Question 1

FOB shipping point means that the title to the goods passes to the purchaser upon receipt of the goods and the seller is responsible for the cost of the freight.

Accepted Answer

FOB shipping point means the title to the goods passes to the purchaser when the goods are shipped, and the buyer is responsible for the cost of freight.

Question 2

The entry to record the return of $250 of inventory to a supplier under the perpetual inventory system is recorded with a debit to:
A)Accounts Payable and a credit to Purchases Discounts.
B)Purchases Returns and Allowances and a credit to Accounts Payable.
C)Accounts Payable and a credit to Inventory.
D)Inventory and a credit to Accounts Payable.

Accepted Answer

In the perpetual inventory system, returning inventory to a supplier is recorded by debiting Accounts Payable (to reduce the liability) and crediting Inventory (to reduce the asset).

Question 3

Gross margin minus expenses equals gross profit.

Accepted Answer

Gross margin minus expenses equals net profit, not gross profit. Gross profit is calculated by subtracting the cost of goods sold from revenue, and gross margin is a step before subtracting operating expenses to find net profit.

Question 4

Inventory includes all goods that the company owns and expects to use in normal operations.

Accepted Answer

Inventory typically includes items that a company intends to sell in the normal course of business, or supplies and raw materials that will be used to produce goods for sale, but it does not encompass all goods a company owns regardless of their intended use.

Question 5

The entry to record the purchase of inventory on account in a perpetual inventory system includes a debit to the Purchases account.

Accepted Answer

In a perpetual inventory system, the purchase of inventory on account is recorded by debiting the Inventory account, not the Purchases account.

Question 6

Purchase returns of merchandise decrease the liability to a creditor.

Accepted Answer

When merchandise is returned to a supplier, the liability to that creditor decreases because the amount owed for the returned goods is deducted from the total amount payable.

Question 7

Net sales is equal to sales revenue plus sales returns and minus sales discounts.

Accepted Answer

Net sales is equal to sales revenue minus sales returns and allowances and minus sales discounts.

Question 8

When the seller accepts a return of undamaged goods from the purchaser, the seller's journal entries would include two entries, if they are using a perpetual inventory system.

Accepted Answer

In a perpetual inventory system, when a seller accepts a return of undamaged goods, the journal entries would include reversing the revenue (by crediting sales returns and allowances and debiting accounts receivable or cash) and adjusting the inventory (by debiting inventory and crediting cost of goods sold) to reflect the return of goods to inventory.

Question 9

In a purchase discount, the larger the quantity of merchandise purchased, the lower the price per item.

Accepted Answer

A purchase discount typically refers to a reduction in the price based on early payment terms rather than the quantity of merchandise purchased. Discounts based on quantity are referred to as quantity discounts or bulk discounts.

Question 10

What is the difference between a sales return and a sales allowance?
A)A sales return reduces the amount receivable from the customer, but an allowance does not.
B)A sales return involves an adjustment to Inventory, but a sales allowance does not.
C)A sales return requires a debit to Sales returns and allowances, but a sales allowance does not.
D)A sales allowance is deducted from Sales revenue to calculate net sales, but a sales return is not.

Accepted Answer

A sales return involves returning the sold goods to the seller, which affects inventory as the goods are added back. A sales allowance, however, is a reduction in the selling price without returning the goods, thus not affecting inventory.

Question 11

Inventory is a current liability on the balance sheet.

Accepted Answer

Inventory is classified as a current asset on the balance sheet because it is expected to be sold or used within one year or the operating cycle, whichever is longer.

Question 12

Gross margin is equal to net sales plus cost of goods sold.

Accepted Answer

Gross margin is calculated by subtracting the cost of goods sold from net sales, not by adding them.

Question 13

Sales discounts is a contra account and has a normal credit balance.

Accepted Answer

Sales discounts is a contra-revenue account and has a normal debit balance, as it reduces total sales revenue.

Question 14

Credit terms of 1/15 n/30 means the purchaser can deduct 1% of the invoice price if paid within 15 days.

Accepted Answer

Credit terms of 1/15 n/30 mean that the purchaser can take a 1% discount on the invoice price if the payment is made within 15 days; otherwise, the full amount is due within 30 days.

Question 15

Cost of goods sold is an operating expense.

Accepted Answer

Cost of goods sold (COGS) is not an operating expense; it is a direct cost associated with the production of goods sold by a company. Operating expenses are the costs required to run the business that are not directly tied to the production of goods or services.

Question 16

Define gross margin and operating income. Explain how they are used in evaluating a company.

Accepted Answer

The answer of Define gross margin and operating income. Explain...

Question 17

A seller requesting payment will send the purchaser a purchase order.

Accepted Answer

A seller sends an invoice to request payment, not a purchase order. A purchase order is sent by the purchaser to the seller to order goods or services.

Question 18

Sales revenue minus sales returns and allowances and sales discounts equals:
A)gross margin.
B)income from operations.
C)cost of goods sold.
D)net sales.

Accepted Answer

Net sales are calculated by subtracting sales returns and allowances and sales discounts from sales revenue. This figure represents the actual revenue a company generates from its sales activities.

Question 19

Sales revenue and Net sales are synonymous terms.

Accepted Answer

Sales revenue refers to the total amount earned from sales before any deductions, while net sales is the amount of sales revenue remaining after deducting returns, allowances, and discounts.

Question 20

Quantity discounts offered by suppliers for large shipments of inventory are always recorded separately.

Accepted Answer

Quantity discounts are typically deducted from the cost of purchases, and not recorded as a separate item. They reduce the purchase price of the inventory rather than being recorded as a separate transaction.

Quiz 5: Merchandising Operations and the Accounting Cycle