Chapter 5: Merchandising Operations

Question 1

Gross profit will result if:
(a) operating expenses are less than net income. (b)sales revenues are greater than operating
expenses.
(c) sales revenues are greater than cost of goods sold.
(d) operating expenses are greater than cost of goods
sold.

Answer 1

(c) Gross profit will result if sales revenues are greater than cost of goods sold.

Question 2

Under a perpetual inventory system, when goods are
purchased for resale by a company:
(a) purchases on account are debited to Inventory.
(b) purchases on account are debited to Purchases.
(c) purchase returns are debited to Purchase Returns
and Allowances.
(d) freight costs are debited to Freight-Out.

Answer 2

(a) Under a perpetual inventory system, when a company purchases goods for resale, purchases on account are debited to the Inventory account

Question 3

The sales accounts that normally have a debit balance are:

(a) Sales Discounts.
(b) Sales Returns and Allowances.
(c) Both (a) and (b).
(d) Neither (a) nor (b).

Answer 3

(c) Both Sales Discounts and Sales Returns and Allowances normally have a debit balance.

Question 4

A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount received as payment in full on June 23 is:

(a) $700.
(b) $686.
(c) $685.
(d) $650.

Answer 4

(b) The full amount of $686 is paid within 10 days of the purchase ($750 - $50) - [($750 2 $50) * 2%]

Question 5

Which of the following accounts will normally appear
in the ledger of a merchandising company that uses a perpetual inventory system?
(a) Purchases.
(b) Freight-In.
(c) Cost of Goods Sold.
(d) Purchase Discounts.

Answer 5

(c) The Cost of Goods Sold account normally appears in the ledger of a merchandising company using a perpetual inventory system.

Question 6

To record the sale of goods for cash in a perpetual inventory system:
(a) only one journal entry is necessary to record cost
of goods sold and reduction of inventory.
(b) only one journal entry is necessary to record the
receipt of cash and the sales revenue.
(c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of
inventory.
(d) two journal entries are necessary: one to record
the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue.

Answer 6

(c) Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

Question 7

The steps in the accounting cycle for a merchandising company are the same as those in a service company except:
(a) an additional adjusting journal entry for inven-
tory may be needed in a merchandising company.
(b) closing journal entries are not required for a mer-
chandising company.
(c) a post-closing trial balance is not required for a
merchandising company.
(d) a multiple-step income statement is required for a
merchandising company.

Answer 7

(a) An additional adjusting journal entry for inventory may be needed in a merchandising company to adjust for a physical inventory count, but it is not needed for a service company.

Question 8

The multiple-step income statement for a merchan-
dising company shows each of the following features except:
(a) gross profit.
(b) cost of goods sold.
(c) a sales section.
(d) an investing activities section.

Answer 8

(d) An investing activities section appears on the statement of cash flows, not on a multiple-step income statement.

Question 9

If sales revenues are $400,000, cost of goods sold is
$310,000, and operating expenses are $60,000, the gross profit is:
(a) $30,000.
(b) $90,000.
(c) $340,000.
(d) $400,000.

Answer 9

(b) Gross profit 5 Sales revenue ($400,000) - Cost of goods sold ($310,000) = $90,000

Question 10

A single-step income statement:
(a) reports gross profit.
(b) does not report cost of goods sold.
(c) reports sales revenue and “Other revenues and
gains” in the revenues section of the income
statement.
(d) reports operating income separately.

Answer 10

(c) Both sales revenue and “Other revenues and gains” are reported in the revenues section of a single-step income statement.

Question 11

11. Which of the following appears on both a single-step and a multiple-step income statement?
    (a) Inventory.
    (b) Gross profit.
    (c) Income from operations.
    (d) Cost of goods sold.

Answer 11

(d) Cost of goods sold appears on both a single-step and a multiple-step income statement.