TEST BANK OF ACCOUNTING 26TH EDITION BY WARREN

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1.  The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements.

a.  True

b.  False

2.  In a merchandise business, sales minus operating expenses equal net income.

a.  True

b.  False

3.  Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.

a.  True

b.  False

4.  Service businesses provide services for income, while a merchandising business sells merchandise.

a.  True

b.  False

5.  In retail businesses, inventory is reported as a current asset.

a.  True

b.  False

6.  Under a periodic inventory system, the cost of merchandise on hand at the end of the year is determined by a physical count of the inventory.

a.  True

b.  False

7.  In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.

a.  True

b.  False

8.  Freight in is the amount paid by the company to deliver merchandise sold to a customer.

a.  True

b.  False

9.  Freight in is considered a cost of purchasing inventory.

a.  True

b.  False

10. The cost of merchandise inventory is limited to the purchase price less any purchase discounts.

a.  True

b.  False

11. Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are recorded.

a.  True

b.  False

12. If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.

a.  True

b.  False

13. When merchandise that was sold is returned, a credit to sales returns and allowances is made.

a.  True

b.  False

14. In a perpetual inventory system, when merchandise is returned to the supplier, Cost of Merchandise Sold is debited as part of the transaction.

a.  True

b.  False

15. Customer Refunds Payable is an account used to record merchandise returns from customers.

a.  True

b.  False

16. Estimated Returns Inventory is an account used when adjusting for expected merchandise sales in the next period.

a.  True

b.  False

17. Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.

a.  True

b.  False

18. Large businesses that make sales to customers who use nonbank credit cards, such as American Express, generally treat these sales as credit sales.

a.  True

b.  False

19. Most retailers record all credit card sales as credit sales.

a.  True

b.  False

20. The fees associated with credit card sales are periodically recorded as expenses.

a.  True

b.  False

21. A seller may grant a buyer a reduction in selling price and this is called a customer discount.

a.  True

b.  False

22. A customer discount encourages customers to pay accounts more quickly than if a discount were not available.

a.  True

b.  False

23. Merchandise Inventory normally has a debit balance.

a.  True

b.  False

24. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the sales discount.

a.  True

b.  False

25. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.

a.  True

b.  False

26. Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. The entry to record the purchase will include a debit to Cash and a credit to Sales.

a.  True

b.  False

27. Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.

a.  True

b.  False

28. When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period.

a.  True

b.  False

29. Buyers and sellers do not normally record the list prices of merchandise and the trade discounts in accounts.

a.  True

b.  False

30. When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade discount.

a.  True

b.  False

31. A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.

a.  True

b.  False

32. Sellers and buyers are required to record trade discounts.

a.  True

b.  False

33. If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination.

a.  True

b.  False

34. A sale of $750 on account, subject to a sales tax of 6%, would be recorded as an account receivable of $750.

a.  True

b.  False

35. When merchandise is sold for $600 plus 6% sales tax, the Sales account should be credited for $636.

a.  True

b.  False

36. The abbreviation FOB stands for "free on board."

a.  True

b.  False

37. Merchandise is sold for $3,600, terms FOB destination, 2/10, n/30, with prepaid freight costs of $150.  The amount of the sales recorded is $3,528.

a.  True

b.  False

38. If the buyer bears the freight costs related to a purchase, the terms are said to be FOB destination.

a.  True

b.  False

39. When the terms of sale are FOB shipping point, the buyer should pay the freight charges.

a.  True

b.  False

40. If merchandise costing $3,500, terms FOB destination, 2/10, n/30, with prepaid freight costs of $125, is paid within 10 days, the amount of the purchases discount is $70.

a.  True

b.  False

41. The chart of accounts for a merchandising business would include an account called Delivery Expense.

a.  True

b.  False

42. There is no difference between the recording of cash sales and the recording of MasterCard or VISA sales.

a.  True

b.  False

43. When companies use a perpetual inventory system, the recording of the purchase of inventory will include a debit to Purchases.

a.  True

b.  False

44. Most companies will not take a purchase discount, because 1% or 2% discounts are insignificant.

a.  True

b.  False

45. The seller may prepay the freight costs even though the terms are FOB shipping point.

a.  True

b.  False

46. The seller records the sales tax as part of the sales amount.

a.  True

b.  False

47. A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take a physical inventory.

a.  True

b.  False

48. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business.

a.  True

b.  False

49. Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the buyer.

a.  True

b.  False

50. Because many companies use computerized accounting systems, periodic inventory is widely used.

a.  True

b.  False

51. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general ledger.

a.  True

b.  False

52. Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped FOB shipping point.

a.  True

b.  False

53. On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.

a.  True

b.  False

54. The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a downward sequence is called the report form.

a.  True

b.  False

55. Sales are equal to the cost of merchandise sold less the gross profit.

a.  True

b.  False

56. Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is listed as Other Income on the multiple-step income statement.

a.  True

b.  False

57. In a multiple-step income statement, the dollar amount for income from operations is always the same as net income.

a.  True

b.  False

58. The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.

a.  True

b.  False

59. Gross profit minus selling expenses equals net income.

a.  True

b.  False

60. The account form of the balance sheet is presented in a downward sequence in three sections.

a.  True

b.  False

61. In the merchandising income statement, sales will be reduced by administrative expenses to arrive at operating income.

a.  True

b.  False

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

119. 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

120. Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately

a.  2% b. 24% c. 20% d. 36%

121. 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

122. Who is responsible for the freight cost when the terms are FOB destination?

a.  the seller

b.  the buyer

c.  the customer

d.  either the buyer or the seller

123. A retailer purchases merchandise with a catalog list price of $30,000.  The retailer receives a 15% trade discount and 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

124. What type of company would normally offer trade discounts to its customers?

a.  service companies

b.  retailers

c.  wholesalers

d.  online retailers

125. Which of the following accounts will only be found in the chart of accounts of a merchandising company?

a.  Sales

b.  Accounts Receivable

c.  Merchandise Inventory

d.  Accounts Payable

126. Which of the following items would not affect the cost of merchandise inventory acquired during the period?

a.  quantity discounts

b.  sales discounts

c.  freight-in

d.  sales commissions

127. 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

128. 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

129. 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

130. Under the perpetual inventory system, all purchases of merchandise are debited to the account

a.  Merchandise Inventory

b.  Cost of Merchandise Sold

c.  Cost of Merchandise Available for Sale

d.  Purchases

131. When the perpetual inventory system is used, the inventory sold is debited to

a.  Supplies Expense

b.  Cost of Merchandise Sold

c.  Merchandise Inventory

d.  Sales

132. 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 purchase returns and allowances account is credited when goods are returned to vendors

133. The journal entry to record the receipt of inventory purchased for cash in a perpetual inventory system would be

a. Jan. 1  Merchandise Inventory Cash	1,500	1,500
b. Jan. 1  Office Supplies Cash	1,500	1,500
c. Jan. 1  Purchases Accounts Payable	1,500	1,500
d. Jan. 1  Cash Accounts Receivable	1,500	1,500

134. Which of the following items should not be included in the cost of ending merchandise 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

135. The Corbit Corp. sold merchandise for $10,000 cash. The cost of the merchandise sold was $7,590.  The journal entries to record this transaction under the perpetual inventory system would be

a.  Cash                                           10,000

Merchandise Inventory                        10,000

Cost of Merchandise Sold Sales	7,590		7,590
b. Cash Sales	10,000		10,000
Cost of Merchandise Sold Merchandise Inventory	7,590		7,590
c. Cash Sales	10,000		10,000
Cost of Merchandise Sold Merchandise Inventory		10,000	10,000
d. Cash Sales		7,590	7,590

Cost of Merchandise Sold            7,590 Merchandise Inventory                                                7,590

136. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45.  The cost of the merchandise sold is $24,500.  Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700.  Gomez Co. paid the invoice within the discount period.  What is the amount of gross profit earned by Abbey Co. on the above transactions?

a. $10,500

b. $30,772

c. $7,972

d. $31,400

137. What is the major difference between a periodic and perpetual inventory system?

a.  Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account.

b.  Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the cost of the inventory.

c.  Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts are reconciled at the end of the month.

d.  All of the answers are correct.

138. When comparing a retail business to a service business, the financial statement that changes the least is the

a.  balance sheet

b.  income statement

c.  statement of owner's equity

d.  statement of cash flows

139. Generally, the revenue account for a merchandising business is entitled

a.  Sales

b.  Fees Earned

c.  Gross Sales

d.  Gross Profit

140. Which account is not classified as a selling expense?

a.  Sales Salaries

b.  Delivery Expense

c.  Cost of Goods Sold

d.  Advertising Expense

141. President's salaries, depreciation of office furniture, and office supplies are

a.  selling expenses

b.  miscellaneous expenses

c.  administrative expenses

d.  inventory expenses

142. Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as

a.  selling expenses

b.  general expenses

c.  other expenses

d.  administrative expenses

143. When the perpetual inventory system is used, the inventory sold is shown on the income statement as

a.  cost of merchandise sold

b.  purchases

c.  purchases returns and allowances

d.  net purchases

144. The statement of owner's equity shows

a.  only net income, beginning and ending capital

b.  only total assets, beginning and ending capital

c.  only net income, beginning capital, and withdrawals

d.  beginning and ending capital and all the changes in the owner's capital as a result of net income (loss), and withdrawals

145. Merchandise with an invoice price of $6,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination.  Freight costs paid by the seller totaled $200.  What is the cost of the merchandise if paid on September 12, assuming the discount is taken?

a. $6,120

b. $5,940

c. $6,090

d. $5,880

146. When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the

a.  account form

b.  comparative form

c.  horizontal form

d.  report form

147. Multiple-step income statements show

a.  gross profit but not income from operations

b.  neither gross profit nor income from operations

c.  both gross profit and income from operations

d.  income from operations but not gross profit

148. The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

a.  multiple-step statement

b.  revenue statement

c.  report-form statement

d.  single-step statement

149. Under the periodic inventory system, the journal entry to record the purchase of merchandise inventory will include a debit to

a.  Merchandise Inventory

b.  Purchases

c.  Accounts Payable

d.  Cost of Merchandise Purchased

150. Using the following information, what is the amount of net income?

Purchases	$32,000		Selling expense	$     960
Merchandise inventory, September 1	5,700		Merchandise inventory, September 30	6,370
Administrative expense	910		Sales	63,000
Rent revenue	1,200		Interest expense	1,040

a. $29,510

b. $27,560

c. $28,310

d. $29,350

151. Using the following information, what is the amount of gross profit?

Purchases	$32,000		Selling expense	$     960
Merchandise inventory, September 1	5,700		Merchandise inventory, September 30	6,370
Administrative expense	910		Sales	63,000
Rent revenue	1,200		Interest expense	1,040

a. $25,300

b. $31,670

c. $30,600

d. $62,840

 

171. During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the merchandise sold is $322,325. What is the amount of the gross profit?

172. During the current year, merchandise is sold for $117,500 cash and $241,750 on account. The cost of the merchandise sold is $157,400. What is the amount of the gross profit?

173. During the current year, merchandise is sold for $86,000 cash and for $93,950 on account.  The cost of the merchandise sold is $76,240.  What is the amount of the gross profit?

174. Travis Company purchased merchandise on account from a supplier for $5,700, terms 2/10, net 30.  Travis Company paid for the merchandise within the discount period.

Under a perpetual inventory system, record the journal entries required for the above transactions.

175. On March 25, Osgood Company sold merchandise on account, $10,000, terms n/30.  The applicable sales tax percentage is 7.5%.  Record the transaction.

Journal

Date	Description	Post. Ref.	Debit	Credit

176. On March 29, customers who owe $10,500 on account to Sonic Sales Company submit payments of $4,250. Journalize this event.

177. Journalize the following merchandise transactions:

(a)          Sold merchandise on account, $17,300, with terms 2/10, net 30.  The cost of the merchandise sold was $12,600.

(b)         Received payment within the discount period.

178. Determine the amount to be paid in full settlement of each invoice, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

	Merchandise	Freight Paid by Seller	Freight Terms	Returns and Allowances
(a)	$4,500	$140	FOB Shipping Point, 2/10, net 30	$1,200
(b)	$7,650	$200	FOB Destination, 1/10, net 45	$450

179. Sampson Co. sold merchandise to Batson Co. on account, $46,000, terms 2/15, net 45.  The cost of the merchandise sold is $38,500.  The Batson Co. paid the invoice within the discount period.  Prepare the entries that both Sampson and Batson Companies would record for the above.  Assume both Sampson and Batson use a perpetual inventory system.

180. Which of the following costs would be included in merchandise inventory?

(a)         Purchase price

(b)         Insurance in transit FOB shipping point

(c)         Freight for delivery FOB shipping point

(d)         Repair due to negligence of receiving clerk

(e)         Receiving department employee salary

(f)          Cost of processing purchase orders

181. On March 4, Micro Sales makes $4,850 in sales on bank credit cards which charge a 2.5% service charge and deposits the funds into Micro Sales' bank accounts at the end of the business day. Journalize the sales and recognition of expense.

182. Journalize the following transactions for Armour Inc. using both the periodic inventory system and the perpetual inventory system, presented in the side-by-side format of the form provided below.

Oct.7  Sold merchandise on credit to Rondo Distributors, terms n/30, the cost of the merchandise was $720.

Oct. 8  Purchased merchandise, $10,000, terms FOB shipping point, 2/15, n/30,  

194.Marshall Supplies is a janitorial supply store that uses perpetual inventory. Journalize the following transactions:

On July 4, Marshall purchases inventory for sale from Tidy Wholesalers for $8,500.00 with terms 1/10, n/30.

On July 5, Marshall pays Express Transfer $45 for freight in on the July 4 order. On July 7, Marshall buys an additional $11,985 in inventory from Tidy Wholesalers with terms 1/10, n/30.

On July 13, Marshall pays Tidy Wholesalers the balance due on both invoices

  

221. Based upon the following data for a business with a periodic inventory system, determine the cost of merchandise sold for August.

Merchandise inventory, August 1	$  75,560
Merchandise inventory, August 31	96,330
Purchases	373,880
Purchases returns & allowances	14,760
Purchases discounts	10,900
Freight in	4,135

Match each of the following items (a–h) with the appropriate definition below.

a.  Freight

b.  Delivery Expense

c.  Merchandise Inventory

d.  Sales discount

e.  Purchase Returns and Allowances

f.   Debit memo

g.  Purchase discount

h.  Trade discount

222. Discount taken by the buyer for early payment of invoice.

223. Account used to record merchandise on hand under a perpetual inventory system.

224. Early payment discount offered to customers by the seller.

225. Expense account for recording shipping costs paid by the seller.

226. Discount to government agencies or customers who purchase large quantities of merchandise.

227. Account where returned merchandise or price adjustments are recorded by the buyer under the periodic inventory system.

228. The cost associated with delivery of merchandise to the customer.

229. Informs the seller of the reasons for the return of merchandise or the request for a price allowance.

Match each of the following terms (a–h) with the correct definition below.

a.  Credit terms

b.  FOB destination

c.  FOB shipping point

d.  Periodic inventory system

e.  Perpetual inventory system

f.   Inventory shrinkage

g.  Single-step income statement

h.  Multiple-step income statement

230. Shipping terms where the ownership of merchandise passes to the buyer when the buyer receives the merchandise.

231. Losses of inventory due to theft, damage, spoilage, etc. that cause the actual inventory on hand to be less than that on record.

232. Statement where net income is determined by deducting all expenses from all revenues.

233. Payment arrangements determined by the seller as to when invoices are due and whether early payment discount is offered.

234. Inventory system that updates the merchandise inventory account for every purchase and sale transaction.

235. Inventory system that updates the merchandise inventory account only at the end of the accounting period based on a physical count of merchandise on hand.

236. Statement that includes subtotals for net sales, gross profit, and net operating income in determining net income.

237. Shipping terms where the ownership of merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier.