Question 1

The purchase of inventory and its eventual sale lengthen the operating cycle of a merchandising company.

Accepted Answer

A) True 
 B)False

Question 2

If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%.

Accepted Answer

A) True 
 B)False

Question 3

Erin Corporation purchases $500 of merchandise on credit. Using the periodic inventory approach, Erin would record this transaction as:

Accepted Answer

The answer of Erin Corporation purchases $500 of merchandise on...

Question 4

When using a perpetual inventory system, why are discounts credited to Inventory?

Accepted Answer

A)  The discounts are debited to discount expense and thus the credit has to be made to merchandise inventory.
B)  The discounts reduce the cost of the inventory.
C)  The discounts are a reduction of business expenses.
D)  None of these answers choices are correct.

Question 5

Sales allowances and Sales discounts are both designed to encourage customers to pay their accounts promptly.

Accepted Answer

A) True 
 B)False

Question 6

Financial information is presented below:   Operating expenses $45,000 Sales returns and allowances 3,000 Sales discounts 7,000 Sales revenue 160,000 Cost of goods sold 96,000\begin{array} { l r } 	ext { Operating expenses } & \$ 45,000 \	ext { Sales returns and allowances } & 3,000 \	ext { Sales discounts } & 7,000 \	ext { Sales revenue } & 160,000 \	ext { Cost of goods sold } & 96,000\end{array} Operating expenses  Sales returns and allowances  Sales discounts  Sales revenue  Cost of goods sold ​$45,0003,0007,000160,00096,000​  Gross profit would be

Accepted Answer

A)  $61,000.
B)  $64,000.
C)  $54,000.
D)  $67,000.

Question 7

Under the perpetual inventory system, which of the following accounts would not be used?

Accepted Answer

A)  Sales Revenue
B)  Purchases
C)  Cost of Goods Sold
D)  Inventory

Question 8

United Services and Supplies reports net income of $60,000 and cost of goods sold of $360,000. If US&S's gross profit rate was 40%, net sales were

Accepted Answer

A)  $600,000.
B)  $900,000.
C)  $960,000.
D)  $660,000.

Question 9

A credit sale of $3,800 is made on April 25, terms 2/10, net/30, on which a return of $200 is granted on April 28. What amount is received as payment in full on May 4?

Accepted Answer

A)  $3,528
B)  $3,724
C)  $3,800 d $3,600

Question 10

Inventory becomes part of cost of goods sold when a company

Accepted Answer

A)  pays for the inventory.
B)  purchases the inventory.
C)  sells the inventory.
D)  receives payment from the customer.

Question 11

A merchandiser will earn an operating income of exactly $0 when

Accepted Answer

A)  net sales equals cost of goods sold.
B)  cost of goods sold equals gross margin.
C)  operating expenses equal net sales.
D)  gross profit equals operating expenses.

Question 12

Sales revenue less cost of goods sold is called

Accepted Answer

A)  gross profit.
B)  net profit.
C)  net income.
D)  marginal income.

Question 13

Income from operations appears on

Accepted Answer

A)  both a multiple-step and a single-step income statement.
B)  neither a multiple-step nor a single-step income statement.
C)  a single-step income statement.
D)  a multiple-step income statement.

Question 14

Under GAAP, companies generally classify income statement items by

Accepted Answer

A)  function.
B)  nature.
C)  nature or function
D)  date incurred.

Question 15

The primary difference between a periodic and perpetual inventory system is that a periodic system

Accepted Answer

A)  keeps a record showing the inventory on hand at all time.
B)  provides better control over inventories.
C)  records the cost of the sale on the date the sale is made.
D)  determines the inventory on hand only at the end of the accounting period.

Question 16

A sales discount does not

Accepted Answer

A)  provide the purchaser with a cash saving.
B)  reduce the amount of cash received from a credit sale.
C)  increase a contra revenue account.
D)  increase an operating expense account.

Question 17

Gross profit for a merchandising company is net sales minus

Accepted Answer

A)  operating expenses.
B)  cost of goods sold.
C)  sales discounts.
D)  cost of goods available for sale.

Question 18

Two categories of expenses in merchandising companies are

Accepted Answer

A)  cost of goods sold and financing expenses.
B)  operating expenses and financing expenses.
C)  cost of goods sold and operating expenses.
D)  other expenses and cost of goods sold.

Question 19

Which of the following is not a true statement about a multiple-step income statement?

Accepted Answer

A)  Operating expenses do not include income tax expense.
B)  There may be a section for non-operating activities.
C)  There may be a section for operating assets.
D)  There is a section for cost of goods sold.

Question 20

As the president of Harter Company, you notice that no discounts have been taken when settling accounts payables. What would be an acceptable explanation?

Accepted Answer

A)  All invoices have credit terms of n/30.
B)  There is not sufficient cash to pay within the discount period.
C)  Discounts are missed because no one knows how to enter them in the new accounting software.
D)  The full amount of the invoice is being paid within the discount period and the treasurer is pocketing the discount amount.

Exam 4: Merchandising Operations and the Multiple-Step Income Statement

A merchandiser will earn an operating income of exactly $0 when

Correct AnswerverifiedShow Answer

A credit sale of $3,800 is made on April 25, terms 2/10, net/30, on which a return of $200 is granted on April 28. What amount is received as payment in full on May 4?

Correct AnswerverifiedShow Answer

Which of the following is not a true statement about a multiple-step income statement?

Correct AnswerverifiedShow Answer

Sales allowances and Sales discounts are both designed to encourage customers to pay their accounts promptly.

Correct AnswerverifiedShow Answer

The purchase of inventory and its eventual sale lengthen the operating cycle of a merchandising company.

Correct AnswerverifiedShow Answer

The primary difference between a periodic and perpetual inventory system is that a periodic system

Correct AnswerverifiedShow Answer

A sales discount does not

Correct AnswerverifiedShow Answer

Inventory becomes part of cost of goods sold when a company

Correct AnswerverifiedShow Answer

Under the perpetual inventory system, which of the following accounts would not be used?

Correct AnswerverifiedShow Answer

Gross profit for a merchandising company is net sales minus

Correct AnswerverifiedShow Answer

Income from operations appears on

Correct AnswerverifiedShow Answer

United Services and Supplies reports net income of $60,000 and cost of goods sold of $360,000. If US&S's gross profit rate was 40%, net sales were

Correct AnswerverifiedShow Answer

Sales revenue less cost of goods sold is called

Correct AnswerverifiedShow Answer

If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%.

Correct AnswerverifiedShow Answer

Erin Corporation purchases $500 of merchandise on credit. Using the periodic inventory approach, Erin would record this transaction as:

Correct AnswerverifiedShow Answer

As the president of Harter Company, you notice that no discounts have been taken when settling accounts payables. What would be an acceptable explanation?

Correct AnswerverifiedShow Answer

When using a perpetual inventory system, why are discounts credited to Inventory?

Correct AnswerverifiedShow Answer

Two categories of expenses in merchandising companies are

Correct AnswerverifiedShow Answer

Under GAAP, companies generally classify income statement items by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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