CHAPTER 7 PART 2

Question 1

The operating cycle involves the purchase and sale of inventory as well as the subsequent payment for purchases and collection of cash.

Answer 1

TRUE

Question 2

A business can shorten its operating cycle by increasing its percentage of cash sales and reducing its percentage of credit sales.

Answer 2

TRUE

Question 3

Merchandise inventory could include goods that are in transit

Answer 3

TRUE

Question 4

An advantage of using the periodic inventory system is that it requires less recordkeeping than the perpetual inventory system.

Answer 4

TRUE

Question 5

The periodic inventory system relies on a physical count of merchandise for the balance sheet amount.

Answer 5

FALSE

Question 6

Under the periodic inventory system, cost of goods sold is treated as an account

Answer 6

FALSE

Question 7

The periodic inventory system provides an up-to-date amount of inventory on hand

Answer 7

FALSE

Question 8

Summing ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.

Answer 8

TRUE

Question 9

A physical Inventory is usually taken at the end of the accounting period.

Answer 9

TRUE

Question 10

Under the periodic inventory system, purchases of merchandise are not recorded in the Merchandise Inventory account.

Answer 10

TRUE

Question 11

An entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.

Answer 11

FALSE

Question 12

Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

Answer 12

TRUE

Question 13

When the periodic inventory system is used, a physical inventory should be taken at the end of the fiscal year

Answer 13

TRUE

Question 14

the income statement of an entity that provides services only will not have cost of goods sold

Answer 14

TRUE

Question 15

For a merchandising entity, the difference between net sales and operating expenses is called gross margin.

Answer 15

TRUE

Question 16

Sales Returns and Allowances is described as a contra-revenue account

Answer 16

TRUE

Question 17

On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating expenses.

Answer 17

TRUE

Question 18

Transportation Out is included in the cost of goods sold calculation.

Answer 18

FALSE

Question 19

Advertising Expense appears as a selling expense on the income statement

Answer 19

TRUE

Question 20

transportation In is considered a cost t of merchandise purchased.

Answer 20

TRUE

Question 21

The difference between gross sales and net sales is equal to the sum of sales discounts, and sales returns and allowances.

Answer 21

TRUE

Question 22

When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount period.

Answer 22

TRUE

Question 23

The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before 30 days after the invoice date.

Answer 23

FALSE

Question 24

Terms of 2/10, n/30 is an example of a trade discount.

Answer 24

FALSE

Question 25

Goods should be recorded at their list price less any trade discounts involved.

Answer 25

TRUE

Question 26

FOB shipping point means that the seller incurs the shipping costs.

Answer 26

FALSE

Question 27

Under the perpetual inventory system, the cost of merchandise is debited to Merchandise Inventory at the time of purchase.

Answer 27

TRUE

Question 28

The Merchandise Inventory account is not affected when a sales allowance is granted.

Answer 28

TRUE

Question 29

Ending merchandise inventory is included in the calculation of the cost of goods available for sale.

Answer 29

FALSE

Question 30

Ending merchandise inventory for year 1 automatically becomes beginning merchandise inventory for year 2.

Answer 30

TRUE

Question 31

The calculation of the cost of goods available for sale during the year is not affected by the previous year’s ending inventory.

Answer 31

FALSE

Question 32

The change in inventory level from the beginning to the end of the year affects the cost of goods sold.

Answer 32

TRUE

Question 33

Transportation In is treated as a deduction in the cost of goods sold section of the Income statement.

Answer 33

FALSE

Question 34

Under the periodic inventory system, the Purchases account is used to accumulate all purchases of merchandise for resale.

Answer 34

TRUE