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True or False
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1
A retailer is a middleman that buys products from manufacturers or wholesalers and sells them to consumers.
A)True
B)False
2
A merchandiser earns net income by making and selling inventory.
A)True
B)False
3
A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.
A)True
B)False
4
Another term for gross profit is gross margin.
A)True
B)False
5
If a company has a gross profit, then it will have a net income.
A)True
B)False
6
The cost of goods sold account represents the amount the company spent purchasing merchandise.
A)True
B)False
7
The credit term for discounts starts on the date the income is received.
A)True
B)False
8
Products that a company owns to sell to customers is called merchandise inventory.
A)True
B)False
9
Trade discounts are offered for prompt payments on invoices.
A)True
B)False
10
If the net sales for the business total $150,000, gross profit is $65,000, and net income is $40,000, the cost of goods sold must be $25,000.
A)True
B)False
11
The operating cycle of a merchandiser begins with selling inventory and ends with collecting cash on its accounts receivable.
A)True
B)False
12
Most companies have operating cycles of more than a year.
A)True
B)False
13
A buyer issues a credit memo to inform the seller of a debit made on the buyer's records.
A)True
B)False
14
The cost of goods sold is calculated by adding the cost of purchases to the beginning merchandise inventory and subtracting the ending merchandise inventory.
A)True
B)False
15
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
16
The list price is the catalog price of an item before any trade discount is deducted.
A)True
B)False
17
A cash discount is a reduction below a list or catalog price that may vary in amount for wholesalers, retailers, and final consumers.
A)True
B)False
18
Under a perpetual inventory system, when a buyer pays for freight charges the Transportation-In account should be debited.
A)True
B)False
19
A deduction allowed from the invoice price of goods if payment is made within a specified period of time is called a cash discount.
A)True
B)False
20
When merchandise inventory is purchased with credit terms of 2/10, n/60, the credit period is 10 days from date of the invoice.
A)True
B)False
21
Merchandise purchased on June 8 with credit terms of 2/10, n/30, must be paid sooner than with credit terms of n/10 EOM.
A)True
B)False
22
Merchandise with a list price of $100, subject to a trade discount of 40 percent and sold with credit terms of 2/10, n/60, would cost the buyer $58.80 if payment is made within the discount period.
A)True
B)False
23
When goods are shipped FOB shipping point, the seller bears the risk of loss during transit.
A)True
B)False
24
Under the gross method of accounting for purchase discounts, a purchase discount received is not recorded by a buyer until the payment entry.
A)True
B)False
25
When merchandise is purchased under transportation terms of FOB shipping point, the seller has agreed to pay the freight charges.
A)True
B)False
26
FOB is the abbreviation for free on board.
A)True
B)False
27
FOB Destination means that ownership passes to the buyer as soon as it leaves the seller's dock.
A)True
B)False
28
The documentation for supporting a sales return and allowance authorized by the seller is a debit memo of the purchaser of the merchandise.
A)True
B)False
29
Under a perpetual inventory system, two journal entries are required to record a sales transaction.
A)True
B)False
30
The Sales Returns and Allowances account is credited by a seller to record receipt of merchandise returned by a customer.
A)True
B)False
31
Shrinkage is usually accounted by debiting the Cost of Goods Sold account.
A)True
B)False
32
The closing entries for a perpetual inventory system user affect the Sales, Sales Return and Allowances, Sales Discounts, and the Merchandise Inventory accounts.
A)True
B)False
33
Operating expenses include general expenses, administrative expenses, and cost of goods sold.
A)True
B)False
34
Sales discounts are recorded by the seller as soon as the sale is made.
A)True
B)False
35
Sales discounts are seldom reported on income statements distributed to external users.
A)True
B)False
36
Sale Returns reduce the amount of gross sales on the balance sheet to arrive at net sales.
A)True
B)False
37
An income statement in which the details of the cost of goods sold are shown is called a single-step income statement.
A)True
B)False
38
Gross profit less operating expenses equals income from operations.
A)True
B)False
39
If a company has a net income, the third closing entry will include a credit to retained earnings.
A)True
B)False
40
A quick ratio of greater than 1.0 means that current liabilities exceed quick assets.
A)True
B)False
41
The acid-test ratio generally provides a better analysis than the current ratio for determining a merchandising company's ability to meet current debt.
A)True
B)False
42
Merchandise inventory is not included in either the acid-test ratio or the current ratio calculation.
A)True
B)False
43
If net sales for the business total $150,000, gross profit $75,000, and net income is $40,000, the gross margin ratio is 50%.
A)True
B)False
44
When using a perpetual inventory system, there is no account titled 'Purchases.'
A)True
B)False
45
There are no differences in the accounting for sales transactions between the perpetual and periodic inventory systems.
A)True
B)False
46
Non-operating activities consist of other expenses, revenues, losses, and gains that are unrelated to a company's operating activities.
A)True
B)False
47
A merchandiser's classified balance sheet reports merchandise inventory as a plant asset.
A)True
B)False
48
One measure of a merchandiser's ability to pay its debt is called the acid test ratio.
A)True
B)False
49
Under both the periodic inventory system and the perpetual inventory system, Merchandise inventory shrinkage is recognized and recorded with the adjusting entries.
A)True
B)False
50
Under the periodic inventory system, the Merchandise Inventory account remains unchanged during the year until it is updated at the end of the period.
A)True
B)False
51
Under the periodic inventory system, the purpose of including the Merchandise Inventory account (a real account) in the closing procedure is to transfer the beginning balance to the Income Summary account and enter the ending balance in the Merchandise Inventory account.
A)True
B)False
52
The steps in the accounting cycle are different for a merchandising business than they are for a service business.
A)True
B)False





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