Question 1

Pancho Steinberg's sells gift cards to customers. On November 2, a customer purchased a $200 gift card. On December 15, the gift card recipient uses the gift card as payment for a small banquet. Pancho Steinberg's records

Accepted Answer

Revenue is recognized when the gift card is redeemed, not when it is sold. Therefore, the $200 revenue should be recorded in the month of December when the gift card was actually used.

Question 2

When goods are delivered after an advance receipt of cash,

Accepted Answer

When goods are delivered after receiving an advance, the Unearned Sales Revenue account is debited to decrease the liability and recognize the revenue.

Question 3

Which of the following accounts has a normal credit balance?

Accepted Answer

Sales Revenue has a normal credit balance as it represents inflows of revenue from sales transactions. Sales Returns and Allowances and Sales Discounts both have normal debit balances as they represent reductions in revenue. Selling Expense also has a normal debit balance as it represents expenses incurred in the process of making sales.

Question 4

The entries to close Sales Discounts, Sales Returns and Allowances, Freight-Out, Inventory and Cost of Goods Sold all require credits to these accounts.

Accepted Answer

The answer of The entries to close Sales Discounts, Sales...

Question 5

In the worksheet, Cost of Goods Sold appears in the

Accepted Answer

Cost of Goods Sold is an expense and appears in the Adjusted Trial Balance debit column.

Question 6

If the Inventory account is determined by a physical count of the inventory to be overstated, a merchandising company using a perpetual system will record an adjusting entry which includes a

Accepted Answer

In a perpetual inventory system, if inventory is overstated, it means that the Cost of Goods Sold (COGS) is understated. To correct this, an adjusting entry is made by debiting COGS to increase it, reflecting the actual cost of goods sold.

Question 7

The Inventory account balance appearing in a perpetual inventory worksheet represents the

Accepted Answer

The Inventory account balance in a perpetual inventory worksheet represents the ending inventory, as it is continuously updated to reflect purchases and sales.

Question 8

When cash is received before goods are delivered,

Accepted Answer

When cash is received before goods are delivered, it is recorded as a liability called Unearned Sales Revenue, which is credited to reflect the obligation to deliver goods or services in the future.

Question 9

The respective normal account balances of Unearned Revenue, Inventory, and Cost of Goods Sold are

Accepted Answer

Unearned Revenue is a liability account and therefore has a credit balance. 
Inventory is an asset account and has a debit balance. 
Cost of Goods Sold is an expense account and should have a debit balance to reflect the cost of goods that have been sold. Therefore, the correct answer is C) credit, debit, debit.

Question 10

Which of the following accounts does not have a normal credit balance?

Accepted Answer

Sales Discounts is a contra-revenue account and has a normal debit balance, unlike the other accounts listed which have normal credit balances.

Question 11

When the physical count of Barr Company inventory had a cost of $4,380 at year-end and the unadjusted balance in Inventory is $4,600, Barr will have to make the following entry:

Accepted Answer

The answer of When the physical count of Barr Company...

Question 12

The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are

Accepted Answer

- Sales Revenue is a revenue account, which has a normal credit balance as it increases the owner's equity. 
- Sales Returns and Allowances is a contra revenue account, which means its balance is opposite in sign to that of Sales Revenue. As Sales Revenue has a credit balance, Sales Returns and Allowances has a normal debit balance as it decreases revenue. 
- Sales Discounts is also a contra revenue account that has a normal debit balance as it decreases revenue. Therefore, the respective normal account balances are credit for Sales Revenue and debit for both Sales Returns and Allowances and Sales Discounts. Therefore, the only option that satisfies these conditions is C.

Question 13

The respective normal account balances of Sales Revenue, Freight-Out, and Cost of Goods Sold are

Accepted Answer

Sales Revenue has a normal credit balance, while Freight-Out and Cost of Goods Sold have normal debit balances.

Question 14

In a worksheet for a merchandising company, Inventory would appear in the

Accepted Answer

Inventory would appear in the trial balance, adjusted trial balance, and balance sheet columns. The trial balance includes all accounts, including inventory, to ensure that debits and credits are equal. The adjusted trial balance is used to make adjusting entries, such as recording any inventory adjustments for the period. Finally, inventory is an asset on the balance sheet, and its ending balance should be reported there. The inventory account does not appear on the income statement, as it is not an expense or revenue account.

Question 15

Caine Company has net sales of $74,000, cost of goods sold of $42,000 and operating expenses of $17,000 for the year ended December 31. Caine's gross profit is

Accepted Answer

Gross profit = net sales - cost of goods sold
Gross profit = $74,000 - $42,000
Gross profit = $32,000

Question 16

A merchandising company using a perpetual system may record an adjusting entry due to an inventory count by

Accepted Answer

When a merchandising company using a perpetual system conducts an inventory count and finds discrepancies, an adjusting entry needs to be made to correct the inventory balance. The adjustment should debit Cost of Goods Sold to reflect the cost of the inventory sold and credit Inventory to reflect the remaining inventory on hand. Therefore, the correct choice is C, debiting Cost of Goods Sold.

Question 17

The physical count of Grey Company inventory determined that inventory with a cost of $144,500 was on hand at year-end. If the unadjusted balance in the Inventory account was $139,600, the company will make the following adjusting entry:

Accepted Answer

The company needs to increase the Inventory account to reflect the actual physical count. The difference between the physical count and the unadjusted balance is $4,900 ($144,500 - $139,600), which represents the amount of the adjustment needed. Since the unadjusted balance in Inventory was understated, the adjusting entry should increase the Inventory account, so the entry should be a debit to Inventory for $4,900. The corresponding credit should be to Cost of Goods Sold to reflect the expense of the inventory that was sold during the period. Therefore, the adjusting entry is:

Debit Inventory $4,900 
Credit Cost of Goods Sold $4,900

Option A is incorrect because it increases the inventory balance by $144,500, when the physical count is only $144,500. Option C is incorrect because it decreases the inventory balance by $144,500, when the physical count is $144,500. Option D is incorrect because an adjusting entry is required to reflect the physical count of inventory.

Question 18

If the actual inventory from the physical count is greater than the unadjusted balance in Inventory,

Accepted Answer

When the actual inventory is greater than the unadjusted balance, it indicates that the Cost of Goods Sold was overstated, so it needs to be credited to correct the discrepancy.

Question 19

A merchandising company using a perpetual system will make

Accepted Answer

The answer of A merchandising company using a perpetual system...

Question 20

The physical count of Pope Company inventory determined that inventory with a cost of $44,200 was on hand at year-end. If the unadjusted balance in the Inventory account is $44,600, Pope will make the following entry:

Accepted Answer

The answer of The physical count of Pope Company inventory...

Quiz 9: Merchandising Companies: Worksheets and Financial Statements Perpetual