Ch5 Merchandising Business – Test Bank | Canadian 2e

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Financial Accounting, 2nd Cdn. Ed. (Waybright)

Chapter 5 Accounting for a Merchandising Business

5.1 Describe the relationship among wholesalers, retailers, and customers

1) Wholesalers purchase large quantities of product from manufacturers and then sell the product to retailers.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

2) Retailers may buy goods from the manufacturer and then sell the goods to consumers.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

3) Goods that a retailer sells to consumers are classified as inventory.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

4) The predominant types of businesses in Canada are:

A) merchandising businesses.

B) manufacturing businesses.

C) service businesses.

D) wholesale businesses.

E) retail businesses.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

5) Inventory for a merchandising business is classified as a(n):

A) liability.

B) revenue.

C) part of shareholder's equity.

D) asset.

E) expense.

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Application

Blooms: Comprehension

6) Which of the following would NOT be classified as a retailer?

A) Canadian Tire

B) H & R Block

C) Walmart

D) Giant Tiger

E) Sears

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Application

Blooms: Comprehension

7) Which of the following would NOT be classified as a service business?

A) Karl's Lawn Mowing

B) Ty's Tax Preparation

C) Paula's Pet Walking

D) Sheila's Fashion Boutique

E) Lilly's Hair Salon

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Application

Blooms: Comprehension

8) What type of internet company are Amazon.ca and Walmart.ca?

A) Service businesses

B) Manufacturing businesses

C) Retail businesses

D) Wholesalers

E) Financial businesses

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Application

Blooms: Comprehension

9) Who buys goods from retailers?

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

10) What is the general public also referred to as?

A) Final consumers

B) Service customers

C) Retail customers

D) Manufacturing customers

E) Merchandise customers

Diff: 1

LO: 7-1 Describe the different types of revenue and identify when revenue is recognized

Skill: Recall

Blooms: Knowledge

5.2 Define periodic and perpetual inventory systems

1) Most businesses today use the periodic inventory method.

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Recall

Blooms: Knowledge

2) Because of innovative and computerized methods of tracking inventory, most businesses today use the perpetual inventory method.

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Recall

Blooms: Knowledge

3) The perpetual inventory system keeps a running record of inventory as it is bought and sold.

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Recall

Blooms: Knowledge

4) When the perpetual records do not equal the physical count of the inventory, the general ledger is updated with the differences.

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Recall

Blooms: Knowledge

5) A useful tool that updates inventory is the:

A) cash register.

B) bar code scanner.

C) price tag on the merchandise.

D) UPC number.

E) bar code.

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Recall

Blooms: Knowledge

6) Which financial statement does the Cost of Goods Sold account appear on?

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Recall

Blooms: Knowledge

7) How often are physical inventory counts performed?

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Recall

Blooms: Knowledge

8) Under the periodic inventory method, how does the company determine the amount of inventory on hand at the end of the period?

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Application

Blooms: Comprehension

9) What accounts are adjusted for any inventory differences that are determined after a physical count is taken?

Diff: 1

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Application

Blooms: Comprehension

10) Calculate Cost of Goods Sold with the following information:

Beginning Inventory $135,000

Purchases in the period $400,000

Ending Inventory $145,000

Diff: 2

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Application

Blooms: Application

11) Calculate Cost of Goods Available for Sale with the following information:

Beginning Inventory $125,000

Purchases in the period $360,000

Ending Inventory $114,000

Diff: 2

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Application

Blooms: Application

12) What kinds of businesses would benefit from a periodic inventory system?

Diff: 2

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Application

Blooms: Knowledge

13) What kinds of businesses would benefit from a perpetual inventory system?

Diff: 2

LO: 5-2 Define periodic and perpetual inventory systems

Skill: Application

Blooms: Knowledge

5.3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

1) Under the perpetual inventory system, the purchase of inventory affects both an asset and the shareholder's equity account.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

2) Depending on the inventory system the merchandiser uses, the recording of the purchase and sale of inventory are accounted for differently.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

3) An inventory subsidiary ledger maintains a separate account for each inventory item, where changes in the balance of that item are recorded in both quantity and value.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

4) The name of the supplier (vendor) is listed in the Accounts Payable subsidiary ledger.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

5) Purchase returns reduce the cost of inventory.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Concept

Blooms: Comprehension

6) A debit memorandum is the name of the document that supports the return of the goods to the supplier.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

7) The acronym 'eom' means end of merchandise.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

8) If an invoice shows a total of $4,000 with terms 2/10, n/30, the customer may pay $3,920 within 10 days to satisfy the bill.

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

9) An invoice with the credit terms 3/10, n/30 means that the customer has 3 days to take a 10% discount off of the invoice total.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

10) FOB destination means that title passes at the time of shipment of the product to the buyer from the seller.

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Concept

Blooms: Knowledge

11) FOB shipping means that title passes at the time the product is shipped from the seller.

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Concept

Blooms: Knowledge

12) A buyer debits the shipping charges that they pay for merchandise purchased to inventory under the perpetual inventory system.

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

13) Advertising and promotion are examples of selling expenses.

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Comprehension

14) Freight charges that are paid by a buyer are:

A) added to Cost of Goods Sold.

B) added to Inventory.

C) subtracted from Inventory.

D) subtracted from Cost of Goods Sold.

E) added to operating expense.

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

15) Transferring title refers to a:

A) change of ownership.

B) change of buyer.

C) change of seller.

D) legal document.

E) purchase contract.

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Concept

Blooms: Comprehension

16) When a company repays the seller for shipping costs on an FOB shipping transaction, which of the following is true?

A) A purchase discount can still be taken net of the prepaid shipping charges.

B) A purchase discount can still be taken on the gross amount of the invoice.

C) A purchase discount cannot be taken when shipping charges are prepaid.

D) The shipping costs do not affect the invoice cost.

E) The shipping costs are not added to the cost of the inventory.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Critical Thinking

Blooms: Analysis

17) What type of expense is depreciation of a delivery truck?

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Concept

Blooms: Comprehension

18) What does the acronym FOB stand for?

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Recall

Blooms: Knowledge

19) What is the term used to indicate that the buyer pays all of the shipping and freight costs?

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Concept

Blooms: Comprehension

20) What is the term used to indicate that the seller pays all of the shipping and freight costs?

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Concept

Blooms: Comprehension

21) When a company sells goods to customers FOB destination, what account does the company use for the cost of shipment?

Diff: 1

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

22) Meranda Corporation purchases $3,500 of inventory on account from Ashley Corporation. The journal entry to record this purchase for Meranda under a perpetual inventory system is:

A) debit Inventory; credit Cash.

B) debit Accounts Payable-Ashley; credit Inventory.

C) debit Inventory; credit Accounts Payable-Meranda.

D) debit Inventory; credit Accounts Payable-Ashley.

E) debit Inventory, credit Shareholder's Equity.

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

23) A record to keep the amount owed to each supplier is called a(n):

A) accounts receivable subsidiary ledger.

B) accounts payable subsidiary ledger.

C) transportation ledger.

D) general ledger for accounts payable.

E) trial balance.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

24) When merchandise is purchased on account under the perpetual inventory system, the journal entry is:

A) debit Purchases and credit Accounts Payable.

B) debit Accounts Payable and credit Inventory.

C) debit Inventory and credit Accounts Payable.

D) debit Accounts Payable and credit Purchases.

E) debit Purchases and credit Cash.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

25) Casey Company purchases goods for resale from Tim Corporation. The amount of the purchase is $12,500 with terms of 3/10, n/30. Casey returns $500 of the goods. Under the perpetual inventory method, Casey's journal entry to record the return is:

A) debit Accounts Payable; credit Purchase Returns and Allowances.

B) debit Purchase Returns and Allowances; credit Accounts Payable.

C) debit Accounts Payable; credit Inventory.

D) debit Accounts Payable; credit Purchase Discounts.

E) debit Accounts Receivable; credit Inventory.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

26) If damaged goods are received by the merchandiser and are kept with a reduction in price, the account to be credited for the reduction in price under a perpetual inventory system is:

A) Inventory.

B) Accounts Payable.

C) Purchases Discount.

D) Cash.

E) Sales Discounts.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

27) A company pays an invoice early and takes 4% off of the original invoice price. The account to be credited for this amount under a perpetual inventory system is:

A) Inventory.

B) Accounts Payable.

C) Purchases Discount.

D) Cash.

E) Purchases Returns.

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

28) Discounts allowed for customers who pay their invoices early:

A) reduce the cost of the purchased inventory.

B) increase the cost of the purchased inventory.

C) are called manufacturers' discounts.

D) are called allowances.

E) are called cash discounts.

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

29) An invoice states 5/15, n/60. What does the 15 refer to?

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Concept

Blooms: Comprehension

30) A discount offered by a supplier as an inducement for prompt payment of an invoice is called a(n):

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Concept

Blooms: Comprehension

31) What would be the credit terms that allows a discount of 3% if payment is made within 15 days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from the date of the invoice?

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

32) ABC Corporation has received an invoice for $4,500 with terms of 3/15, n/50. If ABC pays the invoice on the seventeenth day, the Cash account will be credited for what value?

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

33) The amount of an invoice is $1,000, with terms 2/10, n30. What is the amount to be paid within the discount period?

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

34) An invoice of $237.50 is dated April 2, terms 2/10, n/30. If the invoice is paid on April 9, what is the amount to be paid?

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

35) ABC Company returned $750 of goods it had purchased from another company. The original invoice was for $4,200, 3/10, n/30. What is the discount if ABC pays the balance within the discount period?

Diff: 2

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

36) If an invoice reads n/15, what does this mean?

Diff: 1

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Concept

Blooms: Comprehension

37) Journalize the following transactions using the perpetual inventory method.

Nov. 1 Purchased $3,600 of merchandise from Hilltop, terms 2/10, n/30.

Nov. 5 Purchased $1,750 of merchandise for cash from Owen's Supply.

Nov. 7 Purchased $3,400 of merchandise from Seaside, terms 1/15, n/30.

Nov. 10 Returned $500 of merchandise to Seaside. Credit Memo #131.

Nov. 11 Paid the invoice from Hilltop.

Diff: 3

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

38) Journalize the following transactions using the perpetual inventory method.

Feb. 2 Elite XC purchased $10,170 of merchandise from UFC, terms 2/10, n/45, FOB destination.

Feb. 5 The appropriate company paid freight costs of $198.

Feb. 6 Elite XC returned $1,676 of the merchandise purchased on February 2, because it was not needed.

Feb. 11 Elite XC paid the balance owed to UFC.

Diff: 3

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

39) Journalize the following transactions using the perpetual inventory method.

Feb. 2 Elite XC purchased $10,170 of merchandise from UFC, terms 2/10, n/45, FOB shipping point.

Feb. 5 The appropriate company paid freight costs of $198.

Feb. 6 Elite XC returned $1,676 of the merchandise purchased on February 2, because it was not needed.

Feb. 11 Elite XC paid the balance owed to UFC.

Diff: 3

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

40) Journalize the following transactions for Bill Co. using the perpetual inventory system.

June 8 Bill Co. sold $6,900 of merchandise, costing $5,150 on account to Joan, terms

3/10, n/30 FOB Destination.

June 12 Bill Co. pays $500 of shipping costs.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

41) On July 1, Cara Corp. buys $2,000 of goods on account from IMNl Inc. The terms of the purchase are 2/10, n/30, FOB shipping point. IMNI Inc. prepaid $80 of shipping costs and charges Cara Corp for these shipping costs. Cara then returns $200 of these goods for credit on July 10. On July 15, Cara makes payment in full for the purchase. What is the amount that Cara paid to IMNI Inc.?

Diff: 3

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Critical Thinking

Blooms: Application

42) Journalize the following transactions using the perpetual inventory method.

Dec. 1 Purchased $2,900 worth of merchandise from Wills on terms 2/10 n/30, FOB shipping point.

Dec. 5 Paid for $200 of shipping charges.

Dec. 9 Returned $400 worth of inventory to Wills.

Dec. 10 Paid the invoice from Wills.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

43) Journalize the following transactions using the perpetual inventory method.

Aug. 6 Purchased $830 of inventory on account from Johnston with terms of 2/10, n/30.

Aug. 8 Purchased $2,611 of inventory for cash from Pillner Company.

Aug.15 Paid for August 6 purchase from Johnston.

Aug. 17 Purchased $1,743 of merchandise on account from Luis Company with Terms of 3/15, n/45.

Diff: 3

LO: 5-3 Journalize transactions for the purchase of inventory and related purchasing costs using a perpetual inventory system

Skill: Application

Blooms: Application

5.4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

1) Sales Discounts and Sales Returns and Allowances are contra-accounts of the Sales account.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

2) Debit card and credit card sales are counted as cash transactions.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

3) A debit memorandum acknowledges the receipt of returned goods from a customer.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Concept

Blooms: Comprehension

4) The account Sales Returns and Allowances is debited when items are returned from a customer.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

5) Cost of Goods Sold is the account that is matched with the Sales account to record the company's cost of the inventory that was sold under a perpetual inventory system.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Concept

Blooms: Comprehension

6) A journal entry that involves more than two accounts is called a compound journal entry.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

7) Under a periodic inventory system, when goods are returned by a customer the inventory account is not adjusted.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

8) A customer purchased items on account from ABC Company. After a few days, the customer returned the goods. ABC will issue a:

A) debit memorandum.

B) return receipt.

C) credit memorandum.

D) refund cheque.

E) new invoice.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

9) A list of credit customers is called a(n):

A) accounts payable subsidiary ledger.

B) general ledger.

C) accounts receivable subsidiary ledger.

D) general journal.

E) accounts receivable trial balance.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

10) Sales returns from a customer:

A) increase Cost of Goods Sold.

B) increase Revenue.

C) decrease Cost of Goods Sold.

D) have no effect on Cost of Goods Sold.

E) increase operating expenses.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

11) The account in which the revenue earned from the sale of merchandise is entered is:

A) Retained Earnings.

B) Sales.

C) Cash.

D) Inventory.

E) Shareholders' Equity.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

12) A customer purchased $500 of merchandise from Tammy's store. Under the perpetual inventory system, Tammy will record a:

A) debit to Accounts Receivable or to Cash for $500.

B) credit to Accounts Receivable or to Cash for $500.

C) credit to Cost of Goods Sold for $500.

D) debit to Sales for $500.

E) debit to Inventory for $500.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

13) Merchandise returned by the customer for a cash refund is called a:

A) sales return.

B) sales allowance.

C) debit memorandum.

D) credit memorandum.

E) purchases return.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Concept

Blooms: Knowledge

14) Costs of Goods Sold includes which of the following?

A) The actual cost of the item

B) Administrative fees

C) Management salaries

D) Depreciation expense

E) Selling expense

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Concept

Blooms: Comprehension

15) Under a perpetual inventory system, what accounts are debited and credited when an allowance is granted to a customer by the retailer for minor defective product?

Diff: 2

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

16) Tammy's General Store has cash sales for the week of $5,000 and credit sales of $3,500. What are the debits and the credits to record the week's sales?

Diff: 2

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

17) Sales is a(n) ________ account.

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Concept

Blooms: Knowledge

18) On what financial statement does Sales Returns and Allowances appear?

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Recall

Blooms: Knowledge

19) Jill buys $775 of merchandise on account from Toys Are Fun. Her customer terms are 3/10, n/45. What is the amount of her discount if she pays within the discount period?

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

20) Jill buys $775 of merchandise on account from Toys Are Fun. Her customer terms are 3/10, n/45. What is the amount of her discount if she pays within the discount period?

A) $77.50

B) $23.25

C) $697.50

D) $0.00

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

21) When a retailer sells merchandise on account, the general entry for the sale would be a:

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

22) What is the journal entry to record the company's cost of selling merchandise under a perpetual inventory system?

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

23) Cary, a customer of ABC Retail, returned $45 of goods that were purchased on account. Under the perpetual inventory system, the seller's journal entry to record the customer's return will include a:

Diff: 1

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

24) Calculate Net Sales with the following information: Sales of $400,000, Sales Returns and Allowances of $45,000, and Sales Discounts of $38,000.

Diff: 2

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

25) Journalize the following transactions using the periodic inventory method.

Nov. 1. Sold $3,400 of inventory for $4,500 to Jany Smith with terms 2/10, n/30.

Nov. 10 Sold $4,700 of inventory for $6,100 for Owen Corp. with terms 2/15, n/30.

Nov. 12 Received payment in full from Jany Smith for the Nov. 1 sale.

Nov. 15 Granted Owen Corp. an allowance of $800 for Nov. 10 transaction for minor defects in the

goods shipped.

Nov. 20 Received payment in full from Owen Corp. for the Nov. 10 sale.

Diff: 3

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

26) Journalize the following transactions for Jill Company using the perpetual inventory method.

June 8 Jill Co. sold $3,500 of merchandise, costing $2,850 on account to Betty, terms 3/10, n/30.

June 12 Betty returned $350 of the merchandise, costing $190 to Jill Company for credit on her account.

June 19 Betty paid her balance.

Diff: 3

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

27) Journalize the following transactions for Jill Company using the periodic inventory system.

June 8 Jacob Co. sold $5,500 of merchandise, costing $4,150 on account to Breanne, terms 2/10, n/30.

June 12 Breanne returned $550 of the merchandise, costing $410 to Jacob Company for credit on her account.

June 19 Breanne paid her balance.

Diff: 2

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

28) Journalize the following transactions using the perpetual inventory method.

Aug. 10 Sold $4,100 of inventory for $5,100 for Oden Corp. with terms 2/15, n/30

Aug. 12 Received payment of $1,000 cash in full from Jany Smith for a July 1 sale with terms 2/10 n/30

Aug. 15 Granted Oden Corp. an allowance of $400 for Aug. 10 transaction for minor defects in the goods shipped

Aug. 23 Received payment in full from Oden Corp. for the Aug. 10 sale

Diff: 3

LO: 5-4 Journalize transactions for the sale of inventory and related selling costs using a perpetual inventory system

Skill: Application

Blooms: Application

5.5 Prepare a multi-step income statement and a classified statement of financial position

1) The single-step income statement groups all revenues together and all expenses together.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

2) Most merchandisers use a single-step income statement.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

3) Net sales is calculated as gross sales less sales returns and allowances and purchase discounts.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

4) Gross margin is calculated as net sales less cost of goods sold.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

5) Cost of goods sold is part of general and administrative expenses.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Knowledge

6) The statement of retained earnings for a merchandiser is prepared differently than that of a service business.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Comprehension

7) Long-term assets on the balance sheet represent assets that will last longer than one operating cycle of the business.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Concept

Blooms: Comprehension

8) On the balance sheet, assets are listed in alphabetical order.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Comprehension

9) Current assets are listed on the balance sheet in:

A) alphabetical order.

B) order of liquidity.

C) ascending order of value.

D) descending order of value.

E) order of solvency.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Concept

Blooms: Comprehension

10) A 25-year mortgage with regular monthly principal payments would be listed on the balance sheet as:

A) a current liability only.

B) a long-term liability only.

C) partly a current liability with the balance listed as a long-term liability.

D) a long-term asset.

E) a current asset.

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

11) What is the balance sheet form that lists assets above liabilities ?

A) Account form

B) Report form

C) Alphabetical form

D) Liquidity form

E) Solvency form

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

12) Which of the following would be classified as other expenses in a multiple-step income statement?

A) Advertising expenses

B) Interest expenses

C) Dividends

D) All of the above

E) None of the above

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

13) Assume that sales are $450,000, sales discounts are $10,000, operating expenses are $85,000, and cost of goods sold is $320,000. Gross profit and operating income are

A) $120,000 and $355,000 respectively.

B) $120,000 and $35,000 respectively.

C) $130,000 and $355,000 respectively.

D) $130,000 and $35,000 respectively.

E) None of the above

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

14) What type of income statement do most merchandising businesses prepare?

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Recall

Blooms: Knowledge

15) What type of liabilities are wages payable, income taxes payable, and accounts payable?

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

16) Why is cash listed as the first current asset?

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Concept

Blooms: Comprehension

17) What is net income generally also referred to as?

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Concept

Blooms: Knowledge

18) How is Gross Profit calculated?

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Concept

Blooms: Knowledge

19) Land is an example of what type of asset?

Diff: 1

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

20) Given the following information, prepare a balance sheet for Isaiah's Tool Shed for the year ending December 31, 2012.

Balance Sheet

December 31, 2012

Diff: 3

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

21) Given the following information, prepare a balance sheet for Brandon's Campstore for the year ending December 31, 2012.

Balance Sheet

December 31, 2012

Diff: 3

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

22) Given the following information, list and calculate total current assets for Breanne's Company for the year ending December 31, 2012.

Diff: 2

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

23) Given the following information, prepare a single-step Income Statement for Brandon's Corporation for the year ending December 31, 2012.

Income Statement

Year Ended December 31, 2012

Diff: 2

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

24) Given the following information, list and calculate total Property, Plant, and Equipment for Singh's Company for the year ending December 31, 2012.

Diff: 2

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

25) Given the following information, prepare a multi-step Income Statement for Brickyn's Corporation for the year ending December 31, 2012.

Income Statement

Year Ended December 31, 2012

Diff: 3

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

26) Given the following information, prepare a Statement of Retained Earnings for Alyson's Corporation for the year ending December 31, 2012.

Statement of Retained Earnings

Year Ended December 31, 2012

Diff: 2

LO: 5-5 Prepare a multi-step income statement and a classified statement of financial position

Skill: Application

Blooms: Application

5.6 Compute the gross profit percentage and the current ratio

1) The current ratio is computed by dividing current liabilities by current assets.

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Concept

Blooms: Knowledge

2) Gross profit percentage is computed by dividing net sales by cost of goods sold.

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Concept

Blooms: Knowledge

3) If a company has $15,000 in current liabilities and $30,000 in current assets, the current ratio would be 2.

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

4) If a company had net sales of $56,000 and gross profit of $33,000, the gross profit percentage would be approximately 59%.

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

5) Which of the following current ratios would be considered the strongest ratio?

A) 0.50

B) 0.75

C) 1.00

D) 1.50

E) 1.25

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Critical Thinking

Blooms: Evaluation

6) Which of the following current ratios would be considered the WORST ratio?

A) 1.45

B) 1.11

C) 0.88

D) 0.50

E) 1.50

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Critical Thinking

Blooms: Evaluation

A) the cost of goods sold relative to sales was relatively low.

B) the cost of goods sold relative to sales was relatively high.

C) selling expenses are very low.

D) general and administrative expenses are very high.

E) selling expenses are very high.

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Critical Thinking

Blooms: Analysis

8) If total assets go down and total liabilities go up, the current ratio:

A) remains the same.

B) decreases.

C) increases.

D) cannot be determined from the information given.

E) is not affected at all by these changes.

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Critical Thinking

Blooms: Synthesis

9) A company's current ratio increased from 1.23 to 1.45. What does this mean?

A) Current assets increased and current liabilities decreased.

B) Current assets increased and current liabilities increased.

C) Current assets decreased and current liabilities decreased.

D) There is not enough information to explain the increase.

E) Current assets decreased and current liabilities stayed the same.

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

10) A company has total assets of $345,000; total liabilities of $278,000; current assets of $212,000; and current liabilities of $175,000. What is the company's current ratio?

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

11) A company has current assets of $35,600, total assets of $67,000, and current liabilities of $78,000. What is the company's current ratio?

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

12) If a company has a current ratio of 0.8, what does this mean ?

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

13) A company has net sales of $56,700 and a cost of goods sold of $26,700. What is the company's gross profit percentage?

Diff: 1

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

14) What happens to the current ratio if current assets decrease and current liabilities increase?

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Critical Thinking

Blooms: Synthesis

15) Calculate the gross profit percentage and current ratio for 2013 given the information below.

Current ratio = $(48,900 + 35,000 + 81,311) / $(50,000 + 28,411 + 27,900) = $165,211 / $106,311 = 1.55

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

16) Calculate the gross profit percentage and current ratio for 2013 given the information below.

Current ratio = $(34,571 + 55,710) / $(32,600 + 48,671 + 19,210) = $90,281/$100,481 = .90

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Application

Blooms: Application

17) What is the current ratio for the current year given the information below? If the current ratio for the previous year was 1.2, was there an improvement or deterioration?

= $153,352/$119,691 = 1.28

There has been an improvement in current ratio.

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Critical Thinking

Blooms: Synthesis

18)

What is the gross profit ratio for the current year given the information above? If the gross profit ratio for the previous year was 20%, was there an improvement or deterioration?

There has been a deterioration of gross profit percentage.

Diff: 2

LO: 5-6 Compute the gross profit percentage and the current ratio

Skill: Critical Thinking

Blooms: Synthesis

5.7 Appendix 5A: Explain how a business accounts for transactions using the periodic inventory system

1) Inventory account is used to account for purchases in a periodic inventory system.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Recall

Blooms: Knowledge

2) In a periodic inventory system, inventory and cost of goods sold are not updated continuously.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Recall

Blooms: Knowledge

3) In a periodic inventory system, the inventory subledger account is not needed.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Recall

Blooms: Knowledge

4) In a periodic inventory system, the purchase of inventory will not increase assets.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Recall

Blooms: Knowledge

5) In a periodic inventory system, when a sale is made an entry to record the sale is needed and another entry to record the cost of goods sold on the sale is needed.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Recall

Blooms: Knowledge

6) Tayler Corporation purchased merchandise from Brandon Corporation for cash. The journal entry for Tayler Corporation under a periodic inventory system will be:

A) debit Inventory; credit Cash.

B) debit Purchases; credit Cash.

C) debit Inventory; credit Accounts Payable-Brandon Corporation.

D) debit Inventory; credit Accounts Receivable-Taylor Corporation.

E) debit Purchases, credit Accounts Payable-Brandon Corporation.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

7) Alpha Company received an invoice from Beta Company for $5,550 with terms of 3/10, n/45 on March 8. If Alpha pays the bill on March 15, what is the journal entry in a periodic system?

Credit Purchase Discount 166.50

Credit Cash 5,383.50

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

8) ABC Corporation pays an invoice for $350 in time to take a 3% discount. The journal entry to record the payment of this invoice under a periodic system is:

Credit Purchase Discount $10.50

Credit Cash $339.50

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

9) Under a periodic inventory system, what account is used to record transportation charges on incoming merchandise?

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

10) Journalize the following transactions using the periodic system.

Aug. 6 Purchased $1,030 of inventory on account from Johnston with terms of 2/10, n/30.

Aug. 8 Purchased $2,001 of inventory for cash from Pillner Company.

Aug.15 Paid for August 6 purchase from Johnston.

Aug. 17 Purchased $1,700 of merchandise on account from Luis Company with Terms of 3/15, n/45.

Diff: 3

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

11) Calculate period end Cost of Goods Sold with the following information.

Beginning Inventory $35,000

Purchases $49,000

Purchases Discounts $3,000

Purchases Returns $4,500

Transportation-in $2,000

Ending Inventory $42,000

Beginning Inventory 35,000

+ Purchases 49,000

Purchases Discounts - 3,000

Purchases Returns - 4,500

Transportation-in + 2,000

Total cost of goods purchased 43,500

Goods available for sale 78,500

Ending Inventory - 42,000

= Cost of Goods Sold 36,500

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

12) Journalize the following transactions using the periodic system.

Sept. 3 Purchased $1,870 worth of inventory from Sierra Company with terms 2/10 n/30.

Sept. 9 Returned $400 worth of the inventory purchased on Sept. 3 as goods were defective.

Sept.12 Paid for the Sept. 3 purchase.

Sept.19 Purchased $900 of merchandise on account from Lola Company with Terms of 3/15, n/45.

Diff: 3

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

13) Prepare the period-end adjusting entries for a periodic inventory system.

Beginning Inventory $55,000

Purchases $69,000

Purchases Discounts $4,000

Purchases Returns $6,500

Transportation-in 32,000

Ending Inventory $52,000

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

14) Journalize the following transactions using the periodic inventory method.

Dec. 1 Purchased $4,900 worth of merchandise from Lolas on terms 2/10 n/30, FOB shipping point.

Dec. 5 Paid for $400 of shipping charges.

Dec. 9 Returned $900 worth of inventory to Lolas.

Dec. 10 Paid the invoice from Lolas.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

15) Journalize the following transactions for Jane Co. assuming the periodic system.

May 7 Jane Co. sold $6,900 of merchandise, costing $5,150 on account to Joan, terms 3/10, n/30 FOB Shipping.

May 8 Jane Co. pre-pays $500 of shipping costs and charges Joan.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

16) Journalize the following transactions for Bill Co. using the periodic inventory system.

Nov. 1 Bill Co. purchased $1,900 worth of merchandise from Littles on terms 2/10 n/30,

FOB shipping point.

Nov. 5 Bill Co. paid $300 shipping charges. for the Nov 1 purchase.

Nov. 8 Bill Co. sold $4,900 of merchandise, costing $3,150 on account to Jill, terms 3/10,

n/30 FOB shipping point.

Nov. 12 Bill Co. pays $450 of shipping costs and in turn invoices Jill.

Diff: 2

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

17) Journalize the following transactions using the periodic inventory method.

Feb. 2 Elite XC purchased $10,170 of merchandise from UFC, terms 2/10, n/45, FOB destination.

Feb. 5 The appropriate company paid freight costs of $198.

Feb. 6 Elite XC returned $1,676 of the merchandise purchased on February 2, because it was not needed.

Feb. 11 Elite XC paid the balance owed to UFC.

Diff: 3

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

18) Journalize the following transactions using the periodic inventory method.

Feb. 2 Elite XC purchased $10,170 of merchandise from UFC, terms 2/10, n/45, FOB shipping point.

Feb. 5 The appropriate company paid freight costs of $198.

Feb. 6 Elite XC returned $1,676 of the merchandise purchased on February 2, because it was not needed.

Feb. 11 Elite XC paid the balance owed to UFC.

Diff: 3

LO: 5-7 Explain how a business accounts for transactions using the periodic inventory system

Skill: Application

Blooms: Application

5.8 Cumulative Questions

1) Prepare the journal entries in Retro's books for the following transactions assuming a periodic system.

March 1 Retro Corp. purchased $8,000 of merchandise from Alloy Corp. on account,

terms 2/15, n/30. FOB shipping point. The goods cost Alloy $2,900.

March 9 Retro paid a $200 freight bill for delivery of the goods purchased on March 1.

March 11 Retro returned $1,000 of the merchandise purchased on March 1.

The goods cost Alloy $450.

March 15 Retro paid for the March 1 purchase in full.

Diff: 3

LO: 5-3, 5-4, 5-5

Skill: Application

Blooms: Application

2) Prepare the journal entries in Big's Books to record the following transactions using the perpetual inventory system:

October 1 Big Inc. purchased $5,400 of merchandise on account from Bargain Inc., terms 3/15, n/45,

FOB shipping point. Bargain prepaid the $125 shipping cost and added the amount to the invoice.

October 4 Big sold $950 (cost, $250) of merchandise on account to Wills Corp., terms 2/10 n/45, FOB destination.

October 5 Big paid $25 freight charges to deliver goods to Wills.

October 8 Big returned $600 of the merchandise purchased on October 1 and received a credit.

October 11 Big paid Bargain the amount due from the October 1 purchase in full.

October 12 Wills returned $175 (cost, $100) of merchandise from the October 4 sale.

October 13 Received payment in full from Wills for the October 4 sale.

Diff: 3

LO: 5-3, 5-4, 5-5

Skill: Application

Blooms: Application