when calculating Net Purchases.
76) Indicate the normal balance of each of the following accounts:
a) Purchases Returns and Allowances
b) Merchandise Inventory
c) Freight-In
d) Sales Returns and allowances
e) Unearned Revenue
77) Indicate the financial statement(s) on which you would find the following items:
a) Cost of goods sold
b) Freight-In
c) Ending Inventory
d) Beginning Inventory
e) Sales Discount