Financial Accounting Ch. 5

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Wiley Student Companion Site, Weygandt

Sales revenue less cost of goods sold is called net profit.
A. True
B. False

False

In a periodic inventory system, companies keep detailed inventory records of the goods on hand throughout the period.
A. True
B. False

False

Which of the following expressions is incorrect?
A. Gross profit less Operating expenses equals Net income.
B. Sales less Cost of goods sold less Operating expenses equals Net income.
C. Net income plus Operating expenses equals Gross profit.
D. Operating expenses less Cost of goods sold equals Gross profit.

D

Gross profit is
A. Sales revenue less Operating expenses.
B. Sales revenue less Cost of goods sold.
C. Net income less Operating expenses.
D. Net income less Cost of goods sold.

B

Which of the following appears on both the income statements of merchandising and service companies?
A. Cost of goods sold.
B. Gross profit.
C. Operating expenses.
D. Sales revenue.

C

FOB destination means that the seller places the goods free on board the common carrier and the buyer pays the freight costs.
A. True
B. False

B

Under a perpetual inventory system, when goods are purchased for resale by a company
A. purchases on account are debited to Inventory.
B. purchases on account are debited to Purchases.
C. purchase returns are debited to Purchase Returns and Allowances.
D. freight costs are debited to Freight-out.

A

FOB shipping point means that the
A. goods are placed free on board to the buyer's place of business.
B. buyer pays the freight.
C. seller pays the freight.
D. common carrier pays the freight.

B

Company A purchases $1,200 of merchandise from Company B on July 1 with credit terms 2/10, n/30. Company A returns $200 of the merchandise on July 5. On July 11, Company B received full payment from Company A. The amount of the payment on July 11 is
A. $980.
B. $20.
C. $1,176.
D. $1,000.

A

In a perpetual inventory system, the Cost of Goods Sold account is used
A. only when a cash sale of merchandise occurs.
B. only when a credit sale of merchandise occurs.
C. only when a sale of merchandise occurs.
D. whenever there is a sale of merchandise or a return of merchandise sold.

D

With respect to the income statement,
A. contra-revenue accounts do not appear on the income statement.
B. sales discounts increase the amount of sales.
C. contra-revenue accounts increase the amount of operating expenses.
D. sales discounts are included in the calculation of gross profit.

D

Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual inventory system?
A. Purchases.
B. Freight-in.
C. Cost of Goods Sold.
D. Purchase Discounts.

C

Under a perpetual inventory system, which of the following is not part of the journal entries made when merchandise is sold on credit?
A. credit the Cost of Goods Sold account.
B. credit the Sales Revenue account.
C. credit the Inventory account.
D. debit the Accounts Receivable account.

A

A merchandiser using a perpetual system will require one additional adjusting entry to make the records agree with the actual inventory on hand.
A. True
B. False

TRUE

A company that maintains a perpetual inventory system has an inventory account balance of $50,000. The physical count of goods on hand totals $49,600. Which of the following adjusting entries is correct?
A. debit Purchases and credit Inventory.
B. debit Cost of Goods Sold and credit Inventory.
C. debit Inventory and credit Purchases.
D. debit Sales Discounts and credit Inventory.

B

Which of the following accounts is not closed to Income Summary?
A. Cost of Goods Sold.
B. Inventory.
C. Sales Revenue.
D. Sales Discounts.

B

All of the following are contra revenue accounts except
A. Sales Revenue.
B. Sales Allowances.
C. Sales Discounts.
D. Sales Returns.

A

The multiple-step income statement for a merchandising company shows each of the following items except
A. Gross profit.
B. Cost of goods sold.
C. Sales revenue section.
D. Investing activities section.

D

Which of the following appears on both a single-step and a multiple-step income statement?
A. Inventory.
B. Gross profit.
C. Income from operations.
D. Cost of goods sold.

D

Which of the following is shown on both a multiple-step and a single-step income statement?
A. Gross profit
B. Net sales
C. Income from operations
D. Other expenses and losses

B

If Sales Revenue is $400,000, Cost of Goods Sold is $310,000, and Operating expenses are $60,000, the Gross profit is
A. $30,000.
B. $90,000.
C. $340,000.
D. $400,000.

B

Income from operations is
A. Net sales less Cost of goods sold.
B. Net sales less Operating expenses.
C. Gross profit less Other expenses and losses.
D. Gross profit less Operating expenses.

D

Under a periodic system, the company uses separate accounts to record freight costs, returns, and discounts.
A. True
B. False

TRUE

Baden Shoe Store has a beginning merchandise inventory of $15,000. During the period, purchases were $70,000; purchase returns, $2,000, and freight-in $5,000. A physical count of inventory at the end of the period revealed that $10,000 was still on hand. The cost of goods available for sale was
A. $82,000
B. $78,000
C. $88,000
D. $92,000

C

Which one of the following transactions is recorded with the same entry in a
perpetual and a periodic inventory system?
A. cash received on account with a discount
B. payment of freight costs on a purchase
C. return of merchandise sold
D. sale of merchandise on credit

A

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, cost of goods sold is
A. $390,000.
B. $370,000.
C. $330,000.
D. $420,000.

A

In a periodic inventory system the entry to record the sale of merchandise on account affects which of the following accounts?
A. Cost of Goods Sold.
B. Purchases.
C. Inventory.
D. Sales Revenue.

D

The following amounts relate to Amato Company for the current year: Beginning Inventory, $20,000; Ending Inventory, $28,000; Purchases, $166,000; Purchase Returns, $4,800; and Freight-Out, $6,000. The amount of Cost of Goods Sold for the period is
A. $159,200.
B. $169,200.
C. $162,800.
D. $153,200.

D

Which of the following accounts will appear in the trial balance of a merchandising company but not a service company?
A. Salaries Expense.
B. Inventory.
C. Accumulated Depreciation.
D. Dividends.

B

In a worksheet, Inventory is shown in the following columns
A. adjusted trial balance debit and balance sheet debit.
B. income statement debit and balance sheet debit.
C. income statement credit and balance sheet debit.
D. income statement credit and adjusted trial balance debit.

A

In a perpetual inventory system, a company determines the cost of goods sold each time a sale occurs.
A. True
B. False

TRUE

Net income is Gross profit less
A. Administrative expenses.
B. Operating expenses.
C. Other expenses and losses.
D. Selling expenses.

B

Gross profit will result if
A. operating expenses are less than net income.
B. sales revenues are greater than operating expenses.
C. sales revenues are greater than cost of goods sold.
D. operating expenses are greater than cost of goods sold.

C

A company determines the cost of goods sold each time a sale occurs in
A. periodic inventory system only.
B. a perpetual inventory system only.
C. both a periodic and perpetual inventory system.
D. neither a periodic nor perpetual inventory system.

B

A perpetual inventory system would more likely be used by a (n)
A. automobile dealership.
B. hardware store.
C. drugstore.
D. convenience store.

A

Stine Company purchased merchandise with an invoice price of $2,000 and credit terms of 1/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
A. 10%
B. 12%
C. 18%
D. 36%

C

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting
A. Purchases
B. Purchase Returns
C. Purchase Allowance
D. Inventory

D

In a perpetual inventory system, which of the following would be debited when goods are purchased with the intent of being resold?
A. Cost of Goods Sold.
B. Inventory.
C. Purchases.
D. Accounts Payable.

B

Sales Returns and Allowances is a contra revenue account to Sales and has a normal debit balance.
A. True
B. False

TRUE

Hale Company sells merchandise on account for $1,000 to Long Company with credit terms of 2/10, n/30. Long Company returns $200 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?
A. $980
B. $780
C. $800
D. $784

D

A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount received as payment in full on June 23 is
A. $700.
B. $686.
C. $685.
D. $650.

B

To record the sale of goods for cash in a perpetual inventory system
A. only one journal entry is necessary to record cost of goods sold and reduction of inventory.
B. only one journal entry is necessary to record the receipt of cash and the sales revenue.
C. two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.
D. two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue.

C

The account Sales Discounts is a(n)
A. revenue account.
B. contra revenue account.
C. liability account.
D. expense account.

B

In preparing closing entries for a merchandiser, the Income Summary account will be credited for the balance of
A. Sales Revenue.
B. Inventory.
C. Sales Discounts.
D. Freight-out.

A

The steps in the accounting cycle for a merchandising company are the same as those in a service company except
A. an additional adjusting journal entry for inventory may be needed in a merchandising company.
B. closing journal entries are not required for a merchandising company.
C. a post-closing trial balance is not required for a merchandising company.
D. a multiple-step income statement is required for a merchandising company.

A

A multiple-step income statement distinguishes between operating and non-operating activities.
A. True
B. False

TRUE

Indicate which one of the following would appear on the income statement of both a merchandiser and a service enterprise.
A. Gross profit
B. Operating expenses
C. Sales revenue
D. Cost of goods sold

B

A single-step income statement
A. reports Gross profit.
B. does not report Cost of goods sold.
C. reports Sales revenues and Other revenues and gains in the revenues section of the income statement.
D. reports Income from operations separately.

C

All of the following items would be reported as Other revenues and gains except
A. Gain on Sale of Equipment.
B. Interest Revenue.
C. Rent Revenue.
D. Sales Revenue.

D

Income from operations appears on
A. both a multiple-step and a single-step income statement.
B. neither a multiple-step nor a single-step income statement.
C. a multiple-step income statement only.
D. a single-step income statement only.

C

Operating expenses include all of the following except
A. advertising expense.
B. freight-out.
C. insurance expense.
D. interest expense.

D

A company has the following account balances: Sale Revenue, $1,000,000; Sales Returns and Allowances, $180,000; Sales Discounts, $20,000; and Cost of Goods Sold, $600,000. What is the company's gross profit rate?
A. 50%.
B. 25%.
C. 60%.
D. 75%.

B

Cost of goods available for sale is computed by adding
A. inventory to ending inventory.
B. beginning inventory to the cost of goods purchased.
C. purchases and freight-in.
D. purchases to purchases discounts and freight-in.

B

In a periodic inventory system, a return of defective merchandise to a supplier is recorded by crediting
A. Accounts Payable.
B. Inventory.
C. Purchases.
D. Purchase Returns and Allowances.

D

In determining Cost of goods sold
A. Purchase Discounts are deducted from Net Purchases
B. Freight-out is added to Net Purchases.
C. Purchase Returns and Allowances are deducted from Net Purchases.
D. Freight-in is added to Net Purchases.

D

When goods are purchased for resale by a company using a periodic inventory system
A. purchases on account are debited to Inventory.
B. purchases on account are debited to Purchases.
C. purchase returns are debited to Purchase Returns and Allowances.
D. freight costs are debited to Purchases.

B

Villa Sales Company had the following amounts related to its business: Beginning inventory, $12,000; Purchases, $42,000; Net sales, $50,000; and Gross profit, $15,000. The amount of the ending inventory is
A. $54,000.
B. $77,000.
C. $19,000.
D. $35,000.

C

There are more steps involved in preparing a worksheet for a merchandising company than for a service company.
A. True
B. False

FALSE

Which of the following accounts may be found in the adjustment columns of a worksheet for a merchandiser but not a service company?
A. Prepaid Insurance
B. Accumulated Depreciation
C. Cost of Goods Sold
D. Salaries and Wages Expense

C

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