Reviewer 1

Question 1

Which one of the following is not a difference between a retail business and a service business?

Answer 1

accounting equation

Question 2

A chart of accounts for a merchandising business usually

Answer 2

requires more accounts than does the chart of accounts for a service business

Question 3

When comparing a retail business to a service business, the financial statement that changes the most is the

Question 4

When comparing a retail business to a service business, the financial statement that changes the most is the

Answer 4

Income Statement

Question 5

Which of the following appears in the income statement of a merchandising business, but not in the income statement of a business that renders only services?

Answer 5

Gross profit.

Question 6

Indicate which one of the following would appear on the income statement of both a merchandising company and a service company.

Answer 6

Operating expenses

Question 7

When comparing a retail business to a service business, the financial statement that changes the least is the

Answer 7

Statement of Retained Earnings

Question 8

The major difference in the statement of retained earnings between a service business and a merchandising business is:

Answer 8

nothing. There are no differences between the two.

Question 9

Which account will be included in both service and merchandising companies closing entries?

Answer 9

Sales

Question 10

Which of the following accounts, will only be found in the chart of accounts of a merchandising company?

Answer 10

Merchandise Inventory

Question 10

Which of the following accounts, will only be found in the chart of accounts of a merchandising company?

Answer 10

Merchandise Inventory

Question 11

Which account causes the main difference between merchandiser’s adjusting and closing process and that of a service business?

Answer 11

Cost of goods sold

Question 12

Sales revenues are usually considered earned when

Answer 12

legal ownership of goods has been transferred from the seller to the buyer

Question 13

Sales revenue is recognized in the period in which:

Answer 13

Merchandise is delivered to the customer.

Question 14

Sales revenues are usually considered earned when

Question 15

Sales revenues are usually considered earned when

Answer 15

goods have been transferred from the seller to the buyer.

Question 16

Sales revenue

Answer 16

may be recorded before cash is collected.

Question 17

A purchase should be recognized in the accounting records when

Answer 17

Title transfer from the seller to the buyer

Question 18

Transferring title refers to a:

Answer 18

change of ownership.

Question 19

Purchases are entered into the asset account, Inventory, at:

Answer 19

the time of purchase.

Question 20

Ramos ordered merchandise from Santos on December 10, 1985; terms FOB shipping point. Santos shipped the goods on December 27, 1985 and Ramos received them on January 2, 1986. When should Ramos record the amount payable?

Answer 20

December 31, 1985.

Question 21

Which of the following most accurately depicts the documentation flow used in the process of acquiring inventory?

Answer 21

Purchase requisition, purchase order, receiving report

Question 22

The process of acquiring merchandise from a supplier begins with the:

Answer 22

purchase order.

Question 23

A paper document that is used to formally request a vendor to sell and deliver specific products (inventory) at specified prices is called a

Answer 23

purchase order

Question 24

A purchase order:

Answer 24

identifies the need for merchandise and begins the purchasing process.

Question 25

Once the merchandise is received from the supplier, the company:

Answer 25

completes a receiving report.

Question 26

A receiving report is prepared by what department?

Answer 26

Shipping (Receiving)

Question 27

A sales invoice is a source document that

Answer 27

provides evidence of credit sales.

Question 28

Which of the following is sent by the company who ships the goods to the company who ordered the goods?

Answer 28

An invoice

Question 29

A credit memorandum is prepared when

Answer 29

goods that were sold on credit are returned.

Question 30

A credit memorandum is used as documentation for a journal entry that requires a debit to

Answer 30

Sales Returns and Allowances and a credit to Accounts Receivable.

Question 31

If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a

Answer 31

credit memorandum

Question 32

A customer purchased items on account from ABC Company. After a few days, the customer returned the goods. ABC will issue a:

Answer 32

credit memorandum.

Question 33

The document that supports the return of goods to the supplier is called a

Answer 33

debit memorandum.

Question 34

A debit memorandum is

Answer 34

The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.

Question 35

FOB means:

Answer 35

free on board.

Question 36

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

Answer 36

FOB shipping point

Question 37

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

Answer 37

FOB shipping point

Question 38

Merchandise sold FOB shipping point indicates that:

Answer 38

The buyer bears the risk of transit.

Question 39

Which term indicates that the buyer will be responsible for transportation charges for goods purchased?

Answer 39

FOB shipping point

Question 40

Which of the following indicates that the shipment is free on board and the buyer pays all of the shipping and freight costs?

Answer 40

FOB shipping point

Question 41

If the buyer is to pay the transportation costs of delivering merchandise, delivery terms are stated as

Answer 41

FOB shipping point

Question 42

Who pays the freight costs when the terms are FOB shipping point?

Answer 42

the buyer

Question 43

In a transaction where the merchandise invoice indicates F.O.B. shipping point, who pays the cost of shipping?

Answer 43

the buyer

Question 44

Bryan Company purchased merchandise from Cates Company with freight terms of FOB shipping point. The freight costs will be paid by the

Answer 44

buyer.

Question 45

Which term indicates to a buyer that merchandise is free of transportation charges?

Answer 45

FOB Destination

Question 46

Sebastian Merchandising purchased goods on account from Nemo Incorporated. The goods were purchased FOB destination for $200. How would these freight charges be recorded in Sebastian’s accounting records assuming that the company uses a perpetual inventory system?

Answer 46

They would not be included in Sebastian’s accounting records.

Question 47

If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are

Answer 47

FOB destination

Question 48

Merchandise sold FOB destination indicates that:

Answer 48

The seller holds title until the merchandise is received at the buyer's location.

Question 49

If the seller is to pay the transportation costs of delivering merchandise, the delivery terms are stated as

Answer 49

FOB destination

Question 50

Which of the following indicates that the shipment is free on board and the seller pays all of the shipping and freight costs?

Answer 50

FOB destination

Question 51

Who pays the freight cost when the terms are FOB destination?

Answer 51

the seller

Question 52

When goods are shipped FOB destination and the seller pays the transportation charges, the buyer

Answer 52

makes no journal entry for the transportation.

Question 53

Freight charges that are paid by a buyer are:

Answer 53

added to inventory.

Question 54

The cost of the transportation of inventory purchased:

Answer 54

Becomes part of the cost of inventory.

Question 55

Freight costs paid by a seller on merchandise sold to customers will cause an increase

Answer 55

in operating expenses for the seller.

Question 56

Which of the following statements is incorrect?

Answer 56

Both freight-in and freight-out affect gross profit.

Question 57

A discount given to a customer for purchasing a large volume of merchandise is typically referred to as a

Answer 57

trade discount.