Question 1

A company shows the following balances:  What is the company's gross profit rate?
A)60%
B)75%
C)40%
D)25%

Accepted Answer

The answer of A company shows the following balances: ...

Question 2

The gross profit rate is computed by dividing gross profit by
A)sales revenue.
B)cost of goods sold.
C)net sales.
D)operating expenses.

Accepted Answer

The answer of The gross profit rate is computed by...

Question 3

Which of the following is not considered in computing net cost of purchases? A)Purchases returns and allowances B)Purchases C)Freight paid on purchased goods D)Freight paid on goods shipped to customers

Accepted Answer

Freight paid on goods shipped to customers is not included in the net cost of purchases as it relates to selling expenses, not purchasing costs.

Question 4

Assume Grammar Company uses the periodic inventory system and has a beginning inventory balance of $5,000, purchases of $75,000, and sales of $125,000.Grammar closes its records once a year on December 31.In the accounting records, the inventory account would be expected to have a balance on December 31 prior to adjusting and closing entries that was
A)equal to $5,000.
B)more than $5,000.
C)less than $5,000.
D)indeterminate.

Accepted Answer

Under the periodic inventory system, the inventory account is not updated for purchases or sales during the year. It remains at the beginning balance of $5,000 until year-end adjustments are made.

Question 5

If Indiana Ink, Inc.has net sales of $400,000 and cost of goods sold of $320,000, Indiana Ink's gross profit rate is
A)80%.
B)25%
C)20%.
D)100%.

Accepted Answer

The answer of If Indiana Ink, Inc.has net sales of...

Question 6

Betty's Fabrics sold merchandise for $171,000 cash during the month of July.Returns that month totaled $3,600.If the company's gross profit rate is 40%, Betty will report monthly net sales revenue and cost of goods sold of
A)$171,000 and $102,600.
B)$167,400 and $66,960.
C)$167,400 and $100,440.
D)$171,000 and $100,440.

Accepted Answer

Net sales revenue is calculated as total sales minus returns, which is $171,000 - $3,600 = $167,400. The cost of goods sold is calculated as net sales revenue multiplied by (1 - gross profit rate), which is $167,400 * (1 - 0.40) = $100,440.

Question 7

What is a difference between the profit margin and the gross profit rate?
A)None, these are interchangeable terms.
B)The gross profit rate is computed by dividing net sales by gross profit and the profit margin is computed by dividing net sales by net income.
C)The gross profit rate will normally be higher than the profit margin ratio.
D)A profit margin of 7% means that 7 cents of each net sales dollar ends up in net income and a gross profit rate of 7% means that the cost of the goods were 7% of the selling price.

Accepted Answer

The gross profit rate is calculated as gross profit divided by net sales, while the profit margin is calculated as net income divided by net sales. Since gross profit is typically higher than net income, the gross profit rate is usually higher than the profit margin.

Question 8

Sampson Company's accounting records show the following at the year ending on December 31, 2022.  Using the periodic system, the cost of goods sold is
A)$702,220.
B)$697,820.
C)$681,020.
D)$719,020.

Accepted Answer

The answer of Sampson Company's accounting records show the following...

Question 9

All of the following statements are true regarding the periodic inventory system except A)Under the periodic inventory system, the balance of cost of goods sold is calculated at the end of the period. B)Under the periodic inventory system, the balance in ending inventory is calculated at the end of the period. C)Using the periodic inventory system affects the balance sheet contents differently than when the perpetual system is used. D)Under the periodic system, a company uses separate accounts to record freight costs, returns, and discounts.

Accepted Answer

The answer of All of the following statements are true...

Question 10

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount? A)The gross profit amount is more informative than the gross profit rate because it is a dollar amount rather than a ratio. B)The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales. C)The gross profit amount is more informative than the gross profit rate because the gross profit rate is only used to describe a few industries while the gross profit amount is universally used. D)The gross profit amount is more informative than the gross profit rate because high volume operations are able to calculate the gross profit rate but not the gross profit amount.

Accepted Answer

The gross profit rate is more informative because it shows the relationship between gross profit and net sales, providing insight into profitability relative to sales.

Question 11

If Hostell Company has net sales of $500,000 and cost of goods sold of $350,000, Hostell's gross profit rate is
A)70%.
B)30%.
C)43%.
D)100%.

Accepted Answer

Gross profit rate is calculated as (Net Sales - Cost of Goods Sold) / Net Sales. Here, it is ($500,000 - $350,000) / $500,000 = $150,000 / $500,000 = 0.30 or 30%.

Question 12

Sampson Company's accounting records show the following for the year ending on December 31, 2022.  Using the periodic system, the cost of goods purchased is
A)$660,420.
B)$708,420.
C)$717,220.
D)$691,620.

Accepted Answer

The answer of Sampson Company's accounting records show the following...

Question 13

Haverty Industries increased its gross profit rate from 18.4% in 2021 to 23.7% in 2022.Which of the following would be a possible explanation for this change?
A)Haverty's global sourcing efforts at the beginning of 2022 resulted in a lower cost of merchandise sold.
B)Haverty's new profit lines with lower margins in 2022 became a larger component of their sales.
C)Haverty increased its product markdowns in 2022.
D)Haverty's average margin between the selling price and the inventory cost decreased over this two-year period.

Accepted Answer

A lower cost of merchandise sold would increase the gross profit rate, as gross profit is calculated as sales minus the cost of goods sold.

Question 14

American Importers reports net income of $60,000 and cost of goods sold of $540,000.If the company's gross profit rate was 40%, net sales were
A)$900,000.
B)$1,350,000.
C)$1,410,000.
D)$990,000.

Accepted Answer

Gross profit rate = Gross profit / Net sales40% = (Net sales - Cost of goods sold) / Net sales40% = (Net sales - $540,000) / Net sales0.40 * Net sales = Net sales - $540,0000.60 * Net sales = $540,000Net sales = $540,000 / 0.60Net sales = $900,000

Question 15

Which of the following statements is true regarding profit margin? A)Profit margin can be improved by decreasing the gross profit rate and/or controlling operating expenses and other costs. B)Profit margin does not vary across industries. C)Discount stores with high merchandise turnover generally have higher profit margins. D)If the profit margin has a higher value, this suggests favorable return on each dollar of sales.

Accepted Answer

A higher profit margin indicates that a company is earning more profit per dollar of sales, which suggests a favorable return on sales.

Question 16

The amount of cost of good available for sale during the year depends on the amounts of
A)beginning merchandise inventory and cost of goods sold.
B)beginning merchandise inventory, the net cost of purchases, and ending merchandise inventory.
C)beginning merchandise inventory, cost of goods sold and ending merchandise inventory.
D)beginning merchandise inventory and net costs of purchases.

Accepted Answer

The cost of goods available for sale is calculated by adding the beginning merchandise inventory to the net cost of purchases made during the year.

Question 17

Bolton Company's gross profit rate last year was 32.0% and this year it is 28.4%.Which of the following would not be a possible cause for this decline in the gross profit rate? A)Bolton must pay higher prices to suppliers without passing these costs on to customers. B)Bolton may have begun selling products with a higher markup. C)Bolton's average margin between selling price and inventory cost is decreasing. D)Bolton may have seen a decline in total gross profit while maintaining net sales.

Accepted Answer

If Bolton began selling products with a higher markup, it would likely increase the gross profit rate, not decrease it.

Question 18

A company shows the following balances: .  What is the company's gross profit rate?
A)61%
B)70%
C)30%
D)39%

Accepted Answer

The answer of A company shows the following balances: ....

Question 19

Andrea's Fashions sold merchandise for $190,000 cash during the month of July.Returns that month totaled $4,000.If the company's gross profit rate is 40%, Andrea's will report monthly net sales revenue and cost of goods sold of
A)$190,000 and $114,000.
B)$186,000 and $74,400.
C)$186,000 and $111,600.
D)$190,000 and $111,600.

Accepted Answer

Net sales revenue is calculated as total sales minus returns, which is $190,000 - $4,000 = $186,000. The cost of goods sold is calculated as net sales revenue multiplied by (1 - gross profit rate), which is $186,000 * (1 - 0.40) = $111,600.

Question 20

A decline in a company's gross profit could be caused by all of the following except
A)selling products with a lower markup.
B)clearance of discontinued inventory.
C)paying lower prices to its suppliers.
D)increasing competition resulting in a lower selling price.

Accepted Answer

Paying lower prices to its suppliers would reduce the cost of goods sold, potentially increasing the gross profit, not causing a decline.

Quiz 5: Merchandising Operations and the Multiple-Step Income Statement

A company shows the following balances: What is the company's gross profit rate?

The gross profit rate is computed by dividing gross profit by

Which of the following is not considered in computing net cost of purchases?

If Indiana Ink, Inc.has net sales of $400,000 and cost of goods sold of $320,000, Indiana Ink's gross profit rate is

Betty's Fabrics sold merchandise for $171,000 cash during the month of July.Returns that month totaled $3,600.If the company's gross profit rate is 40%, Betty will report monthly net sales revenue and cost of goods sold of

What is a difference between the profit margin and the gross profit rate?

Sampson Company's accounting records show the following at the year ending on December 31, 2022. Using the periodic system, the cost of goods sold is

All of the following statements are true regarding the periodic inventory system except

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount?

If Hostell Company has net sales of $500,000 and cost of goods sold of $350,000, Hostell's gross profit rate is

Sampson Company's accounting records show the following for the year ending on December 31, 2022. Using the periodic system, the cost of goods purchased is

Haverty Industries increased its gross profit rate from 18.4% in 2021 to 23.7% in 2022.Which of the following would be a possible explanation for this change?

American Importers reports net income of $60,000 and cost of goods sold of $540,000.If the company's gross profit rate was 40%, net sales were

Which of the following statements is true regarding profit margin?

The amount of cost of good available for sale during the year depends on the amounts of

Bolton Company's gross profit rate last year was 32.0% and this year it is 28.4%.Which of the following would not be a possible cause for this decline in the gross profit rate?

A company shows the following balances: . What is the company's gross profit rate?

Andrea's Fashions sold merchandise for $190,000 cash during the month of July.Returns that month totaled $4,000.If the company's gross profit rate is 40%, Andrea's will report monthly net sales revenue and cost of goods sold of

A decline in a company's gross profit could be caused by all of the following except