Test bank accounting 25th editon warren chapter 6 accounting for merchandising businesses

Chapter 6--Accounting for Merchandising Businesses
Student: ___________________________________________________________________________
1. One of the most important differences between a service business and a retail business is in what is sold.
True False

2. In a merchandise business, sales minus operating expenses equals net income.
True False

3. Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends
to sell.
True False

4. Service businesses provide services for income, while a merchandising business sells merchandise.
True False

5. In many retail businesses, inventory is the largest current asset.
True False

6. Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a
physical count of the inventory.
True False

7. In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.
True False

8. Under the periodic inventory system, the cost of merchandise sold is equal to the beginning merchandise
inventory plus the cost of merchandise purchased plus the ending merchandise inventory.
True False


9. In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning

inventory.
True False

10. In a periodic inventory system, the cost of merchandise purchased includes the cost of freight-in.
True False

11. As we compare a merchandise business to a service business, the financial statement that changes the most
is the Balance Sheet.
True False

12. When a merchandising business is compared to a service business, the financial statement that is not
affected by that change is the Statement of Owner's Equity.
True False

13. The ending merchandise inventory for 2010 is the same as the beginning merchandise inventory for 2011.
True False

14. In a multiple-step income statement the dollar amount for income from operations is always the same as net
income.
True False

15. Net sales is equal to sales minus cost of merchandise sold.
True False

16. Gross profit minus selling expenses equals net income.
True False

17. The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a downward
sequence is called the report form.
True False

18. On the income statement in the single-step form, the total of all expenses is deducted from the total of all
revenues.
True False

19. The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and
income from operations are not readily available.
True False

20. Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is
listed as Other Income on the multiple-step income statement.
True False

21. Freight in is the amount paid by the company to deliver merchandise sold to a customer.
True False

22. In the merchandising income statement, sales will be reduced by sales discounts and sales returns and
allowances to arrive at net sales.
True False

23. Other income and expenses are items that are not related to the primary operating activity.
True False

24. Freight-in is considered a cost of purchasing inventory.
True False

25. The cost of merchandise inventory is limited to the purchase price less any purchase discounts.
True False

26. Cost of Merchandise Sold is often the largest expense on a merchandising company income statement.
True False


27. Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are
recorded.
True False

28. Under the periodic inventory system, the cost of merchandise sold is recorded when sales are made.
True False

29. If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as
n/30.
True False

30. When merchandise that was sold is returned, a credit to sales returns and allowances is made.
True False

31. In a perpetual inventory system, when merchandise is returned to the seller, Cost of Merchandise Sold is
debited as part of the transaction.
True False

32. Sales Returns and Allowances is a contra-revenue account.
True False

33. Sales Discounts is a revenue account with a credit balance.
True False

34. Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit
sales.

True False

35. Sales to customers who use nonbank credit cards, such as American Express, are generally treated as credit
sales.
True False


36. Retailers record all credit card sales as credit sales.
True False

37. The service fee that credit card companies charge retailers varies and is the primary reason why some
businesses do not accept all credit cards.
True False

38. A seller may grant a buyer a reduction in selling price and this is called a sales allowance.
True False

39. The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts
receivable.
True False

40. Merchandise Inventory normally has a debit balance.
True False

41. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30days after the invoice date to take
advantage of the cash discount.
True False

42. Discounts taken by the buyer for early payment of an invoice are credited to Sales Discounts by the buyer.
True False

43. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory
account.
True False

44. Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. If payment
is made within 10 days of the purchase, the entry to record the payment will include a credit to Cash and a
credit to Purchase Discounts.
True False


45. Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual
inventory system.
True False

46. When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for
the buyer to pay within the discount period.
True False

47. When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade
discount.
True False

48. A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called
cash discounts.
True False

49. Sellers and buyers are required to record trade discounts.
True False

50. If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment,
the terms are stated as FOB destination.
True False

51. A sale of $750 on account, subject to a sales tax of 6%, would be recorded as an account receivable of
$750.
True False

52. When merchandise is sold for $600 plus 6% sales tax, the Sales account should be credited for $636.
True False

53. The abbreviation FOB stands for Free On Board.
True False


54. Merchandise is sold for $3,600, terms FOB destination, 2/10, n/30, with prepaid freight costs of $150. If
$500 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the
amount of the sales discount is $65.
True False

55. If the buyer bears the freight costs related to a purchase, the terms are said to be FOB destination.
True False

56. When the terms of sale are FOB shipping point, the buyer should pay the freight charges.
True False

57. If merchandise costing $3,500, terms FOB destination, 2/10, n/30, with prepaid freight costs of $125, is paid
within 10 days, the amount of the purchases discount is $70.
True False

58. The chart of accounts for a merchandise business would include an account called Delivery Expense.
True False

59. There is no difference between the recording of cash sales and the recording of MasterCard or VISA sales.
True False

60. When companies use a perpetual inventory system, the recording of the purchase of inventory will include a
debit to purchases.
True False

61. Most companies will not take a purchases discount, because 1% or 2% discounts are insignificant.
True False

62. The seller may prepay the freight costs even though the terms are FOB shipping point.
True False


63. The seller records the sales tax as part of the sales amount.
True False

64. The buyer will include the sales tax as part of the cost of items purchased for use.
True False

65. A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take
a physical inventory.
True False

66. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to
the buyer's place of business.
True False

67. Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped
FOB shipping point.
True False

68. Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the
buyer.
True False

69. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the
general ledger.
True False

70. The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise
Sold.
True False

71. Closing entries for a merchandising business are not similar to those for a service business.
True False


72. The ratio of net sales to assets measures how effectively a business is using its assets to generate sales.
True False

73. Because many companies use computerized accounting systems, periodic inventory is widely used.
True False

74. Computerized systems can be used to capture accounting information such as accounts receivable, inventory
items, accounts payable, and sales.
True False

75. The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Freight In are found
on the balance sheet.
True False

76. Match each of the following terms with the appropriate definition below.
1. Account used to record merchandise purchased
under a periodic inventory system.
2. Account used to record shipping cost of
merchandise by the buyer under a periodic
inventory system.
3. Expense account for recording shipping costs
paid by the seller.
4. Account where returned merchandise or price
adjustments are recorded by the seller.
5. Early payment discount offered to customers by
the seller.
6. Discounts off the list price offered by
wholesalers.
7. Account used to record merchandise purchased
under a perpetual inventory system.
8. Account where returned merchandise or price
adjustments are recorded by the buyer under the
periodic inventory system.

Purchases ____
Merchandise
Inventory ____
Sales Discounts ____
Delivery Expense ____

Trade Discount ____
Purchase Returns
and Allowances ____
Freight In ____
Sales Returns and
Allowances ____


77. Match each of the following terms with the correct definition below.
1. Shipping terms where the ownership of
merchandise passes to the buyer when the buyer
receives the merchandise.
2. Shipping terms where the ownership of
merchandise passes to the buyer when the seller
delivers the merchandise to the freight carrier.
3. Statement where net income is determined by
deducting all expenses from all revenues.
4. Statement that includes subtotals for net sales,
gross profit and net operating income in determining
net income.
5. Inventory system that updates the Merchandise
Inventory account only at the end of the accounting
period based on a physical count of merchandise on
hand.
6. Inventory system that updates the Merchandise
Inventory account for every purchase and sale
transaction.
7. Payment arrangements determined by the seller as
to when invoices are due and whether early payment
discount is offered.

8. Losses of inventory due to theft, damage, spoilage,
etc. that cause the actual inventory on hand to be less
than that on record.

FOB Destination ____
Inventory
Shrinkage ____
Single-Step
Income Statement ____

Credit terms ____

Perpetual
Inventory system ____
Periodic Inventory
system ____
Multiple-Step
Income Statement ____
FOB Shipping
Point ____

78. Which one of the following is not a difference between a retail business and a service business?
A. in what is sold
B. the inclusion of gross profit in the income statement
C. accounting equation
D. merchandise inventory included in the balance sheet

79. Net income plus operating expenses is equal to
A. cost of merchandise sold
B. cost of merchandise available for sale

C. net sales
D. gross profit

80. Generally, the revenue account for a merchandising business is entitled
A. Sales
B. Fees Earned
C. Gross Sales
D. Gross Profit


81. What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
A. gross profit
B. income from operations
C. net income
D. gross sales

82. The term "inventory" can indicate
A. merchandise held for sale in the normal course of business
B. equipment used to manufacture products
C. supplies
D. any asset

83. A company using the periodic inventory system has the following account balances: Merchandise Inventory
at the beginning of the year, $3,600; Freight-In, $650; Purchases, $10,700; Purchases Returns and Allowances,
$1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to
A. $12,670
B. $9,070
C. $8,420
D. $17,230

84. A company, using the periodic inventory system, has merchandise inventory costing $175 on hand at the
beginning of the period. During the period, merchandise costing $635 is purchased. At year-end, merchandise
inventory costing $160 is on hand. The cost of merchandise sold for the year is
A. $970
B. $650
C. $300
D. $620

85. Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
A. selling expenses
B. general expenses
C. other expenses
D. administrative expenses

86. Office salaries, depreciation of office equipment, and office supplies are examples of what type of expense?
A. selling expense
B. miscellaneous expense
C. administrative expense
D. other expense


87. The form of income statement that derives its name from the fact that the total of all expenses is deducted
from the total of all revenues is called a
A. multiple-step statement
B. revenue statement
C. report-form statement
D. single-step statement

88. Multiple-step income statements show
A. gross profit but not income from operations

B. neither gross profit nor income from operations
C. both gross profit and income from operations
D. income from operations but not gross profit

89. When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the
A. account form
B. comparative form
C. horizontal form
D. report form

90. The statement of owner's equity shows
A. only net income, beginning and ending capital
B. only total assets, beginning and ending capital
C. only net income, beginning capital, and withdrawals
D. all the changes in the owner's capital as a result of net income, net loss, additional investments, and
withdrawals

91. Merchandise inventory is classified on the balance sheet as a
A. Current Liability
B. Current Asset
C. Long-Term Asset
D. Long-Term Liability

92. Which account is not classified as a selling expense?
A. Sales Salaries
B. Freight-Out
C. Freight-In
D. Advertising Expense

93. The primary difference between a periodic and perpetual inventory system is that a
A. periodic system determines the inventory on hand only at the end of the accounting period
B. periodic system keeps a record showing the inventory on hand at all times
C. periodic system provides an easy means to determine inventory shrinkage
D. periodic system records the cost of the sale on the date the sale is made

94. The inventory system employing accounting records that continuously disclose the amount of inventory is
called
A. retail
B. periodic
C. physical
D. perpetual

95. When the perpetual inventory system is used, the inventory sold is shown on the income statement as
A. cost of merchandise sold
B. purchases
C. purchases returns and allowances
D. net purchases

96. When comparing a retail business to a service business, the financial statement that changes the most is the
A. Balance Sheet
B. Income Statement
C. Statement of Owner's Equity
D. Statement of Cash Flow

97. When comparing a retail business to a service business, the financial statement that changes the least is the
A. Balance Sheet
B. Income Statement
C. Statement of Owner's Equity
D. Statement of Cash Flow

98. Gross profit is equal to:
A. sales plus (sales discounts and sales returns and allowances) plus cost of merchandise sold
B. sales plus sales returns and allowances less sales discounts less cost of merchandise sold
C. sales plus sales discounts less sales returns and allowances less cost of merchandise sold
D. sales less (sales discounts and sales returns and allowances) less cost of merchandise sold


99. Using the following information, what is the amount of cost of merchandise sold?

Purchases
Merchandise inventory September 1

$32,000
5,700

Sales returns and allowances
Purchases returns and allowances

910
1,200

Purchases discounts
Merchandise inventory
September 30
Sales
Freight In

$960
6,370

63,000
1,040

A. $26,900
B. $20,530
C. $30,210
D. $28,130
100. Using the following information, what is the amount of gross profit?
Purchases
Merchandise inventory
September 1
Sales returns and
allowances
Purchases returns and
allowances

$32,000
5,700

$960
6,370

910

Purchases discounts
Merchandise inventory
September 30
Sales

1,200

Freight In

1,040

63,000

A. $34,870
B. $31,880
C. $27,460
D. $62,090
101. Using the following information, what is the amount of net sales?

Purchases
Merchandise inventory
September 1
Sales returns and
allowances
Purchases returns and
allowances

A. $28,970
B. $63,130
C. $63,000
D. $62,090

$32,000
5,700

$960

6,370

910

Purchases discounts
Merchandise inventory
September 30
Sales

1,200

Freight In

1,040

63,000


102. Using the following information, what is the amount of merchandise available for sale?

Purchases
Merchandise inventory
September 1
Sales returns and
allowances
Purchases returns and
allowances

$32,000
5,700

$960
6,370

910

Purchases discounts
Merchandise inventory
September 30
Sales

1,200

Freight In

1,040

63,000

A. $35,540
B. $36,580
C. $37,700
D. $34,500
103. Where are selling and administrative expenses found on the multiple-step income statement?
A. before gross profit
B. after sales and before gross profit
C. after net income before expenses
D. after gross profit

104. Dorman Co. sold merchandise to Smith Co. on account, $23,500, terms 2/15, net 45. The cost of the

merchandise sold is $16,000. Dorman Co. issued a credit memo for $1,750 for merchandise returned that
originally cost $1,400. The Smith Co. paid the invoice within the discount period. What is amount of net sales
from the above transactions?
A. $23,030
B. $21,750
C. $21,315
D. $13,808

105. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
A. debit to Sales
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. credit to Accounts Receivable

106. Which of the following accounts has a normal debit balance?
A. Accounts Payable
B. Sales Returns and Allowances
C. Sales
D. Interest Revenue


107. Merchandise is ordered on December 1; the merchandise is shipped by the seller and the invoice is
prepared, dated, and mailed by the seller on December 3; the merchandise is received by the buyer on
December 8; the entry is made in the buyer's accounts on December 10. The credit period begins with what
date?
A. December 1
B. December 3
C. December 8
D. December 10

108. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on
account includes a
A. credit to Sales Returns and Allowances
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. debit to Cost of Merchandise Sold

109. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details
by issuing a
A. sales invoice
B. purchase invoice
C. credit memo
D. debit memo

110. The arrangements between buyer and seller as to when payments for merchandise are to be made are
called
A. credit terms
B. net cash
C. cash on demand
D. gross cash

111. In credit terms of 3/15, n/45, the "3" represents the
A. number of days in the discount period
B. full amount of the invoice
C. number of days when the entire amount is due
D. percent of the cash discount


112. Merchandise with a sales price of $6,000 is sold on account with term 2/10, n/30. The journal entry to
record the sale would include a

A. debit to Cash for $6,000
B. Debit to Sales Discounts for $120
C. Credit to Sales for $6,000
D. Debit to Accounts Receivable for $5,880

113. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for
$25,000. The seller paid freight costs of $2,000 and issued a credit memo for $10,000 prior to payment. What
is the amount of the cash discount allowable?
A. $170
B. $150
C. $130
D. $250

114. Which of the following accounts has a normal credit balance?
A. Sales Returns and Allowances
B. Sales
C. Merchandise Inventory
D. Delivery Expense

115. The entry to record the return of merchandise from a customer would include a
A. debit to Sales
B. credit to Sales
C. debit to Sales Returns and Allowances
D. credit to Sales returns and Allowances

116. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
A. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
B. debit to Cash and a credit to Sales
C. debit to Cash, credit to Credit Card Expense, and a credit to Sales
D. debit to Sales, debit to Credit Card Expense, and a credit to Cash

117. Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as
A. sales on account
B. sales returns
C. cash sales
D. sales when the credit card company remits the cash


118. When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the
following entry
A. debit Merchandise Inventory; credit Cash
B. debit Cash; credit Merchandise Inventory
C. debit Cash; credit Sales Returns and Allowances
D. debit Sales Returns and Allowances; credit Cash

119. When merchandise is returned under the perpetual inventory system, the buyer would credit
A. Merchandise Inventory
B. Purchases Returns and Allowances
C. Accounts Payable
D. Accounts Receivable

120. When purchases of merchandise are made for cash, the transaction may be recorded with the following
entry
A. debit Cash; credit Merchandise Inventory
B. debit Merchandise Inventory; credit Cash
C. debit Merchandise Inventory; credit Cash Discounts
D. debit Merchandise Inventory; credit Purchases

121. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account
would include a

A. debit to Accounts Payable
B. debit to Merchandise Inventory
C. credit to Merchandise Inventory
D. credit to Sales

122. Using a perpetual inventory system, the entry to record the return of merchandise purchased on account
includes a
A. debit to Cost of Merchandise Sold
B. credit to Accounts Payable
C. credit to Merchandise Inventory
D. credit to Sales


123. In recording the cost of merchandise sold for cash, based on data available from perpetual inventory
records, the journal entry is
A. debit Cost of Merchandise Sold; credit Sales
B. debit Cost of Merchandise Sold; credit Merchandise Inventory
C. debit Merchandise Inventory; credit Cost of Merchandise Sold
D. debit Accounts Receivable; credit Merchandise Inventory

124. The amount of the total cash paid to the seller for merchandise purchased for consumption would normally
include
A. only the list price
B. only the sales tax
C. the list price plus the sales tax
D. the list price less the sales tax

125. A retailer purchases merchandise with a catalog list price of $25,000. The retailer receives a 30% trade
discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory
account?

A. $7,500
B. $17,500
C. $25,000
D. $17,250

126. A sales invoice included the following information: merchandise price, $10,000; freight, $900; terms 1/10,
n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $500 is granted prior to
payment and that the invoice is paid within the discount period, what is the amount of cash that should be
received by the seller?
A. $10,305
B. $9,500
C. $9,306
D. $9,900

127. Which of the following accounts usually has a debit balance?
A. Purchase Discounts
B. Sales Tax Payable
C. Allowance for Doubtful Accounts
D. Freight-In


128. Merchandise is sold for cash. The selling price of the merchandise is $5,000 and the sale is subject to a
7% state sales tax. The journal entry to record the sale would include
A. A credit to Cash for $5,000.
B. A credit to Sales for $5,350.
C. A credit to Sales Tax Payable for $350.
D. None of these answers are correct.

129. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
A. FOB shipping point

B. FOB destination
C. FOB n/30
D. FOB buyer

130. If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
A. FOB shipping point
B. FOB destination
C. FOB n/30
D. FOB seller

131. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms
are
A. n/30
B. FOB shipping point
C. FOB destination
D. consigned

132. Merchandise with an invoice price of $3,000 is purchased on September 2 subject to terms of 2/10, n/30,
FOB destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on
September 12, assuming the discount is taken?
A. $3,140
B. $3,136
C. $2,744
D. $2,940

133. When goods are shipped FOB destination and the seller pays the freight charges, the buyer
A. journalizes a reduction for the cost of the merchandise.
B. journalizes a reimbursement to the seller.
C. does not take a discount.
D. makes no journal entry for the freight.

134. Anthony Company sold Madison Company merchandise on account FOB shipping point, 2/10, net 30, for
$10,000. Anthony prepaid the $300 shipping charge. Which of the following entries does Anthony make to
record this sale?
A. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000
B. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000, and
Accounts Receivable-Madison, debit $300; Cash, credit $300
C. Accounts Receivable-Madison, debit $10,300; Sales, credit $10,300
D. Accounts Receivable-Madison, debit $10,000; Sales, credit $10,000, and
Freight Out, debit $300; Cash, credit $300

135. Emma Co. sold Isabella Co. merchandise on account FOB shipping point,, 2/10, net 30, for
$15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the
following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the
discount period?
A. Accounts Payable-Emma Co., debit $15,000; Freight In, credit $750; Cash, credit $14,250
B. Accounts Payable-Emma Co., debit $15,750; Merchandise Inventory, credit $300; Cash, credit $15,450
C. Accounts Payable-Emma Co., debit $15,000; Freight In, debit $750; Cash, credit $15,750
D. Accounts Payable-Emma Co., debit $15,750; Merchandise Inventory, debit $300; Cash, credit $16,050

136. A chart of accounts for a merchandising business
A. usually is the same as the chart of accounts for a service business
B. usually requires more accounts than does the chart of accounts for a service business
C. usually is standardized by the FASB for all merchandising businesses
D. always uses a three-digit numbering system

137. Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the
merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be
recorded?

A. Cash $2,000 Dr, Merchandise Inventory $1,250 Cr
B. Cash $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr, Merchandise Inventory $1,250
Cr.
C. Cash $1,250 Dr, Sales $1,250 Cr
D. Accounts Receivable $2,000 Dr, Sales $2,000 Cr, and Cost of Merchandise Sold $1,250 Dr, Merchandise
Inventory $1,250 Cr.

138. Isaac Co. sells merchandise on credit to Sonar Co in the amount of $5,700. The invoice is dated on April
1 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the invoice be paid
in order for the buyer to take advantage of the discount?
A. $114, April 15
B. $114, April 16
C. $57, April 15
D. $57, April 16


139. Isaac Co. sells merchandise on credit to Sonar Co in the amount of $9,600. The invoice is dated on April
15 with terms of 1/15, net 45. If Sonar Co. chooses not to take the discount, by when should the payment be
made?
A. April 30
B. May 30
C. May 15
D. April 25

140. Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as
A. Purchases discount
B. Sales discount
C. Trade discount
D. Early payment discount

141. Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately
A. 2%
B. 24%
C. 20%
D. 36%

142. Who pays the freight costs when the terms are FOB shipping point?
A. the ultimate customer
B. the buyer
C. the seller
D. either the seller or the buyer

143. Who pays the freight cost when the terms are FOB destination?
A. the seller
B. the buyer
C. the customer
D. either the buyer or the seller

144. A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade
discount and credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount
period?
A. $30,000
B. $24,900
C. $29,400
D. $24,990


145. What type of company would normally offer trade discounts to its customers?
A. Service companies
B. Retailers

C. Wholesalers
D. On-line retailers

146. Which of the following accounts will only be found in the chart of accounts of a merchandising company?
A. Sales
B. Accounts Receivable
C. Merchandise Inventory
D. Accounts Payable

147. Which of the following items would affect the cost of merchandise inventory acquired during the period?
A. quantity discounts
B. cash discounts
C. freight-in
D. all of these costs

148. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms
are
A. consigned
B. n/30
C. FOB shipping point
D. FOB destination

149. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms
are
A. n/30
B. FOB shipping point
C. FOB destination
D. consigned

150. If the merchandise costs $3,500, insurance in transit costs $250, tariff costs $75, processing the purchase

order by the purchasing department costs $50, and the company receiving dock personnel cost $25, what is the
total cost charged to the merchandise?
A. $3,825
B. $3,850
C. $3,875
D. $3,500


151. Under the perpetual inventory system, all purchases of merchandise are debited to the account entitled
A. Merchandise Inventory
B. Cost of Merchandise Sold
C. Cost of Merchandise Available for Sale
D. Purchases

152. When the perpetual inventory system is used, the inventory sold is debited to
A. supplies expense
B. cost of merchandise sold
C. merchandise inventory
D. sales

153. Under a perpetual inventory system
A. accounting records continuously disclose the amount of inventory
B. increases in inventory resulting from purchases are debited to Purchases
C. there is no need for a year-end physical count
D. the purchase returns and allowances account is credited when goods are returned to vendors

154. The proper journal entry to record the receipt of inventory purchased on account in a perpetual inventory
system would be:
A. Jan 1 Merchandise Inventory 1,500
Accounts Payable

1,500
B. Jan 1 Office Supplies
1,500
Accounts Payable
1,500
C. Jan 1 Purchases
1,500
Accounts Payable
1,500
D. Jan 1 Purchases
1,500
Accounts Receivable
1,500

155. Which of the following items should not be included in the cost of ending merchandise inventory?
A. purchased units in transit, shipped FOB shipping point
B. purchased units in transit, shipped FOB destination
C. units on hand in the warehouse
D. sold units in transit, not invoiced and shipped FOB destination


156. The Corbit Corp. sold merchandise $10,000 for cash. The cost of the merchandise sold was $7,590. The
journal entry(s) to record this transaction would be
A. Cash
10,000
Merchandise Inventory
10,000
Cost of Merchandise Sold
Sales
B. Cash

Sales

7,590

Cost of Merchandise Sold
Merchandise Inventory
C. Cash
Sales

7,590

Cost of Merchandise Sold
Merchandise Inventory
D. Cash
Sales

10,000

Cost of Merchandise Sold
Merchandise Inventory

7,590

7,590
10,000
10,000

7,590
10,000
10,000

10,000
7,590
7,590

7,590

157. Inventory shortage is recorded when
A. merchandise is returned by a buyer.
B. merchandise purchased from a seller is incomplete or short.
C. merchandise is returned to a seller.
D. there is a difference between a physical count of inventory and inventory records.

158. If the physical count of the inventory revealed $158,000 of merchandise on hand and the inventory records
reported $163,000, what would be the necessary adjusting entry to record inventory shortage?
A. Merchandise inventory debit $158,000; Cost of Merchandise Sold credit $158,000.
B. Merchandise inventory debit $5,000; Cost of Merchandise Sold credit $5,000.
C. Cost of Merchandise Sold debit $163,000; Merchandise Inventory credit $158,000.
D. Cost of Merchandise Sold debit $5,000; Merchandise Inventory credit $5,000.

159. Which account will be included in both service and merchandising companies closing entries?
A. Sales
B. Cost of Merchandise Sold
C. Purchase Discounts
D. Sales Returns and Allowances