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1 | |
Which of the following is a correct statement? (LO 1) |
| | A) | Cost of goods available for sale is always equal to the merchandise inventory purchased during the period. |
| | B) | Product costs are expensed in the period in the period in which they are incurred. |
| | C) | Merchandising businesses report the salary expense for their sales staff as an operating expense on their income statements. |
| | D) | Product costs for a merchandising business include advertising expense. |
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2 | |
Which is not an example of a product cost? (LO 1) |
| | A) | Goods purchased for resale |
| | B) | Freight on goods purchased for resale |
| | C) | Costs to improve the quality of the goods purchased for resale |
| | D) | Insurance on trucks used to delivers goods to customers |
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3 | |
Weathers Company purchased merchandise inventory on account with a list price of $15,000, terms 1/10 n/30. Which of the following is the correct journal entry to record this transaction using the net method? (LO 3) |
| | A) | | | Debit | Credit | | Accounts Payable | 15,000
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Merchandise Inventory
| | 15,000
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| | B) | | Merchandise Inventory | 15,000
| | | Accounts Payable | | 15,000
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| | C) | | Accounts Payable | 14,850
| | | Merchandise Inventory | | 14,850
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| | D) | | Merchandise Inventory | 14,850
| | | Accounts Payable | | 14,850
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4 | |
Weston Company returned merchandise inventory it had purchased but not yet paid for. The list price of the returned merchandise was $2,500, terms 2/10 n/30. Which of the following is the correct journal entry to record this transaction using the net method? (LO 3) |
| | A) | | | Debit | Credit | | Accounts Payable | 2,450
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Merchandise Inventory
| | 2,450
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| | B) | | Merchandise Inventory | 2,450
| | | Accounts Payable
| | 2,450
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| | C) | | Accounts Payable | 2,500
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Merchandise Inventory
| | 2,500
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| | D) | | Merchandise Inventory | 2,500
| | | Accounts Payable
| | 2,500
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5 | |
Jones Company purchased merchandise inventory on account with a list price of $35,000, terms 2/10 n/30. Jones uses the net method to record inventory purchases. Which of the following is the correct journal entry to record the payment to the supplier after the end of the discount period?(LO 3) |
| | A) | | | Debit | Credit | | Accounts Payable | 34,300
| | | Cash | | 34,300
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| | B) | | Cash | 34,300
| | | Accounts Payable | | 34,300
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| | C) | | Accounts Payable | 34,300
| | | Interest Expense | 700 | | | Cash | | 35,000 |
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| | D) | | Cash | 35,000
| | | Accounts Payable | | 34,300 | | Interest Expense | | 700 |
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6 | |
Warren Company had the following transactions during November 2005:
•Purchased merchandise inventory of $20,000 from Robinson Company with freight terms FOB shipping point
•Transportation-in costs on the Robinson Company purchase were $1,000
•Purchased merchandise inventory of $35,000 from Newman Company with freight terms FOB destination
•Transportation-in costs on the Newman Company purchase were $1,250
Based upon these transactions, what is the total amount Warren Company recorded to the Merchandise Inventory account? (LO 3) |
| | A) | $55,000 |
| | B) | $56,000 |
| | C) | $56,250 |
| | D) | $57,250 |
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7 | |
Reynolds Company maintains perpetual inventory records. Reynolds determined, through a physical count, that it had $8,300 of merchandise inventory on hand at the end of the accounting period. The balance in the Inventory account was $8,600. The impact of the adjusting entry on the financial statements is: (LO 5) |
| | A) | Gross margin increased $300 |
| | B) | Cost of Goods Sold increased $300 |
| | C) | Cash flow for operating activities decreased $300 |
| | D) | Inventory increased $300 |
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8 | |
Grant Company sold inventory on account that cost $45,000 for $96,000. Which of the following is the correct journal entry to record this sale? (LO 3) |
| | A) | | | Debit | Credit | | Accounts Receivable | 96,000
| | | Merchandise Inventory | | 45,000
| | Sales Revenue | | 51,000
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| | B) | | | Debit | Credit | | Merchandise Inventory | 45,000
| | | Sales Revenue | 51,000 | | | Accounts Receivable | | 96,000
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| | C) | | Accounts Receivable | 96,000
| | | Sales Revenue | | 96,000
| | Cost of Goods Sold | 45,000 | | | Merchandise Inventory | | 45,000
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| | D) | | Sales Revenue | 96,000
| | | Accounts Receivable | | 96,000
| | Merchandise Inventory | 45,000 | | | Cost of Goods Sold | | 45,000
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9 | |
Nash Company incurred $1,200 of freight costs on inventory sold and shipped to customers FOB destination. Which of the following is an affect on Nash Company’s financial statements? (LO 1, 3) |
| | A) | Sales Revenue decreased by $1,200 |
| | B) | Merchandise Inventory increased by $1,200 |
| | C) | Gross margin decreased by $1,200 |
| | D) | Net income decreased by $1,200 |
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10 | |
Bell Corporation sold merchandise on account with a list price of $18,000 and a cost of $10,000. Payment terms were 1/10 n/30 and Bell Corporation uses the net method to record sales. The customer returned merchandise with a list price of $1,800 and a $1,000 cost. What was the result of this return on Bell Corporation’s financial statements? (LO 3) |
| | A) | Net sales decreased by $1,782 |
| | B) | Merchandise Inventory increased by $990 |
| | C) | Gross margin decreased by $800 |
| | D) | Cost of Goods Sold decreased by $990 |
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11 | |
Copper Company sold merchandise on account with a list price of $25,000 and a cost of $14,000. Payment terms were 2/10 n/30 and Copper Company uses the net method to record sales. The customer paid the amount due after the discount period expired. What was the result of this payment on Bell Corporation’s financial statements? (LO 3) |
| | A) | Sales revenue increased by $500 |
| | B) | Interest revenue increased by $500 |
| | C) | Gross margin decreased by $500 |
| | D) | Net income decreased by $500 |
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12 | |
Grady Company had following account balances for 2005.
| Debit | | Credit | Sales Revenue | | | $ 95,000 | Cost of Goods Sold | $ 52,000 | | | Transportation-out | 1,500 | | | Selling Expenses | 8,800 | | | Interest Expense | 1,800 | | |
What is Grady Company’s gross margin for 2005? (LO 1, 3, 4) |
| | A) | $32,700 |
| | B) | $41,500 |
| | C) | $43,000 |
| | D) | $95,000 |
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13 | |
Which of the following is an incorrect statement? (LO 2, 3) |
| | A) | Closing entries are claims exchange transactions. |
| | B) | The purpose of a sales or purchase discount is to encourage prompt payment |
| | C) | Interest revenue affects the financing activities section of the statement of cash flows. |
| | D) | The balance in the Cost of Goods Sold account is closed to Retained Earnings at the end of the period |
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14 | |
The cost of financing inventory includes all of the following except: (LO 3, 7) |
| | A) | Interest paid on a loan to pay for inventory |
| | B) | Hidden interest charges from suppliers in the form of higher prices |
| | C) | Cost of insuring goods in transit to customers FOB destination |
| | D) | Opportunity cost of alternative uses for funds used to purchase inventory |
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15 | |
Which of the following is an incorrect statement? (LO 4, 6, 7) |
| | A) | Common size financial statements use percentages rather than absolute dollar amounts to more easily allow comparisons between accounting periods. |
| | B) | Gross margin percentage is defined as gross margin divided by net income |
| | C) | A multi-step income statement separates routine operating results from nonoperating results. |
| | D) | The net income percentage (return on sales) is defined as net income divided by net sales |
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16 | |
Use the following information to answer questions 16 and 17:Massey Company, Berry Company, and Green Company are all retail companies that sell the same products. They have the following ratios for 2005: | | Gross Margin % | Return on Sales | | Massey Company | 40% | 10% | | Berry Company | 50% | 5% | | Green Company | 45% | 8% |
Which retail company has the highest markup on its products? (LO 7) |
| | A) | Massey Company |
| | B) | Berry Company |
| | C) | Green Company |
| | D) | Cannot determine from the information provided |
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17 | |
Which retail company is doing the best job of controlling expenses? (LO 7) |
| | A) | Massey Company |
| | B) | Berry Company |
| | C) | Green Company |
| | D) | Cannot determine from the information provided Company A |
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18 | |
Brown Corporation purchased merchandise inventory on account. Which of the following choices accurately reflects how this event would affect the company’s financial statements? (LO 2) |
| | A) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | Cash Flow | a. | + | | + | | n/a | | n/a | | n/a | | n/a | n/a |
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| | B) | b. | | + – | | n/a | | n/a | | n/a | | n/a | | n/a | | – OA | |
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19 | |
Colt Company experienced an accounting event that affected its financial statements as indicated below:
Assets | = | Liab. | + | Equity |
| Rev. | – | Exp. | = | Net Inc. | Cash Flow | – | | n/a | | – | | n/a | | + | | – | n/a |
Which of the following accounting events could have caused these effects on Colt Company’s financial statements? (LO 2) |
| | A) | Paid cash for transportation-in on inventory purchases |
| | B) | Recognized cost of goods sold |
| | C) | Paid accounts payable |
| | D) | Returned inventory to supplier for credit |
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20 | |
Use the following information to answer questions 20 and 21:
Roger Company uses the periodic inventory system (chapter Appendix) to maintain its merchandise inventory records. The company had the following selected account information for 2005.
| Debit | | Credit | Beginning Inventory | $ 9,000 | | | Purchases | 79,000 | | | Purchase Returns and Allowances | | | $ 4,200 | Transportation-in | 1,950 | | | Ending Inventory | 12,000 | | | Sales | | | 120,000 | Sales Returns and Allowances | 4,500 | | | Transportation-out | 2,200 | | |
What was Roger Company’s Cost of Goods Sold for 2005? (LO 8) |
| | A) | $71,800 |
| | B) | $73,750 |
| | C) | $77,950 |
| | D) | $85,750 |
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21 | |
What was Roger Company’s Net Sales for 2005? (LO 8) |
| | A) | $113,300 |
| | B) | $115,500 |
| | C) | $117,800 |
| | D) | $120,000 |
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22 | |
Which of the following is an incorrect statement? (LO 8) |
| | A) | A periodic inventory system provides a recordkeeping advantage over the perpetual inventory system. |
| | B) | A periodic inventory system provides significant control advantages over a perpetual inventory system. |
| | C) | A periodic inventory system is a practical solution for recording inventory transactions in a low-technology, high-volume environment. |
| | D) | The periodic and perpetual inventory systems represent alternative procedures for recording the same information. |
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23 | |
Which of the following items would you not expect to find on an internally generated income statement prepared by a company using a perpetual inventory system? (LO 3, 8) |
| | A) | Cost of Goods Sold |
| | B) | Purchase Returns and Allowances |
| | C) | Sales Discounts |
| | D) | Gross Margin |
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