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1
A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.
A)True
B)False
2
If the net sales for the business total $150,000, gross profit is $65,000, and net income is $40,000, then cost of goods sold must be $25,000.
A)True
B)False
3
The operating cycle of a merchandiser begins with selling inventory and ends with collecting cash on its accounts receivable.
A)True
B)False
4
The cost of goods sold is calculated by adding the net purchases to the beginning merchandise inventory and then subtracting the ending merchandise inventory.
A)True
B)False
5
An inventory system that provides a business with up-to-date data as to the quantity of goods on hand is called a periodic inventory system.
A)True
B)False
6
The acid-test ratio is a more conservative measure provides a better analysis for determining a merchandising company's ability to meet current liabilities than the current ratio.
A)True
B)False
7
Assuming that it does not have and other revenues or gains, if a company has a gross profit, then it will have net income.
A)True
B)False
8
Under a perpetual inventory system, when a buyer pays for freight charges, the entry to record this transaction includes a debit to the Transportation-In (or Freight-In) account.
A)True
B)False
9
If payment is made within the discount period, merchandise with a sales price of $60 that is sold with credit terms of 2/10, n/60 would cost the purchaser $58.80.
A)True
B)False
10
A buyer issues a credit memo to inform the seller of a debit made on the buyer's records.
A)True
B)False
11
Under a perpetual inventory system, two journal entries are required to record a sales transaction.
A)True
B)False
12
Shrinkage is the term used to refer to the loss of inventory and it is computed by comparing a physical count of inventory with recorded amounts.
A)True
B)False
13
A single-step income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.
A)True
B)False
14
Gross profit less operating expenses equals income from operations.
A)True
B)False
15
Non-operating activities consist of other expenses, revenues, losses, and gains that are unrelated to a company's operating activities.
A)True
B)False
16
Which of the following costs, paid for by the purchaser, are included in the Merchandise Inventory account or the purchaser?
A)Purchase cost
B)Shipping fees and taxes
C)Other costs necessary to make the merchandise inventory ready for sale
D)All of the above
E)None of the above
17
Which type of inventory system continually updates accounting records for merchandising transactions?
A)Wholesaler inventory system
B)Periodic inventory system
C)Perpetual inventory system
D)Permanent inventory system
E)Both periodic and perpetual inventory systems
18
Which of the following statements is correct?
A)The beginning inventory plus the net cost of purchases is equal to the merchandise available for sale.
B)The ending inventory plus the cost of goods sold is equal to the merchandise available for sale.
C)The merchandise available for sale less the ending inventory is equal to the cost of goods sold.
D)All of the above statements are correct.
E)None of the above statements is correct.
19
Which of the following statements is correct regarding a merchandiser's financial statements?
A)Ending merchandise inventory is reported on the balance sheet in current assets.
B)As merchandise inventory is sold, its cost is reported as cost of goods sold on an income statement.
C)One period's ending merchandise inventory becomes the next period's beginning merchandise inventory.
D)Cost of Goods Sold is often the largest expense for a merchandiser.
E)All of the above are correct.
20
The records for Betty's Floral Shoppe showed the following: cash of $125,000, current liabilities of $50,000, accounts receivable of $25,000, revenues of $180,000, merchandise inventory of $100,000, operating expenses of $112,000, and short-term investments of $50,000. What is the acid-test ratio?
A)4.0:1
B)2.5:1
C)6.0:1
D)3.0:1
E)None of the above
21
If sales are $75,000 and the cost of goods sold was $52,500, what is the gross profit (or gross profit) percentage?
A)70%
B)30%
C)43%
D)57%
E)None of the above
22
An item of merchandise was purchased for $60 with credit terms of 2/10, n/30. The vendor was paid within the discount period. Assuming that a perpetual inventory system is in use, which of the following is the correct journal entry to record the payment of the related invoice?
A)Debit Purchases $60; credit Cash $60
B)Debit Purchases $58.80; credit Cash $58.80
C)Debit Accounts Payable $60; credit Purchases Discount $12; credit Cash $48
D)Debit Accounts Payable $60; credit Purchases Discount $1.20; credit Cash $58.80
E)Debit Cash $58.80; debit Sales Discounts $1.20; credit Accounts Receivable $58.80
23
Merchandise costing $200 was purchased on account and paid for at an earlier time is now being returned for credit. The credit terms were 2/10, n/30 and the invoice was paid within the discount period. Which of the following is the correct journal entry for the purchaser to record the return, assuming a perpetual inventory system is used?
A)Debit Accounts Payable $200; credit Merchandise Inventory $200
B)Debit Accounts Payable $204; credit Merchandise Inventory $204
C)Debit Accounts Payable $196; credit Merchandise Inventory $196
D)Debit Accounts Receivable $200; credit Merchandise Inventory $200
E)Debit Purchases Returns and Allowances $196; credit Merchandise Inventory $196
24
Which of the following is a correct statement regarding the shipping term of FOB destination?
A)The buyer pays the freight.
B)The ownership transfers when the goods are passed to the carrier.
C)The buyer bears the risk of damage of loss in transit.
D)All of the above.
E)None of the above.
25
If a perpetual inventory system is in use and goods are shipped FOB shipping point to the purchaser, which account would be debited by the purchaser to record the payment of the shipping costs?
A)Transportation In
B)Delivery Expense
C)Merchandise Inventory
D)Cost of Goods Sold
E)None of the above
26
An item of merchandise was sold with an invoice price of $400 and credit terms of 2/10, n/30. The entry to record the sale would include a credit to the Sales account of what amount?
A)$400
B)$396
C)$408
D)$392
E)$404
27
How does a merchandiser calculate net sales?
A)Sales plus sales discount plus sales return and allowances
B)Sales minus cost of goods sold
C)Sales minus sales discounts minus sales returns and allowances
D)Sales minus purchase discounts minus purchase returns
E)Sales minus sales discounts plus sales returns and allowances
28
A gift shop ended the year with a balance of $20,000 in the Merchandise Inventory account. A physical count of the inventory revealed that only $19,500 of inventory was on hand at year end. What adjusting entry is needed to adjust the Merchandise Inventory account?
A)Debit Shrinkage and credit Merchandise Inventory for $500
B)Debit Cost of Goods Sold and credit Merchandise Inventory for $500
C)Debit Merchandise Inventory and credit Cost of Goods Sold for $500
D)Debit Merchandise Inventory and credit Shrinkage for $500
E)No entry needed
29
Using the method illustrated in the textbook, which closing entry would close the Sales Discounts account?
A)The first closing entry
B)The second closing entry
C)The third closing entry
D)The fourth closing entry
E)The Sales Discount account is a permanent account, which is not closed.
30
How would interest expense be reported on a multi-step income statement?
A)As a selling expense
B)As a general and administrative expense
C)As other revenue
D)As other expense
E)None of the above





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