Q&A Hero

Q: A company purchased $1,800 of merchandise on December 5. On December 7, it returned $200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 is: A. $200 B. $1,564 C. $1,568 D. $1,600 E. $1,800

Q: A debit memorandum is: A. Required whenever a journal entry is recorded, B. The source document for the purchase of merchandise inventory, C. Required when a purchase discount is granted, D. The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records, E. Not necessary in a perpetual inventory system,

Q: A company uses the perpetual inventory system and recorded the following entry: Accounts Payable 2,500 Merchandise Inventory 50 Cash 2,450 This entry reflects a: A. Purchase, B. Return, C. Sale, D. Payment of the account payable and recognition of a cash discount taken, E. Purchase and recognition of a cash discount taken,

Q: A trade discount is: A. A term used by a purchaser to describe a cash discount given to customers for prompt payment, B. A reduction in price below the list price, C. A term used by a seller to describe a cash discount granted to customers for prompt payment, D. A reduction in price for prompt payment, E. Also called a rebate,

Q: The credit terms 2/10, n/30 are interpreted as: A. 2% cash discount if the amount is paid within 10 days, with the balance due in 30 days, B. 10% cash discount if the amount is paid within 2 days, with balance due in 30 days, C. 30% discount if paid within 2 days, D. 30% discount if paid within 10 days, E. 2% discount if paid within 30 days,

Q: A company had net sales of $82,000, cost of goods sold of $70,000, and other expenses of $2,000. Its gross margin ratio equals: A. 85.37% B. 2.44% C. 14.63% D. 16.67% E. 683.33%

Q: J.C. Penny had net sales of $28,496 million, cost of goods sold of $19,092 million, and net income of $997 million. Its gross margin ratio equals: A. 3.5% B. 5.2% C. 33% D. 67% E. 149.3%

Q: A company's net sales were $676,600, its cost of goods sold was $236,810, and its net income was $33,750. Its gross margin ratio equals: A. 5% B. 9.6% C. 35% D. 65% E. 285.7%

Q: The gross margin ratio: A. Is also called the net profit ratio. B. Measures a merchandising firm's ability to earn a profit from the sale of inventory. C. Is also called the profit margin. D. Is a measure of liquidity. E. Should be greater than 1.

Q: The acid-test ratio differs from the current ratio in that: A. Liabilities are divided by current assets. B. Prepaid expenses and inventory are excluded from the calculation of the acid-test ratio. C. The acid-test ratio measures profitability and the current ratio does not. D. The acid-test ratio excludes short-term investments from the calculation. E. The acid-test ratio is a measure of liquidity but the current ratio is not.

Q: Liquidity problems are likely to exist when a company's acid-test ratio: A. Is less than the current ratio, B. Is 1 to 1, C. Is higher than 1 to 1, D. Is substantially lower than 1 to 1, E. Is higher than the current ratio,

Q: A company's current assets were $17,980, its quick assets were $11,420, and its current liabilities were $12,190. Its quick ratio equals: A. 0.94 B. 1.07 C. 1.48 D. 1.57 E. 2.40

Q: ABC Corporation had total quick assets of $5,888,000, current assets of $11,700,000, and current liabilities of $8,000,000. Its acid-test ratio equals: A. 0.50 B. 0.68 C. 0.74 D. 1.50 E. 2.20

Q: Quick assets are defined as: A. Cash, short-term investments, and inventory. B. Cash, short-term investments, and current receivables. C. Cash, inventory, and current receivables. D. Cash, noncurrent receivables, and prepaid expenses. E. Accounts receivable, inventory, and prepaid expenses.

Q: The acid-test ratio: A. Is also called the quick ratio. B. Measures profitability. C. Measures inventory turnover. D. Is generally greater than the current ratio. E. Is not used by merchandise companies.

Q: A company's cost of goods sold was $4,000. Determine net purchases and ending inventory given goods available for sale were $11,000 and beginning inventory was $5,000. A. Net Purchases: $15,000; ending inventory: $7,000 B. Net Purchases: $10,000; ending inventory: $15,000 C. Net Purchases: $9,000; ending inventory: $6,000 D. Net Purchases: $6,000; ending inventory: $7,000 E. Net Purchases: $16,000; ending inventory: $20,000

Q: Beginning inventory plus net cost of purchases is: A. Cost of goods sold. B. Merchandise available for sale. C. Ending inventory. D. Sales. E. Shown on the balance sheet.

Q: The current period's ending inventory is: A. The next period's beginning inventory. B. The current period's cost of goods sold. C. The prior period's beginning inventory. D. The current period's net purchases. E. The current period's beginning inventory.

Q: The operating cycle for a merchandiser that sells only for cash moves from: A. Purchases of merchandise to inventory to cash sales. B. Purchases of merchandise to inventory to accounts receivable to cash sales. C. Inventory to purchases of merchandise to cash sales. D. Accounts receivable to purchases of merchandise to inventory to cash sales. E. Accounts receivable to inventory to cash sales.

Q: Merchandise inventory: A. Is a long-term asset. B. Is a current asset. C. Includes supplies. D. Is classified with investments on the balance sheet. E. Must be sold within one month.

Q: A company had expenses other than cost of goods sold of $175,000. Determine sales and gross profit given cost of goods sold was $622,000 and net loss was ($41,000). A. Sales: $838,000: gross profit: $216,000 B. Sales: $756,000: gross profit: $134,000 C. Sales: $797,000: gross profit: $756,000 D. Sales: $756,000: gross profit: $797,000 E. Sales: $134,000: gross profit: $216,000

Q: A company had expenses other than cost of goods sold of $51,000. Determine sales and gross profit given cost of goods sold was $25,000 and net income was $60,000. A. Sales: $136,000; gross profit: $111,000 B. Sales: $136,000; gross profit: $85,000 C. Sales: $85,000; gross profit: $136,000 D. Sales: $111,000; gross profit: $136,000 E. Sales: $60,000; gross profit: $25,000

Q: A company had expenses other than cost of goods sold of $250,000. Determine sales and gross profit given cost of goods sold was $100,000 and net income was $150,000. A. Sales: $350,000; gross profit: $150,000 B. Sales: $350,000; gross profit: $50,000 C. Sales: $500,000; gross profit: $400,000 D. Sales: $500,000; gross profit: $50,000 E. Sales: $400,000; gross profit: $500,000

Q: A company had sales of $375,000 and gross profit of $157,500. Its cost of goods sold was: A. $(217,000) B. $375,000 C. $157,500 D. $217,500 E. $532,500

Q: A company had sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals: A. $(417,000) B. $695,000 C. $278,000 D. $417,000 E. $973,000

Q: Cost of goods sold: A. Is another term for merchandise sales. B. Is the cost of merchandise sold to customers. C. Is another term for revenue. D. Is also called gross margin. E. Is a term only used by service firms.

Q: A merchandising company: A. Earns net income by buying and selling merchandise. B. Receives fees only in exchange for services. C. Earns profit from commissions only. D. Earns profit from fares only. E. Buys products from consumers.

Q: When preparing the unadjusted trial balance in a periodic inventory system, the amount that appears as Merchandise Inventory is the ending inventory amount.

Q: In a periodic inventory system, cost of goods sold is recorded as each sale occurs.

Q: The periodic inventory system requires updating the inventory account only at the end of the period to reflect the quantity and cost of both the goods available and the goods sold.

Q: A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.

Q: Generally accepted accounting principles require companies to use a specific format for the financial statements.

Q: Accounting and reporting for merchandise purchases and sales are treated identically under both GAAP and IFRS.

Q: Operating expenses are classified into two categories: selling expenses and cost of goods sold.

Q: A multiple-step income statement format shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items.

Q: The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.

Q: In a perpetual inventory system, the merchandise inventory account must be closed at the end of the accounting period.

Q: Sales Discounts, Sales Returns and Allowances, and Cost of Goods Sold are all closed to the Income Summary account with debits.

Q: A perpetual inventory system is able to directly measure and monitor inventory shrinkage.

Q: A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

Q: When a credit customer returns merchandise, a seller that uses the perpetual system would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

Q: Sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts.

Q: Each sales transaction of a seller that uses a perpetual system involves recognizing both revenue and cost of merchandise sold.

Q: A buyer did not take advantage of a supplier's credit terms of 2/10, n/30, but instead paid the invoice in full at the end of 30 days. By not taking the discount, the buyer lost the equivalent of 18% annual interest on the amount of the purchase.

Q: If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

Q: The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.

Q: If a company sells merchandise with credit terms 2/10, n/60, the credit period is 10 days and the discount period is 60 days.

Q: In a perpetual inventory system, the merchandise inventory account reflects the cost of goods available for sale.

Q: Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.

Q: With credit terms of 2/10, n/30, the seller is offering the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Q: Under the perpetual inventory system, the cost of merchandise purchased is accumulated in the Merchandise Inventory account.

Q: Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Purchases account.

Q: Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.

Q: Purchase returns refer to merchandise a buyer acquires but then returns to the seller.

Q: Credit terms include the specifics regarding the amount owed and timing of payments from a buyer to a seller.

Q: Trade discounts are recorded in a Trade Discounts account in the accounting system.

Q: Cost of goods sold is reported on both the income statement and the balance sheet.

Q: The Merchandise Inventory account balance at the end of one period is equal to the amount of beginning merchandise inventory for the next period.

Q: J.C. Penney had net sales of $24,750 million, cost of goods sold of $16,150 million, and net income of $837 million. Its gross margin ratio equals 3.4%.

Q: A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company's gross margin ratio equals 24.5%.

Q: The gross margin ratio reflects the relation between sales and cost of goods sold.

Q: The profit margin ratio is gross margin divided by total assets.

Q: The gross margin ratio is defined as gross margin divided by net sales.

Q: Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.

Q: A common rule of thumb is that a company's acid-test ratio should be at least 2 or a company may face financial problems in the near future.

Q: The acid-test ratio is defined as current assets divided by current liabilities.

Q: Quick assets include cash, inventory, and current receivables.

Q: Beginning merchandise inventory plus the net cost of purchases is equal to the merchandise available for sale.

Q: A perpetual inventory system continually updates accounting records for inventory transactions.

Q: A perpetual inventory system requires updating of the inventory account only at the beginning of an accounting period.

Q: Assets tied up in inventory are referred to as nonproductive assets.

Q: Cash sales shorten the operating cycle for a merchandiser; credit purchases lengthen operating cycles.

Q: Merchandise inventory is reported in the long-term assets section of the balance sheet.

Q: A merchandising company's operating cycle begins with the sale of merchandise and ends with the collection of cash from the sale.

Q: A company had a gross profit of $300,000 based on sales of $400,000, which means its cost of goods sold is equal to $700,000.

Q: A company had net sales of $545,000 and cost of goods sold of $345,000, which means its gross margin is equal to $200,000.

Q: A company had sales of $350,000 and cost of goods sold of $200,000, which means gross profit is equal to $550,000.

Q: Cost of goods sold represents the value of merchandise sold to customers.

Q: A retailer is an intermediary that buys products from manufacturers and sells them to wholesalers.

Q: A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.