MULTIPLE CHOICE QUESTIONS

39. An enterprise which sells goods to customers is known as a

c. retailer.
40. Which of the following would not be considered a merchandiser?
c. Service firm
41. A merchandiser that sells directly to consumers is a
a. retailer.
4. !wo categories of e"penses for merchandisers are
c. cost of goods sold and operating epenses.
43. !he primary source of re#enue for a wholesaler is
c. t!e sale of merc!andise.
44. $ales re#enue less cost of goods sold is called
a. gross profit.
4%. After gross profit is calculated& operating e"penses are deducted to determine
". net income.
4'. Which of the following e"pressions is incorrect?
d. Operating epenses # cost of goods sold $ gross profit
4(. )etailed records of goods held for resale are not maintained under a
". periodic inventor% s%stem.

4*. A perpetual in#entory system would likely be used by a+n,
a. a&tomo"ile dealers!ip.
49. Which of the following is a true statement about in#entory systems?
". Perpet&al inventor% s%stems re'&ire more detailed inventor%
records.
%0. -n a perpetual in#entory system& cost of goods sold is recorded
d. (it! eac! sale.
%1. -f a company determines cost of goods sold each time a sale occurs& it
d. &ses a perpet&al inventor% s%stem.
%. .nder a perpetual in#entory system& ac/uisition of merchandise for resale is
debited to the
a. Merc!andise Inventor% acco&nt.
%3. !he 0ournal entry to record a return of merchandise purchased on account
under a perpetual in#entory system would credit
d. Merc!andise Inventor%.
%4. A buyer would record a payment within the discount period under a perpetual
in#entory system by crediting
". Merc!andise Inventor%.
%%. -f a purchaser using a perpetual system agrees to freight terms of 123
shipping point& then the
a. Merc!andise Inventor% acco&nt (ill "e increased.
%'. 1reight costs paid by a seller on merchandise sold to customers will cause an
increase
". in operating epenses for t!e seller.
%( ryan 4ompany purchased merchandise from 4ates 4ompany with freight terms
of 123 shipping point. !he freight costs will be paid by the
". "&%er.
%*.5rant 4ompany purchased merchandise in#entory with an in#oice price of 64&000
and credit terms of 710& n730. What is the net cost of the goods if 5rant 4ompany
pays within the discount period?
". )*+,-..
%9. $tine 4ompany purchased merchandise with an in#oice price of 6&000 and
credit terms of 1710& n730. Assuming a 3'0 day year& what is the implied annual
interest rate inherent in the credit terms?
c. /012.. If a compan% is given credit terms of -3/.+ n3*.+ it s!o&ld
". pa% (it!in t!e disco&nt period and recogni4e a savings.
'1. $ales re#enues are usually considered earned when
.
c. goods !ave "een transferred from t!e seller to t!e "&%er.
'. A sales in#oice is a source document that
c. provides evidence of credit sales.
'3. $ales re#enue
a. ma% "e recorded "efore cas! is collected.
'4.!he 0ournal entry to record a credit sale is
d. 5cco&nts 6eceiva"le
Sales
'%. A credit memorandum is prepared when
c. goods t!at (ere sold on credit are ret&rned.
''. !he $ales 8eturns and Allowances account is classified as a+n,
d. contra reven&e acco&nt
'(. A credit memorandum is used as documentation for a 0ournal entry that
re/uires a debit to
". Sales 6et&rns and 5llo(ances and a credit to 5cco&nts 6eceiva"le.
'* -f a customer agrees to retain merchandise that is defecti#e because the seller is
willing to reduce the selling price& this transaction is known as a sales
d. allo(ance.
'9. When goods are returned that relate to a prior cash sale&
". t!e cas! acco&nt (ill "e credited.
(0. !he $ales 8eturns and Allowances account does not pro#ide information to
management about
". t!e percentage of credit sales vers&s cas! sales.
(1.A $ales 8eturns and Allowances account is not debited if a customer
c. &tili4es a prompt pa%ment incentive.
(. As an incenti#e for customers to pay their accounts promptly& a business may
offer its customers
a. a sales disco&nt.
(3.!he credit terms offered to a customer by a business firm were 710& n730& which
means that
.
c. t!e c&stomer can ded&ct a -1 disco&nt if t!e "ill is paid (it!in /.
da%s of t!e invoice date.
(4. A sales discount does not
d. increase an operating e"pense account.
(%. 4ompany A sells 6'00 of merchandise on account to 4ompany 3 with credit
terms of 710& n730. -f 4ompany 3 remits a check taking ad#antage of the
discount offered& what is the amount of 4ompany 39s check?
". )700.
('. :ale 4ompany sells merchandise on account for 63&000 to ;arr 4ompany
with credit terms of 710& n730. ;arr 4ompany returns 6%00 of merchandise that was
damaged& along with a check to settle the account within the discount period. What
is the amount of the check?
d. )-+87..
((. )ryer 4ompany sells merchandise on account for 6&100 to .nruh 4ompany
with credit terms of 710& n730. .nruh 4ompany returns 6'00 of merchandise
that was damaged& along with a check to settle the account within the
discount period. What entry does )ryer 4ompany make upon receipt of the
check?
c. Cas! /+89.
Sales 6et&rns and 5llo(ances ........................................ 2..
Sales :isco&nts ................................................................ *.
5cco&nts 6eceiva"le ...............................................
-+/..
(*. Which of the following would not be classified as a contra account?
a. Sales
(9. Which of the following accounts has a normal credit balance?
c. Sales
*0. With respect to the income statement&
d. sales disco&nts are incl&ded in t!e calc&lation of gross profit.
*1. When a seller grants credit for returned goods& the account that is credited is
d. 5cco&nts 6eceiva"le.
*. !he respecti#e normal account balances of $ales& $ales 8eturns and
Allowances& and $ales )iscounts are
c. credit+ de"it+ de"it.
*3. !he operating cycle of a merchandiser is
". generall% longer t!an it is for a service compan%.
*4. -n preparing closing entries for a merchandiser& the -ncome $ummary account
will be credited for the balance of
a. sales.
*%. A merchandiser using a perpetual system will record
c. one more ad;&sting entr% t!an a service compan%.
*'. !he sales re#enue section of an income statement for a retailer would not
include
d. Cost of goods sold.
*(. !he operating e"pense section of an income statement for a wholesaler
would not include
c. cost of goods sold.
**. -ncome from operations will always result if
d. gross profit eceeds operating epenses.
*9. -ndicate which one of the following would appear on the income statement of
both a merchandiser and a ser#ice enterprise.
". Operating epenses
90. -n terms of li/uidity& merchandise in#entory is
c. more li'&id t!an prepaid epenses.
91. 2n a classified balance sheet& merchandise in#entory is classified as
c. a c&rrent asset.
9. 5ross profit for a merchandiser is net sales minus
". cost of goods sold.
93. -f a company has net sales of 6(%0&000 and cost of goods sold of 64%0&000&
the gross profit percentage is
". 8.1.
94.A company shows the following balances<
Sales )/+-..+...
Sales 6et&rns and 5llo(ances /97+...
Sales :isco&nts -7+...
Cost of <oods Sold 2..+....
94. +cont.,
What is the gross profit percentage?
c. 8.1
9%. -ncome from operations appears on
d. a m&ltiple=step income statement.
9'. 5ross profit does not appear
". on a single=step income statement.
9(. Which of the following is not a true statement about a multiple=step income
statement?
c. T!ere ma% "e a section for operating assets.
a
9*. !he >erchandise -n#entory account balance appearing in a work sheet
represents the
a. ending inventor%.
!he following /uestions are from the $tudy 5uide.
s
99. 3rent 4ompany has sales re#enue of 613&000& cost of goods sold of 6*&000
and operating e"penses of 63&000 for the year ended )ecember 31. 3rent9s
gross profit is
". )7+....
s
100. >onet 4ompany made a purchase of merchandise on credit from 4laude
4orporation on August 3& for 63&000& terms 710& n74%. 2n August 10& >onet
makes the appropriate payment to 4laude. !he entry on August 10 for >onet
4ompany is
d. 5cco&nts Pa%a"le.............................................................. *+...
Merc!andise Inventor%............................................... 2.
Cas!............................................................................
-+,8.
s
101. 4aillebotte 4ompany purchased in#entory from ?issaro 4ompany. !he
shipping costs were 6400 and the terms of the shipment were 123 shipping
point. 4aillebotte would ha#e the following entry regarding the shipping
charges<
d. Merc!andise Inventor%...................................................... 8..
Cas!........................................................................... 8..
s
10. 2n 2ctober 4& 00& !erry 4orporation had credit sales transactions of
6&%00 from merchandise ha#ing cost 61&900. !he entries to record the day9s
credit transactions include a
". credit of )-+7.. to Sales.
s
103. -n the 4lark 4ompany& sales were 630&000& sales returns and allowances
were 60&000& and cost of goods sold was 61*0&000. !he gross profit rate
was
". 8.1.
s
104. -n the balance sheet& ending merchandise in#entory is reported
a. in c&rrent assets immediatel% follo(ing acco&nts receiva"le.