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1
Merchandise intended for resale to customers is called inventory.
A)True
B)False
2
The repeating sequence of transactions by which a business generates its revenue and cash receipts from customers is called the operating cycle.
A)True
B)False
3
The first step of the operating cycle is the purchase of merchandise.
A)True
B)False
4
A retailer is a business that sells merchandise directly to the public.
A)True
B)False
5
The cost of goods sold is the cost to a merchandising company of the goods it has sold to its customers during the period.
A)True
B)False
6
Net sales revenue minus the cost of goods sold equals gross profit.
A)True
B)False
7
A subsidiary ledger contains separate accounts for each of the items making up the balance of a control account.
A)True
B)False
8
A general ledger account that summarizes the content of a specific subsidiary ledger is called a contra-asset account.
A)True
B)False
9
A control account is seldom used for inventory.
A)True
B)False
10
In a periodic inventory system the Inventory and Cost of Goods Sold accounts are continually updated as merchandise inventory is purchased and sold.
A)True
B)False
11
Under the perpetual inventory system the purchases of merchandise are recorded at their sales prices.
A)True
B)False
12
This second journal entry in which the cost of goods sold is recognized is required to fulfill the matching principle when recording a sale under the perpetual inventory system.
A)True
B)False
13
Inventory shrinkage does not include the loss of merchandise through shoplifting.
A)True
B)False
14
Inventory shrinkage under a perpetual inventory system is recognized by a journal entry in which inventory is credited and Gross Profit is debited.
A)True
B)False
15
When closing the accounts under a perpetual inventory system, the Cost of Goods Sold account is closed to the Income Summary account.
A)True
B)False
16
Under the perpetual inventory system, taking physical inventories is eliminated.
A)True
B)False
17
When inventory shrinkage is discovered under a perpetual inventory system, the amount of shrinkage is debited to the Cost of Goods Sold account.
A)True
B)False
18
The periodic inventory system eliminates the need for recording the cost of goods sold as sales occur.
A)True
B)False
19
Only under the periodic inventory system is a physical count of the inventory necessary.
A)True
B)False
20
Under a periodic inventory system the purchases of merchandise inventory is debited to the Inventory account.
A)True
B)False
21
If the beginning inventory was $10,000, purchases were $60,000, and the ending inventory is $15,000, the cost of goods sold was $55,000.
A)True
B)False
22
Under the periodic inventory system, the Cost of Goods Sold account is created with two special journal entries.
A)True
B)False
23
Under a periodic inventory system, one approach to the closing process is to eliminate the beginning balance of the Inventory account and establish the ending balance in the Inventory account through the Cost of Goods Sold account.
A)True
B)False
24
Periodic inventory systems are rarely used.
A)True
B)False
25
When items of inventory have a high per-unit cost, the entity is most likely to use a perpetual inventory system.
A)True
B)False
26
When inventory has many different kinds of low-cost items, the entity is most likely to use a periodic inventory system.
A)True
B)False
27
Credit terms of 2/10, n/30 indicate that a 2% discount can be taken on the purchase price of the merchandise purchased if the account is paid within 10 days.
A)True
B)False
28
When credit terms of 2/10, n/30 are offered to a buyer, the discount period is 10 days.
A)True
B)False
29
A purchase discount to the buyer is treated as a sales discount by the seller.
A)True
B)False
30
It is appropriate to record the purchase of inventory of $10,000, with credit terms of 2/10, n/30 as a $9,800 debit to Inventory, assuming a perpetual inventory system is used.
A)True
B)False
31
The primary reason a company should use the net cost method of recoding purchases of inventory on account is the fact that discounts not taken are reported as a separate item (Purchase Discounts Lost) in the income statement.
A)True
B)False
32
Purchase Discounts Taken and Purchase Discounts Lost are treated as revenues and expenses, respectively.
A)True
B)False
33
When a retailer who used the net cost method has permission to return $500 of inventory to a supplier who offers credit terms of 2/10, n/30, and the original invoice has not been paid, the Inventory account should be credited for $500.
A)True
B)False
34
Recording shipment costs as debits to the Transportation-in account is consistent with the matching principle.
A)True
B)False
35
Reporting the balance of the Transportation-in account as a part of the cost of goods sold, rather than as an operating expense, will decrease net income by the amount of the Transportation-in account.
A)True
B)False
36
The Sales Discount account is an example of a contra-asset account.
A)True
B)False
37
Under the perpetual inventory system, the return of inventory by a customer will require an adjustment to the Inventory account.
A)True
B)False
38
Transportation-in and delivery expenses are treated as a part of the cost of goods sold.
A)True
B)False
39
The Sales Discount account and the Sales Returns and Allowances account are closed to the Cost of Goods Sold account at year end.
A)True
B)False
40
Failure to record sales discounts and sales returns and allowances, either intentionally or accidentally, will inflate the reported amount of net income.
A)True
B)False
41
If a customer pays $564.00 for merchandise inventory, including sales tax of 8%, the credit to the Sales account will be for $564.00.
A)True
B)False
42
The Sales Returns and Allowances account provides management some measure of customer satisfaction.
A)True
B)False
43
A check register is an example of a special journal.
A)True
B)False
44
Electronic cash registers used for computer-based processing of sales transactions are called point-of-sale (POS) terminals.
A)True
B)False
45
The use of special journals eliminates the need for a general journal.
A)True
B)False
46
When using special journals, accounting principles are often ignored for the sake of convenience provided by the special journals.
A)True
B)False
47
Same-store sales are the same as comparable sales.
A)True
B)False
48
The most widely used measure of dollar sales volume is gross sales.
A)True
B)False
49
If net sales are $850,000 and gross profit margin is 8%, then the gross profit was $68,000.
A)True
B)False
50
Comparing gross profit margin between selling departments in a department store can help management determine which department is selling the more profitable products.
A)True
B)False





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