Question 1

Which of the following is a true statement?

Accepted Answer

Sales returns & allowances is a contra-revenue account as it reduces the total amount of revenue earned by a business. Sales discounts is a contra-revenue account as well, but it is not related to inventory. Sales returns & allowances is a credit balance account because it represents a reduction in revenue, which is a credit balance account. Lastly, Sales discounts is a contra-asset account is incorrect, as it is a reduction of revenue, not assets.

Question 2

A company has net sales of $612,850 and cost of goods sold of $441,252.The company's gross profit percentage is:

Accepted Answer

The answer of A company has net sales of $612,850...

Question 3

If a company achieves a small increase in its gross profit percentage from one year to the next,the company:

Accepted Answer

Increasing the gross profit percentage does not necessarily mean that the company has increased its sales revenue or net income. It could be due to a decrease in the cost of goods sold, which does not require a volume increase. Therefore, option D is the best choice.

Question 4

A company starts the period with 100 computers in inventory,purchases 30 more,returns 4 of them to suppliers,and has 83 in inventory at the end of the period.If there is no shrinkage,how many computers were sold?

Accepted Answer

To find out how many computers were sold, we need to calculate the change in inventory from the beginning to the end of the period.

Beginning inventory = 100
Purchases = +30
Returns = -4
Ending inventory = 83

So, the change in inventory is:

100 + 30 - 4 - 83 = 43

Therefore, 43 computers were sold. Option B is the correct answer.

Question 5

Over a two-year period,Coca-Cola's gross profit percentage went from 70.4% to 69.7%.Which of the following could not have been the cause of this change?

Accepted Answer

A decrease in sales volume without a change in selling price or product cost would not affect the gross profit percentage, as it is calculated based on the ratio of gross profit to sales, not the total sales volume.

Question 6

A company sells three different products.The first costs $8 and sells for $16,the second costs $18 and sells for $45,while the third costs $36 and sells for $120.Which of the following is not true?

Accepted Answer

The product with the highest dollar amount of gross profit may not always be the product with the highest gross profit percentage. For example, if the first product sells 100 units and the third product sells only 10 units, the first product will have a higher dollar amount of gross profit even though the third product has a higher gross profit percentage.

Question 7

A retail chain sells 100 designer sheet sets for $199.99 a set;these sheet sets cost the company $69.95 a set to buy.The company also sells 1,000 basic sheet sets for $49.99 a set;these sheet sets cost the company $24.99 to buy.Other operating expenses total $10,000.Which of the following statements is true?

Accepted Answer

The gross profit percentage for designer sheets is calculated as ((199.99 - 69.95) / 199.99) * 100 = 65%, and for basic sheets as ((49.99 - 24.99) / 49.99) * 100 = 50%.

Question 8

Which of the following statements is true?

Accepted Answer

Gross profit percentages can vary significantly across different industries due to differences in cost structures and pricing strategies. Therefore, comparing gross profit percentages across industries may not provide meaningful insights. However, analyzing the gross profit percentage of a single company over time can reveal trends, efficiencies, or issues within that company's operations, making it a useful tool for internal analysis.

Question 9

LA Company has a gross profit percentage of 61%,while NY Company has a gross profit percentage of 37%.Which of the following is always true?

Accepted Answer

A gross profit percentage indicates how much profit a company makes after deducting the cost of goods sold from sales. Both companies have positive gross profit percentages, meaning they earn enough on each sale to contribute to operating costs, but it doesn't guarantee higher net income, sales volume, or efficiency in controlling other expenses.

Question 10

Your store buys ice cream at a cost of $1.50 a half gallon and sells it for $4 a half gallon.General and administrative expenses are $0.75 per half gallon.Which of the following statements is true?

Accepted Answer

To determine gross profit per half gallon, subtract the cost of goods sold (COGS) from the selling price. 
COGS = cost of ice cream + general and administrative expenses
COGS = $1.50 + $0.75 = $2.25
Selling price - COGS = gross profit per half gallon
$4 - $2.25 = $1.75
Therefore, the gross profit per half gallon is $1.75, which is represented by choice B. However, the statement in choice A is also true in that the gross profit per half gallon is $2.50 when considering the markup percentage: 
Markup percentage = (selling price - COGS) / COGS
Markup percentage = ($4 - $2.25) / $2.25 = 0.7778 = 77.78%
This means that the selling price is 77.78% higher than the COGS. Therefore, the gross profit as a percentage of the selling price is:
Gross profit percentage = gross profit / selling price
Gross profit percentage = $1.75 / $4 = 0.4375 = 43.75%
The gross profit per half gallon as a dollar amount is $2.50, which is equal to the COGS multiplied by the markup percentage:
Gross profit per half gallon = COGS x markup percentage
Gross profit per half gallon = $2.25 x 0.7778 = $1.75
Therefore, the statement in choice A is also true.

Question 11

Coca-Cola reported net sales revenues of $18.8 billion and cost of goods sold of $5.6 billion,while PepsiCo reported revenues of $22.3 billion and cost of goods sold of $9.3 billion.Which of the following statements is correct?

Accepted Answer

PepsiCo's gross profit percentage is lower because its cost of goods sold is a higher percentage of its revenues compared to Coca-Cola.

Question 12

Sales revenue is $367,810 while sales returns and allowances and sales discounts total $24,180.The cost of goods sold is $216,490,operating and other expenses are $28,500,and the company pays $31,640 in income tax.Which of the following is true?

Accepted Answer

First, we need to calculate the net sales by subtracting the sales returns and allowances and sales discounts from the sales revenue:

Net sales = Sales revenue - (Sales returns and allowances + Sales discounts) 
Net sales = $367,810 - ($24,180) 
Net sales = $343,630

Next, we can calculate the gross profit by subtracting the cost of goods sold from the net sales:

Gross profit = Net sales - Cost of goods sold 
Gross profit = $343,630 - $216,490 
Gross profit = $127,140

Therefore, the correct answer is C: Net sales is $343,630 and gross profit is $127,140.

Question 13

At the end of the accounting period,which of the following accounts would not be closed?

Accepted Answer

Inventory is a balance sheet account and is not closed at the end of the accounting period. Sales Discounts, Cost of Goods Sold, and Sales Returns & Allowances are all temporary accounts and would be closed at the end of the period.

Question 14

Purrfect Pets announces that its gross profit rose 5% and its net income fell.Which of the following statements is true?

Accepted Answer

If the gross profit rose but net income fell, it means that the expenses of the company increased enough to offset the increase in gross profit. Therefore, selling, general, and administrative expenses must have risen more than the 5% increase in gross profit.

Question 15

When goods are sold to a customer with credit terms of 2/15,n/30,the customer will:

Accepted Answer

The credit terms of 2/15, n/30 mean that the customer is offered a 2% discount if they pay within 15 days (2/15) or they need to pay the full amount within 30 days (n/30). Therefore, the best choice would be to pay within 15 days to receive the 2% discount.

Question 16

Coca-Cola reported net sales revenues of $19.8 billion and cost of goods sold of $6.0 billion.Its gross profit percentage was:

Accepted Answer

Gross profit percentage is calculated by subtracting the cost of goods sold from net sales revenues and then dividing the result by net sales revenue. Therefore, the formula is: (Net Sales Revenue – Cost of Goods Sold) ÷ Net Sales Revenue x 100%. Applying this formula to Coca-Cola’s data, we get: (19.8 – 6.0) ÷ 19.8 x 100% = 69.7%. Therefore, the correct answer is B.

Question 17

A company had the following partial list of account balances at year-end:  The amount of net sales reported on the income statement would be:

Accepted Answer

The answer of A company had the following partial list...

Question 18

A company has gross profit of $58,300 and a gross profit percentage of 25%.What is the company's net sales?

Accepted Answer

Net sales = Gross profit / Gross profit percentage= $58,300 / 25%= $233,200

Question 19

Contra-revenue accounts:

Accepted Answer

Contra-revenue accounts have a debit balance and are used to reduce or offset the revenue accounts. Therefore, they are increased with a debit and decrease net sales.

Question 20

When sales discounts in the current year exceed sales discounts in the prior year,assuming all else remains unchanged,what is the effect on the gross profit percentage?

Accepted Answer

Sales discounts are subtracted from gross sales to arrive at net sales. If sales discounts increase in the current year, net sales will decrease, which will decrease the gross profit percentage.

Quiz 6: Internal Control, Cash, and Merchandise Sales