Merchandising Reporting | Test Bank – 10e

View Product website:

https://selldocx.com/docx/merchandising-reporting-test-bank-10e-1035

Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.
1) Merchandise inventory refers to products that a company owns and intends to sell.

⊚ true
⊚ false

2) A service company earns net income by buying and selling merchandise.

⊚ true
⊚ false

3) Gross profit is also called gross margin.

⊚ true
⊚ false

4) Cost of goods sold is also called cost of sales.

⊚ true
⊚ false

5) A wholesaler buys products from manufacturers and sells them to retailers.

⊚ true
⊚ false

6) A retailer buys products from manufacturers and sells them to wholesalers.

⊚ true
⊚ false

7) Cost of goods sold represents the expense of buying and preparing merchandise for sale.

⊚ true
⊚ false

8) A company had net sales of $358,000 and cost of goods sold of $204,000. Its gross profit equals $154,000.

⊚ true
⊚ false

9) A company had net sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals $150,000.

⊚ true
⊚ false

10) A company had net sales of $561,000 and cost of goods sold of $353,000. Its gross margin equals $914,000.

⊚ true
⊚ false

11) A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross margin equals $890,000.

⊚ true
⊚ false

12) A company had a gross profit of $322,000 based on net sales of $411,000. Its cost of goods sold equals $733,000.

⊚ true
⊚ false

13) A company had a gross profit of $300,000 based on net sales of $400,000. Its cost of goods sold equals $700,000.

⊚ true
⊚ false

14) A merchandising company's operating cycle begins with the cash purchase of merchandise and ends with the collection of cash from the sale.

⊚ true
⊚ false

15) Merchandise inventory is reported in the long-term assets section of the balance sheet.

⊚ true
⊚ false

16) Cash sales shorten the operating cycle for a merchandiser.

⊚ true
⊚ false

17) Cost of goods sold is an expense, and is reported on the income statement.

⊚ true
⊚ false

18) A periodic inventory system requires updating of the inventory account only at the beginning of an accounting period.

⊚ true
⊚ false

19) A perpetual inventory system updates accounting records for each purchase and each sale of inventory.

⊚ true
⊚ false

20) Beginning inventory plus net purchases equals merchandise available for sale.

⊚ true
⊚ false

21) The acid-test ratio is also called the quick ratio.

⊚ true
⊚ false

22) Quick assets include cash and cash equivalents, inventory, and current receivables.

⊚ true
⊚ false

23) The acid-test ratio is defined as current assets divided by current liabilities.

⊚ true
⊚ false

24) A company with an acid-test ratio of 4.1 is unlikely to face near-term liquidity problems.

⊚ true
⊚ false

25) A company with an acid-test ratio of 0.1 is likely to face near-term liquidity problems.

⊚ true
⊚ false

26) A company's quick assets are $155,000 and its current liabilities are $150,000. This company's acid-test ratio is 1.03.

⊚ true
⊚ false

27) A company's quick assets are $153,000 and its current liabilities are $150,000. This company's acid-test ratio is 1.02.

⊚ true
⊚ false

28) A company's quick ratio is 0.25. This ratio indicates no liquidity problems.

⊚ true
⊚ false

29) A company's quick ratio is 0.25. This ratio indicates no liquidity problems.

⊚ true
⊚ false

30) The gross margin ratio is defined as gross margin divided by net sales.

⊚ true
⊚ false

31) The profit margin ratio is the same as the gross profit ratio.

⊚ true
⊚ false

32) A company had net sales of $340,000, its cost of goods sold was $256,700, and its net income was $13,750. The company's gross margin ratio equals 24.5%.

⊚ true
⊚ false

33) The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

⊚ true
⊚ false

34) Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.

⊚ true
⊚ false

35) Purchases returns refer to merchandise a buyer purchases but then returns.

⊚ true
⊚ false

36) Purchases allowances refer to merchandise a buyer acquires but then returns to the seller.

⊚ true
⊚ false

37) Purchases allowances refer to a price reduction (allowance) granted to a buyer of defective or unacceptable merchandise.

⊚ true
⊚ false

38) Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account.

⊚ true
⊚ false

39) Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

⊚ true
⊚ false

40) Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

⊚ true
⊚ false

41) A sales discount is a cash discount from the buyer’s perspective.

⊚ true
⊚ false

42) If a company sells merchandise with credit terms 2/10, n/60, the credit period is 10 days and the discount period is 60 days.

⊚ true
⊚ false

43) The seller is responsible for paying shipping charges and bears the risk of loss in transit if goods are shipped FOB destination.

⊚ true
⊚ false

44) If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination.

⊚ true
⊚ false

45) If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination.

⊚ true
⊚ false

46) A buyer using a perpetual inventory system records the costs of shipping the merchandise it purchases in a Delivery Expense account.

⊚ true
⊚ false

47) A buyer of $5,000 in merchandise inventory does not take advantage of a supplier's credit terms of 2/10, n/30, and instead pays the invoice in full at the end of 30 days. The buyer will pay $4,900.

⊚ true
⊚ false

48) FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

⊚ true
⊚ false

49) The perpetual accounting system requires that each sales transaction for a merchandiser, whether for cash or on credit, has two entries: one for revenue and one for cost.

⊚ true
⊚ false

50) Offering discounts on credit sales benefits a seller through earlier cash receipts and reduced collection efforts.

⊚ true
⊚ false

51) Sales Discounts is added to the Sales account when computing a company's net sales.

⊚ true
⊚ false

52) Sales Discounts has a normal debit balance because it is subtracted from Sales, which has a normal credit balance.

⊚ true
⊚ false

53) Under a perpetual inventory system, when a credit customer returns non-defective merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

⊚ true
⊚ false

54) The perpetual system requires that each sale of merchandise has two entries: the revenue side and the cost side.

⊚ true
⊚ false

55) A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

⊚ true
⊚ false

56) Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.

⊚ true
⊚ false

57) A perpetual inventory system is able to directly measure and monitor inventory shrinkage, and thus there is never a need for a physical count of inventory.

⊚ true
⊚ false

58) Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.

⊚ true
⊚ false

59) Cost of Goods Sold is debited to close the account during the closing process.

⊚ true
⊚ false

60) In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of the accounting period.

⊚ true
⊚ false

61) The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.

⊚ true
⊚ false

62) A multiple-step income statement has three main parts: (1) gross profit, (2) income from operations, and (3) net income.

⊚ true
⊚ false

63) Operating expenses are classified into two categories: selling expenses and cost of goods sold.

⊚ true
⊚ false

64) A merchandiser's classified balance sheet reports merchandise inventory as a current asset.

⊚ true
⊚ false

65) Expenses related to accounting, human resource management, and financial management are known as selling expenses.

⊚ true
⊚ false

66) When a company has no reportable non-operating activities, its income from operations is simply labeled net income.

⊚ true
⊚ false

67) A single-step income statement lists cost of goods sold as another expense and shows only one subtotal for total expenses.

⊚ true
⊚ false

68) Under a periodic inventory system, purchases, purchases returns and allowances, purchase discounts, and transportation-in transactions are recorded in the Merchandise Inventory account.

⊚ true
⊚ false

69) The periodic inventory system requires updating the inventory account only at the end of the period.

⊚ true
⊚ false

70) In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

⊚ true
⊚ false

71) Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

⊚ true
⊚ false

72) Delivery expense is reported as part of general and administrative expense in the seller's income statement.

⊚ true
⊚ false

73) New revenue recognition rules require sales to be reported at the amount expected to be received.

⊚ true
⊚ false

74) Under new revenue recognition rules, the gross method requires a period-end adjusting entry to estimate future sales discounts.

⊚ true
⊚ false

75) Inventory Returns Estimated, which reflects an adjustment to inventory for expected future returns, is a liability account reported in the balance sheet, usually under Current Liabilities.

⊚ true
⊚ false

76) Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.

⊚ true
⊚ false

77) Under the net method, when a company uses a perpetual inventory system, an invoice for $2,000 with terms of 2/10, n/30 should be recorded with a debit to Merchandise Inventory and a credit to Accounts Payable of $2,000.

⊚ true
⊚ false

78) When purchases are recorded at net amounts, any discounts lost as a result of late payments are reported as an expense.

⊚ true
⊚ false

79) The net method records the invoice at its net amount (net of any cash discount).

⊚ true
⊚ false

80) Either the gross method or net method may be used to record sales with cash discounts, but the net method requires a period-end adjusting entry to estimate expected future sales discounts taken.

⊚ true
⊚ false

81) Under the net method of recording purchases, the Discounts Lost account is used when the purchaser fails to take a discount offered by the seller.

⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.
82) A merchandiser:

A) Earns net income by buying and selling merchandise.
B) Receives fees only in exchange for services.
C) Earns profit from commissions only.
D) Earns profit from fares only.
E) Buys products from consumers.

83) Cost of goods sold:

A) Is another term for merchandise sales.
B) Is the term used for the expense of buying and preparing merchandise for sale.
C) Is another term for revenue.
D) Is also called gross margin.
E) Is a term only used by service firms.

84) A company has net sales of $742,600 and cost of goods sold of $297,600. Its gross profit equals:

A) $(445,000).
B) $742,600.
C) $297,600.
D) $445,000.
E) $1,040,200.

85) A company has net sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

A) $237,000.
B) $695,000.
C) $278,000.
D) $417,000.
E) $973,000.

86) A company has net sales of $382,200 and its gross profit is $160,700. Its cost of goods sold equals:

A) $(219,700).
B) $382,200.
C) $160,700.
D) $221,500.
E) $542,900.

87) A company has net sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

A) $197,000.
B) $375,000.
C) $157,500.
D) $217,500.
E) $532,500.

88) Which of the following statements regarding gross profit is not true?

A) Gross profit is also called gross margin.
B) Gross profit less other operating expenses equals income from operations.
C) Gross profit is not calculated on the multiple-step income statement.
D) Gross profit must cover all operating expenses to yield a return for the owner(s) of the business.
E) Gross profit equals net sales less cost of goods sold.

89) Which of the following statements regarding merchandise inventory is not true?

A) Merchandise inventory is reported on the balance sheet as a current asset.
B) Merchandise inventory refers to products a company owns and intends to sell.
C) Merchandise inventory may include the costs of freight-in and making them ready for sale.
D) Merchandise inventory appears on the balance sheet of a service company.
E) Purchasing merchandise inventory is part of the operating cycle for a business.

90) Which of the following statements regarding the operating cycle of a merchandising company is not true?

A) The operating cycle begins with the purchase of merchandise.
B) The operating cycle is shortened by credit sales.
C) The operating cycle ends with the collection of cash from the sale of merchandise.
D) The operating cycle can vary in length among different merchandising companies.
E) The operating cycle sometimes involves accounts receivable.

91) Merchandise inventory:

A) Is a long-term asset.
B) Is a current asset.
C) Includes supplies the company will use in future periods.
D) Is classified with investments on the balance sheet.
E) Must be sold within one month.

92) The operating cycle for a merchandiser that only has cash sales moves from:

A) Purchases of merchandise, to inventory, to cash sales.
B) Purchases of merchandise, to inventory, to accounts receivable, to cash sales.
C) Inventory, to purchases of merchandise, to cash sales.
D) Accounts receivable, to purchases of merchandise, to inventory, to cash sales.
E) Accounts receivable, to inventory, to cash sales.

93) The current period's ending inventory is:

A) The next period's beginning inventory.
B) The current period's cost of goods sold.
C) The prior period's beginning inventory.
D) The current period's net purchases.
E) The current period's beginning inventory.

94) Beginning inventory plus net purchases is:

A) Cost of goods sold.
B) Merchandise available for sale.
C) Ending inventory.
D) Sales.
E) Shown on the balance sheet.

95) The acid-test ratio:

A) Is also called the quick ratio.
B) Measures profitability.
C) Measures inventory turnover.
D) Is generally greater than the current ratio.
E) Measures return on assets.

96) Quick assets are defined as:

A) Cash, short-term investments, and inventory.
B) Cash, short-term investments, and current receivables.
C) Cash, inventory, and current receivables.
D) Cash, noncurrent receivables, and prepaid expenses.
E) Accounts receivable, inventory, and prepaid expenses.

97) KLM Corporation's quick assets are $5,902,000, its current assets are $11,880,000 and its current liabilities are $8,008,000. Its acid-test ratio equals:

A) 0.74.
B) 0.67.
C) 0.50.
D) 1.36.
E) 2.22.

98) KLM Corporation's quick assets are $5,920,000, its current assets are $11,700,000 and its current liabilities are $8,000,000. Its acid-test ratio equals:

A) 0.50.
B) 0.68.
C) 0.74.
D) 1.50.
E) 2.20.

99) A company's current assets are $20,630, its quick assets are $11,660 and its current liabilities are $13,100. Its quick ratio equals:

A) 0.89.
B) 1.12.
C) 1.57.
D) 1.77.
E) 2.46.

100) A company's current assets are $17,980, its quick assets are $11,468 and its current liabilities are $12,200. Its quick ratio equals:

A) 0.94.
B) 1.07.
C) 1.48.
D) 1.57.
E) 2.40.

101) Liquidity problems are likely to exist when a company's acid-test ratio:

A) Is less than the current ratio.
B) Equals 1.
C) Is higher than 1.
D) Is substantially lower than 1.
E) Is higher than the current ratio.

102) In calculating the acid-test ratio, which of the following is not considered a quick asset?

A) Prepaid expenses.
B) Cash.
C) Cash equivalents.
D) Accounts receivable.
E) Short-term investments.

103) Using the following year-end information for WorkFit calculate the acid-test ratio:

A) 0.39
B) 0.51
C) 0.41
D) 0.80
E) 0.77

104) Using the following year-end information for WorkFit calculate the acid-test ratio:

A) 0.40
B) 0.49
C) 0.50
D) 0.90
E) 0.81

105) The gross margin ratio:

A) Is also called the net profit ratio.
B) Indicates the percent of net sales remaining after covering the cost of the goods sold.
C) Is also called the profit margin.
D) Is a measure of liquidity and should exceed 2.0 to be acceptable.
E) Should be greater than 1 for merchandising companies.

106) A company's gross profit (or gross margin) was $115,680 and its net sales were $457,600. Its gross margin ratio is:

A) 74.7%.
B) 8.6%.
C) $115,680.
D) 25.3%.
E) $341,920.

107) A company's gross profit (or gross margin) was $84,000 and its net sales were $350,000. Its gross margin ratio is:

A) 4%.
B) 24%.
C) 75%.
D) $83,750.
E) $264,050.

108) A company's net sales were $695,000, its cost of goods sold was $239,770 and its net income was $43,600. Its gross margin ratio equals:

A) 6.3%.
B) 18.2%.
C) 34.5%.
D) 65.5%.
E) 289.9%.

109) A company's net sales were $676,600, its cost of goods sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:

A) 5%.
B) 9.6%.
C) 35%.
D) 65%.
E) 285.7%.

110) A company had net sales of $763,900 and cost of goods sold of $549,300. Its net income was $20,210. The company's gross margin ratio equals:

A) 18.8%
B) 25.4%
C) 28.1%
D) 35.4%
E) 39.1%

111) A company had net sales of $750,000 and cost of goods sold of $540,000. Its net income was $17,530. The company's gross margin ratio equals:

A) 18%
B) 24%
C) 28%
D) 34%
E) 35%

112) Mega Skateboard Supplier had net sales of $2,100,000, its cost of goods sold was $1,100,000 and its net income was $700,000. Its gross margin ratio equals:

A) 33%.
B) 191%.
C) 48%.
D) 64%.
E) 52%.

113) Mega Skateboard Supplier had net sales of $2,800,000, its cost of goods sold was $1,596,000 and its net income was $900,000. Its gross margin ratio equals:

A) 32%.
B) 175%.
C) 43%.
D) 57%.
E) 56%.

114) The credit terms 2/10, n/30 are interpreted as:

A) 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
B) 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days.
C) 30% discount if paid within 2 days.
D) 30% discount if paid within 10 days.
E) 2% discount if paid within 30 days.

115) Credit terms are:

A) The terms of a partnership agreement.
B) A cash discount from the buyer’s perspective.
C) The amounts and timing of payments from a buyer to a seller.
D) The terms of an employment agreement.
E) Always less than 30 days.

116) A company purchased $2,000 of merchandise on August 15 with terms 1/10, n/30. On August 17, it returned $200 worth of merchandise. On August 18, it paid the amount due. The amount of the cash paid on August 18 equals:

A) $2,000.
B) $1,800.
C) $1,782.
D) $1,620.
E) $1,260.

117) A company purchased $2,000 of merchandise on August 15 with terms 1/10, n/30. On August 17, it returned $200 worth of merchandise. On August 28, it paid the amount due. The amount of the cash paid on August 28 equals:

A) $2,000.
B) $1,800.
C) $1,782.
D) $1,620.
E) $1,260.

118) Which of the following is not included in the cost of merchandise inventory?

A) Purchase discounts.
B) Returns and allowances.
C) Freight costs paid by the buyer.
D) Freight costs paid by the seller.
E) Purchase price of inventory.

119) A company uses the perpetual inventory system and recorded the following entry:

This entry reflects a:

A) Purchase of merchandise on credit.
B) Return of merchandise.
C) Sale of merchandise on credit.
D) Payment of the account payable less a 2% cash discount taken.
E) Payment of the account payable less a 1% cash discount taken.

120) Which of the following is not included on a purchase invoice?

A) Seller’s name and address.
B) Name and address of the purchaser.
C) Description of items purchased.
D) Arrival date of items ordered.
E) Credit terms.

121) A company purchased $2,200 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $600 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:

A) $600.
B) $1,894.
C) $1,552.
D) $1,600.
E) $2,200.

122) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:

A) $200.
B) $1,564.
C) $1,568.
D) $1,600.
E) $1,800.

123) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The amount of the cash paid on July 28 equals:

A) $200.
B) $1,564.
C) $1,568.
D) $1,600.
E) $1,800.

124) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, The correct journal entry to record the purchase on July 5 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.
C) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600.
D) Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800.
E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

125) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the merchandise return on July 7 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Merchandise Inventory $200; credit Accounts Payable $200.
C) Debit Merchandise Inventory $200; credit Sales Returns $200.
D) Debit Accounts Payable $200; credit Merchandise Inventory $200.
E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

126) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 28 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
D) Debit Accounts Payable $1,800; credit Cash $1,800.
E) Debit Accounts Payable $1,600; credit Cash $1,600.

127) A company purchased $3,300 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned $900 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

A) Debit Merchandise Inventory $2,400; credit Cash $2,400.
B) Debit Cash $2,400; credit Accounts Payable $2,400.
C) Debit Accounts Payable $2,400; credit Merchandise Inventory $72; credit Cash $2,328.
D) Debit Accounts Payable $3,300; credit Cash $3,300.
E) Debit Accounts Payable $2,400; credit Cash $2,400.

128) A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
D) Debit Accounts Payable $1,800; credit Cash $1,800.
E) Debit Accounts Payable $1,600; credit Cash $1,600.

129) A company purchased $3,100 worth of merchandise. Transportation costs were an additional $270. The company returned $215 worth of merchandise and then paid the invoice within the 1% cash discount period. The total cost of this merchandise is:

A) $3,045.00.
B) $2,956.00.
C) $3,124.00.
D) $3,126.15.
E) $3,155.00.

130) A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company returned $275 worth of merchandise and then paid the invoice within the 2% cash discount period. The total cost of this merchandise is:

A) $3,725.00.
B) $3,925.00.
C) $3,995.00.
D) $4,000.50.
E) $4,075.00.

131) A buyer of $8,500 in merchandise inventory failed to take advantage of the vendor's credit terms of 3/15, n/45, and instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the discount of:

A) $850.
B) $100.
C) $85.
D) $255.
E) $1,275.

132) A buyer of $7,000 in merchandise inventory failed to take advantage of the vendor's credit terms of 2/15, n/45, and instead paid the invoice in full at the end of 45 days. By not taking advantage of the cash discount, the buyer lost the discount of:

A) $70.
B) $1,050.
C) $700.
D) $100.
E) $140.

133) Sales returns:

A) Refer to merchandise that customers return to the seller for a refund.
B) Refer to reductions in the selling price of merchandise sold to customers.
C) Represent cash discounts.
D) Represent trade discounts.
E) Are not recorded under the perpetual inventory system until the end of each accounting period.

134) Which of the following statements regarding sales returns and allowances is not true?

A) A reduction in the selling price because of damaged merchandise is included in sales returns and allowances.
B) Sales returns and allowances do not have an impact on gross profit.
C) Sales returns and allowances are recorded in a separate contra-revenue account.
D) The Sales Returns and Allowances account carries a normal debit balance.
E) Sales returns and allowances are closed to the Income Summary account.

135) A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

A) Reflects an increase in amount due from a customer.
B) Recognizes that a customer returned merchandise and/or received an allowance.
C) Records the cost side of a sales return.
D) Is recorded when a customer takes a discount.
E) Reflects a decrease in amount due to a supplier.

136) Sales less sales discounts, less sales returns and allowances equals:

A) Net purchases.
B) Cost of goods sold.
C) Net sales.
D) Gross profit.
E) Net income.

137) Garza Company had sales of $140,200, sales discounts of $2,100, and sales returns of $3,365. Garza Company's net sales equals:

A) $5,465.
B) $134,735.
C) $138,100.
D) $140,200.
E) $145,665.

138) Garza Company had sales of $135,000, sales discounts of $2,000, and sales returns of $3,200. Garza Company's net sales equals:

A) $5,200.
B) $129,800.
C) $133,000.
D) $135,000.
E) $140,200.

139) On May 1, Shilling Company sold merchandise in the amount of $5,800 to Anders, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Shilling uses the perpetual inventory system and the gross method. The journal entry or entries that Shilling will make on May 1 is (are):

A)

B)

C)

D)

E)

140) On May 1, Anders Company purchased merchandise in the amount of $5,800 from Shilling, with credit terms of 2/10, n/30. Anders uses the perpetual inventory system and the gross method. The journal entry that Anders will make on May 1 is:

A)

B)

C)

D)

E)

141) On February 3, Smart Company sold merchandise in the amount of $2,400 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $1,650. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

A)

B)

C)

D)

E)

142) On February 3, Smart Company sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

A)

B)

C)

D)

E)

143) On July 1, Ferguson Company sold merchandise in the amount of $5,800 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ferguson uses the perpetual inventory system and the gross method. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 is (are):

A)

B)

C)

D)

E)

144) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:

A) $8,167.50.
B) $9,652.50.
C) $9,750.00.
D) $8,250.00.
E) $8,152.50.

145) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The amount of the cash paid on August 26 equals:

A) $8,167.50.
B) $9,652.50.
C) $9,750.00.
D) $8,250.00.
E) $8,152.50.

146) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the purchase on August 7 is:

A) Debit Merchandise Inventory $9,750; credit Cash $9,750.
B) Debit Accounts Payable $9,750; credit Merchandise Inventory $9,750.
C) Debit Merchandise Inventory $9,750; credit Sales Returns $1,500; credit Cash $8,250.
D) Debit Merchandise Inventory $9,750; credit Accounts Payable $9,750.
E) Debit Accounts Payable $8,250; debit Purchase Returns $1,500; credit Merchandise Inventory $9,750.

147) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:

A) Debit Accounts Payable $1,500; credit Cash $1,500.
B) Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500.
C) Debit Merchandise Inventory $1,500; credit Sales Returns $1,500.
D) Debit Merchandise Inventory $1,500; credit Cash $1,500.
E) Debit Accounts Payable $1,500; credit Purchase Returns $1,500.

148) Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The correct journal entry to record the payment on August 16 is:

A) Debit Merchandise Inventory $8,250; credit Cash $8,250.
B) Debit Cash $8,250; credit Accounts Payable $8,250.
C) Debit Accounts Payable $8,250; credit Merchandise Inventory $82.50; credit Cash $8,167.50.
D) Debit Accounts Payable $9,750; credit Merchandise Inventory $97.50; credit Cash $9,652.50.
E) Debit Accounts Payable $8,167.50; credit Cash $8,167.50.

149) A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has taken what percentage cash discount for early payment?

A) 1%
B) 2%
C) 5%
D) 10%
E) 15%

150) Which of the following statements regarding inventory shrinkage is not true?

A) Inventory shrinkage refers to the loss of inventory.
B) Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts.
C) Inventory shrinkage is recognized by crediting an operating expense.
D) Inventory shrinkage is recognized by debiting Cost of Goods Sold.
E) Inventory shrinkage can be caused by theft or deterioration.

151) Frisco Company's Merchandise Inventory account at year-end has a balance of $62,115, but a physical count reveals that only $61,900 of inventory exists. The adjusting entry to record this $215 of inventory shrinkage is:

A)

B)

C)

D)

E)

152) Which of the following accounts would be closed at the end of the accounting period with a debit?

A) Sales Discounts.
B) Sales Returns and Allowances.
C) Cost of Goods Sold.
D) Operating Expenses.
E) Sales.

153) An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:

A) Balanced income statement.
B) Single-step income statement.
C) Multiple-step income statement.
D) Combined income statement.
E) Simplified income statement.

154) Expenses that support a company’s overall operations and include expenses related to accounting, human resources, and finance are known as:

A) Cost of goods sold.
B) Selling expenses.
C) Purchasing expenses.
D) General and administrative expenses.
E) Non-operating activities.

155) Prentice Company had cash sales of $95,325, credit sales of $84,075, sales returns and allowances of $2,125, and sales discounts of $3,900. Prentice’s net sales for this period equal:

A) $95,325.
B) $173,375.
C) $175,500
D) $177,275.
E) $179,400.

156) Prentice Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:

A) $94,275.
B) $172,550.
C) $174,250.
D) $176,025.
E) $177,725.

157) Multiple-step income statements:

A) Do not include a computation for gross profit or income from operations.
B) Contain more detail than a simple listing of revenues and expenses.
C) Are required for the periodic inventory system.
D) List cost of goods sold as an operating expense.
E) Are only used in perpetual inventory systems.

158) Expenses to promote sales by displaying and advertising merchandise, make sales, and deliver goods to customers are known as:

A) General and administrative expenses.
B) Cost of goods sold.
C) Selling expenses.
D) Purchasing expenses.
E) Non-operating activities.

159) A company has net sales of $825,000 and cost of goods sold of $596,000. Its net income is $35,030. The company's gross margin and operating expenses, respectively, are:

A) $229,000 and $193,970.
B) $229,000 and $264,500.
C) $560,970 and $264,500.
D) $264,500 and $560,970.
E) $789,500 and $193,970.

160) A company has net sales of $752,000 and cost of goods sold of $543,000. Its net income is $17,530. The company's gross margin and operating expenses, respectively, are:

A) $209,000 and $191,470.
B) $191,470 and $209,000.
C) $525,470 and $227,000.
D) $227,000 and $525,470.
E) $734,000 and $191,470.

161) Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system?

A) Merchandise Inventory
B) Sales
C) Sales Returns and Allowances
D) Accounts Payable
E) Purchases

162) When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:

A) The ending inventory amount.
B) The beginning inventory amount.
C) Equal to the cost of goods sold.
D) Equal to the cost of goods purchased.
E) Equal to the gross profit.

163) On September 12, Vander Company sold merchandise in the amount of $6,200 to Jepson Company, with credit terms of 3/10, n/30. The cost of the items sold is $4,400. Vander uses the periodic inventory system and the gross method of accounting for sales. The journal entry or entries that Vander will make on September 12 is (are):

A)

B)

C)

D)

E)

164) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. The journal entry or entries that Vander will make on September 12 is (are):

A)

B)

C)

D)

E)

165) On September 12, Vander Company sold merchandise in the amount of $8,000 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $5,100. Jepson uses the periodic inventory system and the gross method of accounting for purchases. The journal entry that Jepson will make on September 12 is:

A)

B)

C)

D)

E)

166) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Jepson uses the periodic inventory system and the gross method of accounting for purchases. The journal entry that Jepson will make on September 12 is:

A)

B)

C)

D)

E)

167) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

A)

B)

C)

D)

E)

168) On September 12, Vander Company sold merchandise in the amount of $9,000 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $5,600. Jepson uses the periodic inventory system and the gross method of accounting for purchases. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Jepson makes on September 18 is:

A)

B)

C)

D)

E)

169) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Jepson uses the periodic inventory system and the gross method of accounting for purchases. Jepson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Jepson makes on September 18 is:

A)

B)

C)

D)

E)

170) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. On September 14, Jepson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Vander must make on September 14 is (are):

A)

B)

C)

D)

E)

171) On September 12, Vander Company sold merchandise in the amount of $4,400 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $3,035. Vander uses the periodic inventory systemand the gross method of accounting for sales. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $380 and the cost of the merchandise returned is $265. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

A)

B)

C)

D)

E)

172) On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system and the gross method of accounting for sales. On September 14, Jepson returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:

A)

B)

C)

D)

E)

173) Cushman Company had $830,000 in net sales, $363,125 in gross profit, and $207,500 in operating expenses. Cost of goods sold equals:

A) $830,000.
B) $207,500.
C) $466,875.
D) $363,125.
E) $259,375.

174) Cushman Company had $800,000 in net sales, $350,000 in gross profit, and $200,000 in operating expenses. Cost of goods sold equals:

A) $150,000.
B) $450,000.
C) $800,000.
D) $350,000.
E) $200,000.

175) Cushman Company had $832,000 in sales, sales discounts of $12,480, sales returns and allowances of $18,720, cost of goods sold of $395,200, and $286,210 in operating expenses. Gross profit equals:

A) $800,800.
B) $119,390.
C) $405,600.
D) $418,080.
E) $424,320.

176) Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals:

A) $770,000.
B) $115,000.
C) $390,000.
D) $402,000.
E) $408,000.

177) Cushman Company had $840,000 in sales, sales discounts of $12,600, sales returns and allowances of $18,900, cost of goods sold of $399,000, and $288,960 in operating expenses. Net income equals:

A) $808,500.
B) $152,040.
C) $409,500.
D) $120,540.
E) $183,540.

178) Cushman Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Net income equals:

A) $770,000.
B) $402,000.
C) $390,000.
D) $115,000.
E) $408,000.

179) A company purchased $9,100 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $455 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

A) $8,386.
B) $8,827.
C) $9,100.
D) $8,645.
E) $8,431.

180) A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it was entitled to. The cash paid on June 24 equals:

A) $8,924.
B) $9,700.
C) $10,000.
D) $9,800.
E) $8,724.

181) A company purchased $11,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $1,000, was added to the invoice amount. On June 20, it returned $1,600 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

A) $8,788.
B) $11,500.
C) $12,000.
D) $11,600.
E) $10,118.

182) A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge, $500, was added to the invoice amount. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:

A) $9,224.
B) $10,200.
C) $10,500.
D) $10,300.
E) $9,424.

183) A company's current assets are $29,420, its quick assets are $16,290 and its current liabilities are $12,820. Its acid-test ratio equals:

A) 0.787.
B) 2.29.
C) 1.27.
D) 0.44.
E) 1.23.

184) A company's current assets are $23,420, its quick assets are $14,030 and its current liabilities are $12,200. Its acid-test ratio equals:

A) 0.88.
B) 1.91.
C) 1.15.
D) 0.52.
E) 1.41.

185) Using the following year-end information for Blackstone, LLC, calculate the acid-test ratio:

A) 3.14.
B) 0.94.
C) 4.03.
D) 6.03.
E) 1.24.

186) Using the following year-end information for Blackstone, LLC, calculate the acid-test ratio:

A) 3.01
B) 0.95
C) 3.04
D) 4.77
E) 1.21

187) A company's net sales are $783,160, its costs of goods sold are $437,785, and its net income is $105,505. Its gross margin ratio equals:

A) 44.1%.
B) 55.9%.
C) 24.1%.
D) 30.6%.
E) 13.5%.

188) A company's net sales are $775,000, its costs of goods sold are $413,850, and its net income is $117,220. Its gross margin ratio equals:

A) 46.6%.
B) 53.4%.
C) 28.3%.
D) 31.5%.
E) 40.5%.

189) Which of the following statements related to the multiple-step income statement is not true?

A) Subtotals for total selling expenses and general and administrative expenses are reported.
B) Interest revenue is included with other revenue and gains.
C) The first section of the statement reports gross profit.
D) Only one total for all expenses is shown.
E) Nonoperating items are reported separately from operations.

190) A company purchases merchandise for $22,500. The seller offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made within the discount period, what is the net cost of the merchandise?

A) $22,500.
B) $22,050.
C) $2,250.
D) $15,750.
E) $7,250.

191) A company purchases merchandise for $20,000. The seller offers credit terms of 2/10, n/30. Assuming no returns were made and that payment was made within the discount period, what is the net cost of the merchandise?

A) $20,000.
B) $19,600.
C) $2,000.
D) $14,000.
E) $6,500.

192) A company has net sales of $847,000 and cost of goods sold of $561,500. Its net income is $101,200. The company's gross margin and operating expenses, respectively, are:

A) $285,500 and $377,800.
B) $285,500 and $184,300.
C) $285,500 and $101,200.
D) $184,300 and $101,200.
E) $662,700 and $184,300.

193) A company has net sales of $825,000 and cost of goods sold of $547,000. Its net income is $98,500. The company's gross margin and operating expenses, respectively, are:

A) $209,000 and $191,470.
B) $278,000 and $179,500.
C) $278,000 and $98,500.
D) $179,500 and $98,500.
E) $645,500 and $179,500.

194) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. The journal entry or entries that Klein will make on March 12 is (are):

A)

B)

C)

D)

E)

195) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. Babson pays the invoice on March 17, and takes the appropriate discount. The journal entry that Klein makes on March 17 is:

A)

B)

C)

D)

E)

196) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry or entries that Klein must make on March 15 is (are):

A)

B)

C)

D)

E)

197) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The amount that Klein receives from Babson on March 20 is:

A) $7,800.
B) $7,644.
C) $7,044.
D) $7,056.
E) $7,200.

198) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the gross method of accounting for sales. On March 15, Babson returns some of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The journal entry that Klein makes on March 20 is:

A)

B)

C)

D)

E)

199) Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this $1,370 of inventory shrinkage is:

A)

B)

C)

D)

E)

200) Which of the following statements regarding sales returns and allowances is not true?

A) New revenue recognition rules require sellers to report sales at the amount expected to be received.
B) The Inventory Returns Estimated account is a current liability account.
C) Sales returns and allowances estimates are made as period-end adjustments.
D) When sales returns and allowances adjustments are made to sales, an estimate must also be made for the cost side.
E) Sales Refund Payable is a current liability account.

201) In its first year of business, Borden Corporation had sales of $2,140,000 and cost of goods sold of $1,270,000. Borden expects returns in the following year to equal 6% of sales and 6% of cost of sales. The adjusting entry or entries to record the expected sales returns is (are):

A)

B)

C)

D)

E)

202) In its first year of business, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales and 8% of cost of sales. The adjusting entry or entries to record the expected sales returns is (are):

A)

B)

C)

D)

E)

203) In the current year, Borden Corporation had sales of $2,120,000 and cost of goods sold of $1,260,000. Borden expects returns in the following year to equal 5% of sales and 5% of cost of sales. The unadjusted balance in Inventory Returns Estimated is a debit of $18,000, and the unadjusted balance in Sales Refund Payable is a credit of $22,000. The adjusting entry or entries to record the expected sales returns is (are):

A)

B)

C)

D)

E)

204) In the current year, Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000. Borden expects returns in the following year to equal 8% of sales and 8% of cost of sales. The unadjusted balance in Inventory Returns Estimated is a debit of $6,000, and the unadjusted balance in Sales Refund Payable is a credit of $10,000. The adjusting entry or entries to record the expected sales returns is (are):

A)

B)

C)

D)

E)

205) Netherland Corporation has the following unadjusted balances: Accounts Receivable, $87,000 (debit), and Allowance for Sales Discounts $370 (credit). Of the receivables, $57,000 of them are within the 2% discount period, and Netherland expects buyers to take $1,140 in future-period discounts ($57,000 × 2%) arising from this period’s sales. The adjusting entry or entries to estimate sales discounts is (are):

A)

B)

C)

D)

E)

206) Netherland Corporation has the following unadjusted balances: Accounts Receivable, $80,000 (debit), and Allowance for Sales Discounts $300 (credit). Of the receivables, $50,000 of them are within the 2% discount period, and Netherland expects buyers to take $1,000 in future-period discounts ($50,000 × 2%) arising from this period’s sales. The adjusting entry or entries to estimate sales discounts is (are):

A)

B)

C)

D)

E)

207) An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:

A) Sales discounts.
B) Trade discounts.
C) Purchases discounts.
D) Discounts lost.
E) Discounts earned.

208) A company that uses the net method of recording purchases and a perpetual inventory system purchased $2,900 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $750 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:

A) Debit Merchandise Inventory $2,150; credit Cash $2,150.
B) Debit Cash $2,150; credit Accounts Payable $2,150.
C) Debit Accounts Payable $2,150; credit Merchandise Inventory $43; credit Cash $2,107.
D) Debit Accounts Payable $2,900; credit Cash $2,900.
E) Debit Accounts Payable $2,107; debit Discounts Lost $43; credit Cash $2,150.

209) A company that uses the net method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:

A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
D) Debit Accounts Payable $1,800; credit Cash $1,800.
E) Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600.

210) Morgan, Incorporated uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $18,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:

A)

B)

C)

D)

E)

211) Morgan, Incorporated uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:

A)

B)

C)

D)

E)

212) The net method refers to recording:

A) Purchases at the invoice price less any cash discounts.
B) Specified amounts and timing of payments that a buyer agrees to in return for being granted credit.
C) Purchases at the full invoice price, without deducting any cash discounts.
D) Inventory at its selling price.
E) Inventory at the lower of cost or market.

213) On March 12, Klein Company sold merchandise in the amount of $10,400 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $5,800. Klein uses the perpetual inventory system and the net method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $860 and the cost of the merchandise returned is $480. The entry or entries that Klein must make on March 15 is (are):

A)

B)

C)

D)

E)

214) On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual inventory system and the net method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350. The entry or entries that Klein must make on March 15 is (are):

A)

B)

C)

D)

E)

215) B. Lopez Company reports net sales of 254,000 and cost of goods sold of $86,000. Using the numbers provided, B. Lopez Company’s gross profit is:

A) $254,000.
B) $86,000.
C) $340,000.
D) $82,000.
E) $168,000.

216) B. Lopez Company reports net sales of 200,000 and cost of goods sold of $50,000. Using the numbers provided, B. Lopez Company’s gross profit is:

A) $200,000.
B) $50,000.
C) $250,000.
D) $100,000.
E) $150,000.

217) B. Lopez Company reports unadjusted first-year merchandise sales of 254,000 and cost of merchandise sales of $86,000. The company expects future returns and allowances equal to 5% of sales and 5% cost of sales. The year-end adjusting entry to record sales expected to be refunded is:

A)

B)

C)

D)

E)

218) B. Lopez Company reports unadjusted first-year merchandise sales of 200,000 and cost of merchandise sales of $50,000. The company expects future returns and allowances equal to 5% of sales and 5% cost of sales. The year-end adjusting entry to record sales expected to be refunded is:

A)

B)

C)

D)

E)

219) B. Lopez Company reports unadjusted first-year merchandise sales of 212,000 and cost of merchandise sales of $58,000. The company expects future returns and allowances equal to 5% of sales and 5% cost of sales. The year-end adjusting entry to record the cost side of sales returns and allowances is:

A)

B)

C)

D)

E)

220) B. Lopez Company reports unadjusted first-year merchandise sales of 200,000 and cost of merchandise sales of $50,000. The company expects future returns and allowances equal to 5% of sales and 5% cost of sales. The year-end adjusting entry to record the cost side of sales returns and allowances is:

A)

B)

C)

D)

E)

221) On September 12, Ryan Company sold merchandise in the amount of $9,200 to Johnson Company, with credit terms of 3/10, n/30. The cost of the items sold is $5,700. Johnson uses the perpetual inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is:

A)

B)

C)

D)

E)

222) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Johnson uses the perpetual inventory system and the net method of accounting for purchases. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Johnson makes on September 18 is:

A)

B)

C)

D)

E)

223) On September 12, Ryan Company sold merchandise in the amount of $9,800 to Johnson Company, with credit terms of 3/10, n/30. The cost of the items sold is $6,000. Ryan uses the perpetual inventory system and the net method of accounting for sales. On September 14, Johnson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $900 and the cost of the merchandise returned is $550. The entry or entries that Ryan must make on September 14 is (are):

A)

B)

C)

D)

E)

224) On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the perpetual inventory system and the net method of accounting for sales. On September 14, Johnson returns some of the non-defective merchandise, which is restored to inventory. The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Ryan must make on September 14 is (are):

A)

B)

C)

D)

E)

225) On September 12, Ryan Company sold merchandise in the amount of $8,400 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $5,300. Ryan uses the perpetual inventory system and the net method of accounting for sales. On September 14, Johnson returns some of the merchandise. The selling price of the merchandise is $760 and the cost of the merchandise returned is $480. Johnson pays the invoice on September 18 and takes the appropriate discount. The journal entry that Ryan makes on September 18 is:

A)

B)