Chapter 5 Self Test

Question 1

Gross profit will result if:
operating expenses are less than net income.
sales revenues are greater than operating expenses.
sales revenues are greater than cost of goods sold.
operating expenses are greater than cost of goods sold.

Answer 1

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:
purchases on account are debited to Inventory.
purchases on account are debited to Purchases.
purchase returns are debited to Purchase Returns and Allowances.
freight costs are debited to Freight-out.

Answer 2

purchases on account are debited to Inventory

Question 3

The sales accounts that normally have a debit balance are:
Sales Discounts.
Sales Returns and Allowances.
Both (a) and (b).
Neither (a) nor (b).

Answer 3

Both (a) and (b).

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:
$700.
$686.
$685.
$650.

Answer 4

$686.

Question 5

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

Answer 5

Cost of Goods Sold.

Question 6

To record the sale of goods for cash in a perpetual inventory system:
only one journal entry is necessary to record cost of goods sold and reduction of inventory.
only one journal entry is necessary to record the receipt of cash and the sales revenue.
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.
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

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:
an additional adjusting journal entry for inventory may be needed in a merchandising company.
closing journal entries are not required for a merchandising company.
a post-closing trial balance is not required for a merchandising company.
a multiple-step income statement is required for a merchandising company.

Answer 7

an additional adjusting journal entry for inventory may be needed in a merchandising company.

Question 8

The multiple-step income statement for a merchandising company shows each of the following features except:
gross profit.
cost of goods sold.
a sales revenue section.
investing activities section.

Answer 8

investing activities section.

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:
$30,000.
$90,000.
$340,000.
$400,000.

Answer 9

$90,000.

Question 10

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

Answer 10

reports sales revenues and “Other revenues and gains” in the revenues section of the income statement.

Question 11

Which of the following appears on both a single-step and a multiple-step income statement?
inventory.
gross profit.
income from operations.
cost of goods sold.

Answer 11

cost of goods sold.