Deck 4: Reporting and Analyzing Merchandising Operations

Question 1

Cost of goods sold is also called cost of sales.

Answer 1

True

Question 2

Cost of goods sold is an expense,and is reported on the income statement.

Answer 2

True

Question 3

A retailer buys products from manufacturers and sells them to wholesalers.

Answer 3

False

Question 4

A periodic inventory system requires updating of the inventory account only at the beginning of an accounting period.

Question 5

Merchandise inventory is reported in the current assets section of the balance sheet.

Question 6

Gross profit is also called gross margin.

Question 7

Beginning inventory plus net purchases equals merchandise available for sale.

Question 8

A service company earns net income by buying and selling merchandise.

Question 9

A company had a gross profit of $200,000 based on sales of $450,000.Its cost of goods sold equals $250,000.

Question 10

Cost of goods sold represents the cost of buying and preparing merchandise for sale.

Question 11

A perpetual inventory system continually updates accounting records for merchandising transactions.

Question 12

A company had sales of $350,000 and cost of goods sold of $200,000.Its gross profit equals $150,000.

Question 13

A company had a gross profit of $300,000 based on sales of $400,000.Its cost of goods sold equals $700,000.

Question 14

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

Question 15

Merchandise inventory refers to products that a company owns and intends to sell to customers.

Question 16

A company had net sales of $545,000 and cost of goods sold of $345,000.Its gross margin equals $890,000.

Question 17

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

Question 18

A wholesaler buys products from manufacturers or other wholesalers and sells them to retailers.

Question 19

The acid-test ratio is also called the quick ratio.

Question 20

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

Question 21

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

Question 22

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

Question 23

Inventory is not included in the calculation of the acid-test ratio.

Question 24

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

Question 25

The profit margin ratio is the same as the gross profit ratio.

Question 26

Quick assets include cash and cash equivalents,inventory,and current receivables.

Question 27

A company's quick assets are $147,000 and its current liabilities are $143,000.This company's acid-test ratio is 1.03.

Question 28

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

Question 29

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%.

Question 30

Credit terms of 2/10,n/30 imply that the seller offers 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.

Question 31

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

Question 32

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

Question 33

Purchase allowances refer to a price reduction (allowance)granted to a buyer of defective or unacceptable merchandise.

Question 34

Purchase discounts are the same as trade discounts.

Question 35

Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.

Question 36

The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.

Question 37

A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

Question 38

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

Question 39

The gross margin ratio is also called the gross profit ratio.

Question 40

A company's current ratio is 1.2 and its quick ratio is 0.25.This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.

Question 41

Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

Question 42

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.

Question 43

FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

Question 44

Sales Discounts and Sales Returns and Allowances are subtracted in the calculation of net sales.

Question 45

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.

Question 46

A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases in a Delivery Expense account.

Question 47

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.

Question 48

Each sale of merchandise has two parts: the revenue side and the cost side.

Question 49

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

Question 50

If a buyer does not take advantage of a supplier's credit terms of 2/10,n/30,and instead pays the invoice in full at the end of 30 days,by not taking the discount the buyer loses the equivalent of 18% annual interest on the amount of the purchase.

Question 51

If a company sells merchandise with credit terms 2/10 n/30,the credit period is 30 days and the discount period is 10 days.

Question 52

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

Question 53

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

Question 54

If goods are shipped FOB destination,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.

Question 55

If a buyer does not take advantage of a supplier's credit terms of 2/10,n/30,and instead pays the invoice in full at the end of 30 days,by not taking the discount the buyer loses the equivalent of 36.5% annual interest on the amount of the purchase.

Question 56

FOB destination means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

Question 57

Sales discounts has a normal debit balance because it decreases Sales,which has a normal credit balance.

Question 58

A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases FOB shipping point in the Merchandise Inventory account.

Question 59

Sales Discounts is added to the Sales account when computing a company's net sales.

Question 60

Under a perpetual inventory system,when a credit customer returns non-defective merchandise to the seller,the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

Question 61

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

Question 62

Expenses related to accounting,human resource management,and financial management are known as selling expenses.

Question 63

Net income or loss reported in a multiple-step income statement format is always the same as net income or loss reported in a single-step income statement format.

Question 64

Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited during the closing process.

Question 65

In a perpetual inventory system,Cost of Goods Sold is credited during the closing process.

Question 66

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

Question 67

Under a periodic inventory system,purchases,purchases returns and allowances,purchase discounts,and transportation in transactions are recorded in the Merchandise Inventory account.

Question 68

Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.

Question 69

Under both the periodic and perpetual inventory systems,the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.

Question 70

In a perpetual inventory system,Cost of Goods Sold is debited during the closing process.

Question 71

A merchandiser's classified balance sheet reports merchandise inventory as an investment.

Question 72

When a company has no reportable non-operating activities,its income from operations is simply labeled net income.

Question 73

Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are credited during the closing process.

Question 74

In a perpetual inventory system,the Merchandise Inventory account must be closed at the end of the accounting period.

Question 75

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

Question 76

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.

Question 77

The adjusting entry to reflect inventory shrinkage is a debit to Cost of Goods Sold and a credit to Merchandise Inventory.

Question 78

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

Question 79

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

Question 80

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