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| 1 | |
Which one of the following aspects of the firm's daily operations best represents the difference between a service firm such as a law firm and a merchandiser such as Walmart? |
| | A) | The law firm does not incur advertising expense during its accounting period but Walmart does incur advertising expense during its accounting period. |
| | B) | Only the law firm will incur Salaries Expense during the accounting period. Walmart does not pay salaries. |
| | C) | The law firm is likely to have a lot of merchandise inventory on hand for sale to customers. |
| | D) | Walmart is likely to have a large amount of merchandise inventory on hand for sale to customers. |
| | E) | None of the above. |
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| 2 | |
A company is taking the end-of-the-year physical inventory. Its accounting period ends on December 31st. Which of the following items would not be counted in the ending inventory count? |
| | A) | Items sold on December 29th and shipped the same day where the purchaser is responsible for paying the freight charge. The item arrived at its destination on January 3rd. |
| | B) | Items owned by us and delivered to another company on consignment which were then sold by that company on December 27th. The person buying these items took them in person and did not have them shipped. |
| | C) | Items we have ordered from one of our suppliers on December 15th which were shipped to us on December 17th and received on December 28th where the seller paid the shipping charges. |
| | D) | Items that we own that remain unsold in our warehouse on December 31st. |
| | E) | None of the above. |
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| 3 | |
When merchandise is purchased for resale, the Inventory account would be debited for such acquisition costs as the cost of the item itself and any freight charges for which the purchaser is responsible. This procedure is an application of which accounting principle? |
| | A) | The going-concern principle. |
| | B) | The materiality principle. |
| | C) | The historical cost principle. |
| | D) | The monetary unit principle. |
| | E) | None of the above |
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| 4 | |
During the current year, 2005, a company decides to carry a brand new item in its inventory. It purchases 25 new items for $100 each for a total of $2,500. It sells 7 items during the year and has 18 items on hand at the end of the year. In 2006, it buys 6 more items for the same price and only sells 7 items for the entire year. What is the computed amount of Cost of Goods Sold for each year? |
| | A) | $1,800 and $700 |
| | B) | $700 and $1,800 |
| | C) | $2,500 and $700 |
| | D) | $700 and $700 |
| | E) | None of the above |
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| 5 | |
Which of the following two items are shown on both a multiple-step and a single-step income statement? |
| | A) | (1) Gross profit and (2) Cost of Goods Sold |
| | B) | (1) Net sales revenue and (2) Cost of Goods Sold |
| | C) | (1) Income from operations and (2) Gross profit |
| | D) | (1) Other expenses and losses and (2) Gross profit |
| | E) | None of the above |
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| 6 | |
The records for Uptown Pet Shop showed the following: Sales Revenue: $225,000; Beginning Merchandise Inventory: $40,000; purchases of Merchandise Inventory during the period: $144,000; and, Cost of Goods Sold: $172,000. What is the amount of the ending Merchandise Inventory? |
| | A) | $212,000 |
| | B) | $144,000 |
| | C) | $12,000 |
| | D) | $15,000 |
| | E) | None of the above |
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| 7 | |
A company uses the perpetual inventory system and makes a purchase of inventory on open account. Which of the following is the correct journal entry to record this purchase? |
| | A) | Debit to the asset Office Supplies and a credit to Cash |
| | B) | Debit to Merchandise Inventory and a credit to Accounts Payable |
| | C) | Debit to Merchandise Inventory and a credit to Cash |
| | D) | Debit to Sales Returns and Allowances and a credit to Cost of Goods Sold |
| | E) | None of the above |
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| 8 | |
The buyer received an invoice from the seller for merchandise with a list price of $400 and credit terms of 3/15, n/60. The term ~n/60~ in the credit terms is which of the following? |
| | A) | Credit period |
| | B) | Trade discount |
| | C) | Cash discount allowed for early payment of the invoice |
| | D) | Discount period |
| | E) | None of the above |
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| 9 | |
The buyer received an invoice from the seller for merchandise with a list price of $700 and credit terms of 2/10, n/45. The term "2/10" in the credit terms is which of the following? |
| | A) | The discount percentage and the number of days to the end of the month |
| | B) | The discount percentage and the number of days in the discount period |
| | C) | Only the discount period |
| | D) | Only the discount percentage |
| | E) | None of the above |
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| 10 | |
Both the seller and the buyer in this example use the perpetual inventory method. The buyer purchased merchandise for cash at an earlier time that is now being returned. It was the wrong color and is not defective. Which of the following is the correct journal entry for this return on the buyer's books assuming the seller gives cash refunds. |
| | A) | A debit to Cash and a credit to Purchases |
| | B) | A debit to Cash and a credit to Merchandise Inventory |
| | C) | A debit to Sales Returns and Allowances and a credit to Cost of Goods Sold |
| | D) | A debit to Merchandise Inventory and a credit to Cash |
| | E) | None of the above |
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| 11 | |
Net sales revenue is computed as: |
| | A) | Gross Sales Revenue plus Sales Returns minus Sales Allowances minus Sales Discounts |
| | B) | Gross Sales Revenue minus Sales Returns minus Sales Allowances plus Sales Discounts |
| | C) | Gross Sales Revenue minus Sales Discounts minus Sales Returns minus Sales Allowances |
| | D) | Gross Sales Revenue plus Sales Returns plus Sales Discounts minus Sales Allowances |
| | E) | None of the above |
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| 12 | |
A retailer who uses a perpetual inventory system purchased $8,000 of merchandise on credit. The credit terms were 2/10, n/30, FOB shipping point. The freight costs were $130. What was the journal entry to record the purchase? |
| | A) | Merchandise Inventory, debit, $8,130; Freight-In, debit, $130; Accounts Payable, credit, $8,130 |
| | B) | Merchandise Inventory, debit, $8,130; Accounts Payable, credit, $8,130 |
| | C) | Merchandise Inventory, debit, $8,000; Accounts Payable, credit, $8,000 |
| | D) | Merchandise Inventory, debit, $7,870; Accounts Payable, credit, $7,870 |
| | E) | None of the above |
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| 13 | |
Overland Company purchased $4,000 of merchandise from Overseas Company. The credit terms were 2/10, n/30. The freight terms were FOB shipping point. Freight costs of $70 were included in the invoice. What journal entry should Overland record, assuming Overland uses a perpetual inventory system? |
| | A) | Merchandise Inventory, debit, $4,000; Freight-In, debit, $70; Accounts Payable, credit, $4,070 |
| | B) | Merchandise Inventory, debit, $4,000; Accounts Payable, credit, $4,000 |
| | C) | Merchandise Inventory, debit, $3,930; Accounts Payable, credit, $3,930 |
| | D) | Merchandise Inventory, debit, $2998.80; Accounts Payable, credit, $2,998.80 |
| | E) | Merchandise Inventory, debit, $4,070; and Accounts Payable, credit, $4,070. |
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| 14 | |
In a perpetual inventory system, which of the following accounts would be debited when inventory is sold on account? |
| | A) | Cost of goods sold. |
| | B) | Merchandise inventory |
| | C) | Sales Revenue |
| | D) | Accounts Receivable |
| | E) | A & D |
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| 15 | |
FOB Shipping Point means that the |
| | A) | Goods are shipped free on board (FOB) to the buyer's place of business |
| | B) | Buyer pays the freight |
| | C) | Seller pays the freight |
| | D) | The trucking company pays the freight |
| | E) | None of the above |
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| 16 | |
In a perpetual inventory system, when a buyer returns defective merchandise to the seller, the buyer credits which account? |
| | A) | Sales Returns |
| | B) | Sales Revenue |
| | C) | Cash |
| | D) | Merchandise Inventory |
| | E) | None of the above |
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| 17 | |
In a perpetual inventory system, which of the following is not part of the series of journal entries made when merchandise is sold on credit? |
| | A) | Credit the Cost of Goods Sold account |
| | B) | Credit the Sales Revenue account |
| | C) | Credit the Merchandise Inventory account |
| | D) | Debit the Accounts Receivable account |
| | E) | None of the above |
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| 18 | |
Which of the following expenses would not generally be found in the General and Administrative Expenses section of a multi-step income statement? |
| | A) | Wages Expense |
| | B) | Depreciation Expense |
| | C) | Advertising Expense |
| | D) | Interest Expense |
| | E) | All of the above would be found in the General and Administrative Expense section of the multi-step income statement. |
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| 19 | |
Which of the following expenses would not generally be found in the General and Administrative Expenses section of a multi-step income statement? |
| | A) | Wages Expense |
| | B) | Depreciation Expense |
| | C) | Sales Commissions Expense |
| | D) | Interest Expense |
| | E) | All of the above would be found in the General and Administrative Expense section of the multi-step income statement. |
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| 20 | |
Selling expenses include all of the following expenses except: |
| | A) | Transportation expenses incurred by the company's sales force to visit potential new customers |
| | B) | Shipping costs incurred to ship goods to our customers |
| | C) | The cost of advertising promotions |
| | D) | The cost of promotional programs such as giveaways, rebates, and coupons |
| | E) | All of the above are considered selling expenses. |
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| 21 | |
Which of the following items is considered to be a non-operating item? |
| | A) | Sales Revenue |
| | B) | Wages Expense |
| | C) | Advertising Expense |
| | D) | The gain on the sale of a building |
| | E) | Cost of Goods Sold |
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| 22 | |
Which of the following items would be included in the reporting of operating income if the entity is a sole proprietorship operating as a law firm? |
| | A) | A loss on the sale of a building |
| | B) | Interest Revenue |
| | C) | A gain of the sale of a piece of office equipment |
| | D) | Interest Expense |
| | E) | Wages Expense |
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| 23 | |
How is Gross Profit calculated? |
| | A) | Net Sales Revenue plus Interest Income minus Cost of Goods Sold Expense |
| | B) | Cost of Goods Sold Expense plus Interest Expense minus Sales Revenue |
| | C) | Cost of Goods Sold Expense minus Interest Income minus Sales Revenue |
| | D) | Net Sales Revenue minus Cost of Goods Sold Expense |
| | E) | None of the above are correct |
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| 24 | |
Which of the following income statement report formats are used based on generally accepted accounting principles (GAAP)? |
| | A) | The single-step format |
| | B) | The multi-step format |
| | C) | A combination of the single-step and multi-step formats |
| | D) | Any format that the company chooses |
| | E) | All of the above formats are acceptable except item D. |
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| 25 | |
Which of the following current assets would not be included in the computation of the acid-test ratio? |
| | A) | Cash equivalents. |
| | B) | Accounts Receivable. |
| | C) | Marketable securities readily convertible into cash |
| | D) | Merchandise Inventory |
| | E) | All of the above would be included in the computation |
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| 26 | |
In an earlier chapter we learned about the Current Ratio and in the current chapter we learned about the Acid-Test or Quick ratio? Which of the following statements is true? |
| | A) | The current ratio is always higher than the acid test ratio. |
| | B) | The acid-test ratio is always lower than the current ratio. |
| | C) | The acid-test ratio will be equal to or lower than the current ratio. |
| | D) | The acid-test ratio will be equal to or higher than the current ratio. |
| | E) | None of the above is true |
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