Question 1

In a perpetual inventory system,the entry that adjusts the Merchandise Inventory account based on the physical count equals the merchandise inventory balance before adjustment less actual merchandise inventory on hand.

Accepted Answer

The answer of In a perpetual inventory system,the entry that...

Question 2

The Merchandise Inventory account of a company shows a balance of $30,000,but a physical count of inventory shows $29,000.Which of the following entries is required to record the shrinkage? (Assume a perpetual inventory system. )

Accepted Answer

The answer of The Merchandise Inventory account of a company...

Question 3

The Merchandise Inventory account should stay current at all times in a perpetual inventory system.

Accepted Answer

In a perpetual inventory system, the Merchandise Inventory account is continuously updated with each purchase and sale of inventory. This ensures that the account stays current at all times with the actual inventory levels on hand.

Question 4

A company ships goods to a customer and pays transportation costs.To the seller,the transportation costs are ________.

Accepted Answer

Freight out refers to the transportation costs incurred by the seller to ship goods to the customer. Therefore, the transportation costs paid by the seller are considered as Freight out.

Question 5

The general ledger shows a balance of $66,600 in the Merchandise Inventory account at the end of the period.The physical inventory count shows inventory of $63,400.(Assume a perpetual inventory system. )The adjusting entry includes a ________.

Accepted Answer

The physical inventory count is lower than the balance in the Merchandise Inventory account, indicating that some of the inventory has been sold but not yet recorded in the accounting system. To adjust the balance, the Cost of Goods Sold account must be debited and the Merchandise Inventory account must be credited for the difference between the physical count and the balance in the ledger, which is $3,200 ($66,600 - $63,400). Therefore, the adjusting entry includes a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $3,200.

Question 6

York Merchandising Company uses a perpetual inventory system.At the end of the accounting period,a physical count of merchandise inventory reveals a balance of $76,500.The books show a balance of $78,200.
(a)Prepare the adjusting entry.Omit explanation.
(b)Discuss the possible causes for the difference between the physical count and the balance in the books.
(c)How does this affect net income?

Accepted Answer

The answer of York Merchandising Company uses a perpetual inventory...

Question 7

Merchandisers must adjust for estimated sales returns and inventory shrinkage.

Accepted Answer

Merchandisers must account for estimated sales returns (products that customers may return) and inventory shrinkage (loss of products due to theft or damage) when forecasting and managing their inventory levels. This is important for accurate financial reporting and to prevent overstocking or understocking of merchandise.

Question 8

Gift Shops Unlimited's unadjusted Merchandise Inventory at December 31,2019 was $7,600.The cost associated with the physical count of inventory on hand on December 31,2019 was $7,350.In addition,Gift Shops Unlimited estimated approximately $800 of merchandise sold on account will be returned with a cost of $450.Assume a perpetual inventory system is used.
Requirements:
1.Journalize the adjustment for inventory shrinkage.Omit explanation.
2.Journalize the adjustment for estimated sales returns.Omit explanation.

Accepted Answer

The answer of Gift Shops Unlimited's unadjusted Merchandise Inventory at...

Question 9

Delivery expense is a(n)________.

Accepted Answer

Delivery expense is considered an operating expense as it is directly related to the process of delivering goods or services to customers.

Question 10

Freight charges to ship goods to customers is recorded as a debit to Delivery Expense.

Accepted Answer

Freight charges incurred to ship goods to customers are considered delivery expenses and are recorded as a debit to the Delivery Expense account.

Question 11

The loss of inventory that occurs because of theft,damage,and errors is referred to as inventory shrinkage.

Accepted Answer

Inventory shrinkage is the loss of inventory due to various reasons such as theft, damage or errors.

Question 12

Under the perpetual inventory system,the journal entry to record the freight paid by the seller on goods sold is:

Accepted Answer

Under the perpetual inventory system, the freight paid by a seller for goods sold is added to the cost of goods sold. Therefore, the journal entry should be a debit to the Cost of Goods Sold account and a credit to the Freight Expense account. The correct option is B, as it represents this journal entry. The other options either debit the wrong account or credit the wrong account.

Question 13

When a company uses the perpetual inventory system,there is no need to conduct a physical count of inventory.

Accepted Answer

The perpetual inventory system continuously tracks inventory levels in real-time, but periodic physical counts are still necessary to verify the accuracy of the system and identify any discrepancies.

Question 14

The last step of the closing process of a merchandiser is to make the expense accounts equal zero via the Income Summary account.

Accepted Answer

The last step of the closing process of a merchandiser is to make the Dividends account equal zero via the Retained Earnings account.

Question 15

A merchandiser adjusts and closes accounts differently than a service entity does.

Accepted Answer

A merchandiser adjusts and closes accounts the same way a service entity does.

Question 16

The entry to record inventory shrinkage includes a debit to the Merchandise Inventory account.Assume a perpetual inventory system is used.

Accepted Answer

The entry to record inventory shrinkage includes a credit to the Merchandise Inventory account.

Question 17

If a physical count of inventory indicates that the Merchandise Inventory account is overstated,an adjusting entry is required to record the difference.Assume a perpetual inventory system is used.

Accepted Answer

By definition, a perpetual inventory system continuously tracks inventory levels and records transactions as they occur. Therefore, if a physical count reveals that the Merchandise Inventory account is overstated, an adjusting entry is necessary to correct the balance in the account.

Question 18

Neighborhood Lawn Equipment uses a perpetual inventory system.Journalize the following sales transactions for this company.Explanations are not required.

Accepted Answer

The answer of Neighborhood Lawn Equipment uses a perpetual inventory...

Question 19

The entry to close Sales Discounts Forfeited will include a debit to Income Summary.

Accepted Answer

The entry to close Sales Discounts Forfeited will include a credit to Income Summary.

Question 20

The Merchandise Inventory account balance is $52,000.A physical count of inventory reveals that the actual inventory balance is $41,000.Which of the following would be included in the adjusting entry? (Assume a perpetual inventory system. )

Accepted Answer

The adjusting entry is needed to decrease the Merchandise Inventory account by the difference between the actual and recorded balances, which is $11,000. Since Merchandise Inventory is an asset account, a credit is needed to decrease it. Therefore, option D, a $11,000 credit to Merchandise Inventory, would be included in the adjusting entry. The other options do not reflect the correct account or amount to be adjusted.

Quiz 5: Merchandising Operations