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A merchandiser: Multiple Choice: •Earns net income by buying and selling merchandise. •Receives fees only in exchange for services. •Earns profit from commissions only. •Earns profit from fares only. •Buys products from consumers. |
Correct Answer: •Earns net income by buying and selling merchandise. |
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Cost of goods sold: Multiple Choice •Is another term for merchandise sales. •Is the term used for the expense of buying and preparing merchandise for sale. •Is another term for revenue. •Is also called gross margin. •Is a term only used by service firms. |
Correct Answer: •Is the term used for the expense of buying and preparing merchandise for sale. |
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The following statements regarding gross profit are true except: •Gross profit is also called gross margin. •Gross profit less other operating expenses equals income from operations. •Gross profit is not calculated on the multiple-step income statement. •Gross profit must cover all operating expenses to yield a return for the owner of the business. •Gross profit equals net sales less cost of goods sold. |
Correct Answer: •Gross profit is not calculated on the multiple-step income statement. |
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The following statements regarding merchandise inventory are true except:
Multiple Choice Merchandise inventory refers to products a company owns and intends to sell. Merchandise inventory may include the costs of freight in and making them ready for sale. Merchandise inventory appears on the balance sheet of a service company. Purchasing merchandise inventory is part of the operating cycle for a business. |
Correct Answer: Merchandise inventory appears on the balance sheet of a service company. |
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The current period’s ending inventory is: Multiple Choice The next period’s beginning inventory. The current period’s cost of goods sold. The prior period’s beginning inventory. The current period’s net purchases. The current period’s beginning inventory. |
Correct Answer: The next period’s beginning inventory. |
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Beginning inventory plus net purchases is: Multiple Choice Cost of goods sold. Merchandise (goods) available for sale. Ending inventory. Sales. Shown on the balance sheet. |
Correct Answer: Merchandise (goods) available for sale. |
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Quick assets are defined as: Multiple Choice Cash, short-term investments, and inventory. Cash, short-term investments, and current receivables. Cash, inventory, and current receivables. Cash, noncurrent receivables, and prepaid expenses. Accounts receivable, inventory, and prepaid expenses. |
Correct Answer: Cash, short-term investments, and current receivables. |
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Liquidity problems are likely to exist when a company’s acid-test ratio: Multiple Choice Is less than the current ratio. Equals 1. Is higher than 1. Is substantially lower than 1.) Is higher than the current ratio. |
Correct Answer: Is substantially lower than 1. |
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The gross margin ratio: Multiple Choice Is also called the net profit ratio. Indicates the percent of sales revenue remaining after covering the cost of the goods sold. Is also called the profit margin. Is a measure of liquidity and should exceed 2.0 to be acceptable. Should be greater than 1 for merchandising companies. |
Correct Answer: Indicates the percent of sales revenue remaining after covering the cost of the goods sold. |
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The credit terms 2/10, n/30 are interpreted as: Multiple Choice 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days. 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days. 30% discount if paid within 2 days. 30% discount if paid within 10 days. 2% discount if paid within 30 days. |
Correct Answer: 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days. |
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The amount recorded for merchandise inventory includes all of the following except: Multiple Choice Purchase discounts. Returns and allowances. Freight costs paid by the buyer. Freight costs paid by the seller. Trade discounts. |
Correct Answer: Freight costs paid by the seller. |
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A company uses the perpetual inventory system and recorded the following entry: Merchandise Inventory ______________50 Multiple Choice Purchase of merchandise on credit. Return of merchandise. Sale of merchandise on credit. Payment of the account payable less a 2% cash discount taken. Payment of the account payable less a 1% cash discount taken. |
Correct Answer: Payment of the account payable less a 2% cash discount taken. |
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All of the following statements regarding sales returns and allowances are true except: Multiple Choice A reduction in the selling price because of damaged merchandise is included in sales returns and allowances. There is no relationship between sales returns and allowances and the possibility of lost future sales. Sales returns and allowances are recorded in a separate contra-revenue account. Sales returns and allowances are rarely disclosed in published financial statements. Sales returns and allowances are closed to the Income Summary account. |
Correct Answer: There is no relationship between sales returns and allowances and the possibility of lost future sales. |
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Sales less sales discounts less sales returns and allowances equals: Multiple Choice Net purchases. Cost of goods sold. Net sales. Gross profit. Net Income. |
Correct Answer: Net sales. |
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All of the following statements regarding inventory shrinkage are true EXCEPT: Multiple Choice Inventory shrinkage refers to the loss of inventory. Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts. Inventory shrinkage is recognized by debiting an operating expense. Inventory shrinkage is recognized by debiting Cost of Goods Sold. Inventory shrinkage can be caused by theft or deterioration. |
Correct Answer: Inventory shrinkage is recognized by debiting an operating expense. |
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Which of the following accounts would be closed at the end of the accounting period with a debit? Multiple Choice Sales Discounts. Sales Returns and Allowances. Cost of Goods Sold. Operating Expenses. Sales. |
Correct Answer: Sales. |
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An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a: Multiple Choice Balanced income statement. Single-step income statement. Multiple-step income statement. Combined income statement. Simplified income statement. |
Correct Answer: Single-step income statement. |
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Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called: Multiple Choice Cost of goods sold. Selling expenses. Purchasing expenses. General and administrative expenses. Non-operating activities. |
Correct Answer: General and administrative expenses. |
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Multiple-step income statements: Multiple Choice Are required by the FASB and IASB. Contain more detail than a simple listing of revenues and expenses. Are required for the periodic inventory system. List cost of goods sold as an operating expense. Are only used in perpetual inventory systems. |
Correct Answer: Contain more detail than a simple listing of revenues and expenses. |
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Expenses to promote sales by displaying and advertising merchandise, make sales, and deliver goods to customers are known as: Multiple Choice General and administrative expenses. Cost of goods sold. Selling expenses. Purchasing expenses. Non-operating activities. |
Correct Answer: Selling expenses. |
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