Chapter 3

Question 1

Companies that buy and resell merchandise inventory.

Answer 1

merchandising businesses

Question 2

Supply of finished goods held for resale to customers.

Answer 2

merchandise inventory

Question 3

Companies that sell goods to consumers.

Answer 3

retail companies

Question 4

Companies that sell goods to other businesses.

Answer 4

wholesale companies

Question 5

All costs related to obtaining or manufacturing a product intended for sale to customers;

Answer 5

product costs

Question 6

are accumulated in inventory accounts and expensed as cost of goods sold at the point of sale.

Answer 6

product costs

Question 7

For a manufacturing company,_____include direct materials, direct labor, and manufacturing overhead.

Answer 7

product costs

Question 8

Total costs paid to obtain goods and to make them ready for sale, including the cost of beginning inventory plus purchases and transportation-in costs, fewer purchase returns and allowances and purchase discounts.

Answer 8

cost of goods available for sale

Question 9

Method of accounting for inventories that increases the Inventory account each time merchandise is purchased and decreases it each time merchandise is sold.

Answer 9

perpetual inventory system

Question 10

A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased.

Answer 10

purchase returns

Question 11

A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased.

Answer 11

purchase allowances

Question 12

An expression meaning the seller will allow the purchaser a 2 percent discount off the gross invoice price if the purchaser pays cash for the merchandise within 10 days from the date of purchase.

Answer 12

2/10, n/30

Question 13

Discount offered on merchandise sold to encourage prompt payment; offered by sellers of merchandise and represents sales discounts to the seller when they are used and purchase discounts to the purchaser of the merchandise.

Answer 13

Cash discount

Question 14

Increase in assets or decrease in liabilities that results from peripheral or incidental transactions.

Answer 14

gain

Question 15

Income statement subtotal represents the difference between operating revenues and operating expenses, but before recognizing gains and losses from peripheral activities which are added to or subtracted from operating income to determine net income or loss.

Answer 15

operating income (or loss)

Question 16

Income statement format that matches particular revenue items with related expense items and distinguishes between recurring operating activities and nonoperating items such as gains and losses.

Answer 16

multistep income statement

Question 17

Single comparison between total revenues and total expenses.

Answer 17

single-step income statement

Question 18

Purchase return
assets(inventory) ______, liabilities (acct. payable) _____

Answer 18

decrease, decrease

Question 19

The inventory system continually adjusts inventory throughout the accounting period

Answer 19

the perpetual inventory system

Question 20

Merchandising businesses obtain the products they sell ______.

Answer 20

from companies called suppliers

Question 21

The products that merchandising companies sell to their customers are called merchandise _____

Answer 21

inventory

Question 22

beginning inventory was $10,000 cost of goods available for sale is $60,000 - ending inventory is $12,000 =

Answer 22

48,000

Question 23

A company purchased inventory under terms 4/10, n/30. What is the highest interest rate the company should pay to borrow money for the purpose of paying for the inventory within 10 days?

Answer 23

73%
30 days - 10 days =20 , 365 / 20 = 18.25, 18.25 *.04(discount) = .73 * 100 = 73%

Question 24

Income statements that display additional relationships rather than a single comparison of all revenues minus all expenses are called

Answer 24

multistep