Question 1

The entry to record the amount of inventory shrinkage affects both the balance sheet and the income statement.

Accepted Answer

A) True 
 B)False

Question 2

Llewelyn Company paid the amount due on a purchase of merchandise on account.Llewelyn uses the perpetual inventory system.Which of the following reflects the effect of the payment on the financial statements?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) None of the above
F) All of the above A

Question 3

Wholesale companies sell goods primarily to other businesses.

Accepted Answer

A) True 
 B)False

Question 4

A company using the perpetual inventory system paid cash for freight costs to purchase merchandise.Which of the following reflects the effects of this event on the financial statements?

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) All of the above
F) A) and B)

Question 5

The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 6

Galaxy Company sold merchandise costing $1,700 for $2,600 cash.The merchandise was later returned by the customer for a refund.The company uses the perpetual inventory system.What effect will the sales return have on the financial statements? (Consider the effects of both parts of this event. )

Accepted Answer

A)  Total assets and total stockholders' equity decrease by $900.
B)  Total assets decrease by $2,600 and total stockholders' equity decreases by $1,700.
C)  Total assets and total stockholders' equity decrease by $2,600.
D)  Total assets and total stockholders' equity increase by $900.E) A) and B)
F) B) and C)

Question 7

The Wilson Company purchased $44,000 of merchandise from the Poole Wholesale Company.Wilson also paid $3,000 for freight costs to have the goods shipped to its location.The company uses the perpetual inventory system.Which of the following summarizes the effects of the journal entries required to record these transactions for The Wilson Company? (Consider the effects of both business events. )

Accepted Answer

A)  Total debits to the inventory account would be $47,000.
B)  Total debits to the inventory account would be $44,000.
C)  Transportation-in would be debited for $3,000.
D)  Total debits to the inventory account would be $41,000.E) B) and D)
F) A) and B) A

Question 8

Flagler Company purchased $4,000 of merchandise on account.Flagler sold the merchandise to a customer for $7,000 cash.What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event. )

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) A) and D)
F) A) and B)

Question 9

Which of the following would be considered as primarily a merchandising business?

Accepted Answer

A)  West Consulting
B)  Martin's Supermarket
C)  Sandridge and Associates Law Offices
D)  KPM Accounting and Tax ServiceE) B) and C)
F) C) and D)

Question 10

For a company that uses the perpetual inventory system,a physical count of the inventory can reveal the amount of inventory shrinkage the company has experienced.

Accepted Answer

A) True 
 B)False

Question 11

A company using the perpetual inventory system paid $250 cash to have goods delivered from one of its suppliers.How would the payment of $250 for transportation-in be classified?

Accepted Answer

A)  An asset source transaction
B)  An asset use transaction
C)  An asset exchange transaction
D)  A claims exchange transactionE) B) and C)
F) A) and D)

Question 12

What is the chief advantage of the periodic system?

Accepted Answer

A)  Efficiency and ease of recording
B)  Immediate feedback on the inventory on hand at any time during the period
C)  Timely discovery of losses due to theft
D)  Better control over inventoryE) B) and C)
F) A) and B)

Question 13

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory,as well as returns of inventory to suppliers.

Accepted Answer

A) True 
 B)False

Question 14

Net sales is calculated by subtracting cost of goods sold from sales revenue.

Accepted Answer

A) True 
 B)False

Question 15

When using a perpetual inventory system,which of the following events is an asset use transaction?

Accepted Answer

A)  Paid cash to purchase inventory
B)  Paid cash for transportation-out costs
C)  Purchased inventory on account
D)  Paid cash for transportation-in costsE) None of the above
F) All of the above

Question 16

Which of the following is considered a period cost?

Accepted Answer

A)  Transportation cost on goods received from suppliers
B)  Advertising expense for the current month
C)  Cost of merchandise purchased
D)  None of these answer choices are considered a period costE) B) and C)
F) C) and D)

Question 17

Which of the following statements regarding a multistep income statement is true?

Accepted Answer

A)  When a company sells inventory for more than its cost,the difference between the sales revenue and the cost of goods sold is called the operating income.
B)  A single-step income statement shows sales,gross margin,and net income.
C)  Gross margin is calculated as sales revenue minus cost of goods sold.
D)  Gross margin equals net income.E) C) and D)
F) B) and D) C

Question 18

A company using a perpetual inventory system treats transportation-out as an operating expense.

Accepted Answer

A) True 
 B)False

Question 19

[The following information applies to the questions displayed below.]
 
Assume the perpetual inventory system is used.

1)  Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point. 
2)  Green Company paid freight cost of $2,400 to have the merchandise delivered. 
3)  Payment was made to the supplier on the inventory within 10 days. 
4)  All of the merchandise was sold to customers for $94,000 cash and delivered under terms FOB destination with freight cost amounting to $1,600.

-What is the amount of gross margin that results from these transactions?

Accepted Answer

A)  $31,280
B)  $27,280
C)  $28,880
D)  $29,680E) C) and D)
F) All of the above

Question 20

Sullivan Company uses the periodic inventory system.The following balances were drawn from the accounts of Sullivan Company prior to the closing process:

What is the gross margin that will be shown on the income statement?

Accepted Answer

A)  $8,400
B)  $7,200
C)  $15,600
D)  $18,400E) A) and D)
F) B) and D)

Exam 4: Accounting for Merchandising Businesses

The entry to record the amount of inventory shrinkage affects both the balance sheet and the income statement.

Correct Answer
verified

Llewelyn Company paid the amount due on a purchase of merchandise on account.Llewelyn uses the perpetual inventory system.Which of the following reflects the effect of the payment on the financial statements?

Correct Answer
verified
A

Wholesale companies sell goods primarily to other businesses.

Correct Answer
verified

A company using the perpetual inventory system paid cash for freight costs to purchase merchandise.Which of the following reflects the effects of this event on the financial statements?

Correct Answer
verified

The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.

Correct Answer
verified

Galaxy Company sold merchandise costing $1,700 for $2,600 cash.The merchandise was later returned by the customer for a refund.The company uses the perpetual inventory system.What effect will the sales return have on the financial statements? (Consider the effects of both parts of this event. )

Correct Answer
verified

Correct Answer
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A

Flagler Company purchased $4,000 of merchandise on account.Flagler sold the merchandise to a customer for $7,000 cash.What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event. )

Correct Answer
verified

Which of the following would be considered as primarily a merchandising business?

Correct Answer
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For a company that uses the perpetual inventory system,a physical count of the inventory can reveal the amount of inventory shrinkage the company has experienced.

Correct Answer
verified

A company using the perpetual inventory system paid $250 cash to have goods delivered from one of its suppliers.How would the payment of $250 for transportation-in be classified?

Correct Answer
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What is the chief advantage of the periodic system?

Correct Answer
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A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory,as well as returns of inventory to suppliers.

Correct Answer
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Net sales is calculated by subtracting cost of goods sold from sales revenue.

Correct Answer
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When using a perpetual inventory system,which of the following events is an asset use transaction?

Correct Answer
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Which of the following is considered a period cost?

Correct Answer
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Which of the following statements regarding a multistep income statement is true?

Correct Answer
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C

A company using a perpetual inventory system treats transportation-out as an operating expense.

Correct Answer
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Correct Answer
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Sullivan Company uses the periodic inventory system.The following balances were drawn from the accounts of Sullivan Company prior to the closing process: What is the gross margin that will be shown on the income statement?

Correct Answer
verified

Exam 4: Accounting for Merchandising Businesses

The entry to record the amount of inventory shrinkage affects both the balance sheet and the income statement.

Correct AnswerverifiedShow Answer

Llewelyn Company paid the amount due on a purchase of merchandise on account.Llewelyn uses the perpetual inventory system.Which of the following reflects the effect of the payment on the financial statements?

Correct AnswerverifiedA

Wholesale companies sell goods primarily to other businesses.

Correct AnswerverifiedShow Answer

A company using the perpetual inventory system paid cash for freight costs to purchase merchandise.Which of the following reflects the effects of this event on the financial statements?

Correct AnswerverifiedShow Answer

The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.

Correct AnswerverifiedShow Answer

Galaxy Company sold merchandise costing $1,700 for $2,600 cash.The merchandise was later returned by the customer for a refund.The company uses the perpetual inventory system.What effect will the sales return have on the financial statements? (Consider the effects of both parts of this event. )

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

Which of the following would be considered as primarily a merchandising business?

Correct AnswerverifiedShow Answer

For a company that uses the perpetual inventory system,a physical count of the inventory can reveal the amount of inventory shrinkage the company has experienced.

Correct AnswerverifiedShow Answer

A company using the perpetual inventory system paid $250 cash to have goods delivered from one of its suppliers.How would the payment of $250 for transportation-in be classified?

Correct AnswerverifiedShow Answer

What is the chief advantage of the periodic system?

Correct AnswerverifiedShow Answer

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory,as well as returns of inventory to suppliers.

Correct AnswerverifiedShow Answer

Net sales is calculated by subtracting cost of goods sold from sales revenue.

Correct AnswerverifiedShow Answer

When using a perpetual inventory system,which of the following events is an asset use transaction?

Correct AnswerverifiedShow Answer

Which of the following is considered a period cost?

Correct AnswerverifiedShow Answer

Which of the following statements regarding a multistep income statement is true?

Correct AnswerverifiedC

A company using a perpetual inventory system treats transportation-out as an operating expense.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Sullivan Company uses the periodic inventory system.The following balances were drawn from the accounts of Sullivan Company prior to the closing process: What is the gross margin that will be shown on the income statement?

Correct AnswerverifiedShow Answer

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A

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A

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C

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