Accounting Chapter 4 Quiz

The Merchandise Inventory account on a classified balance sheet is reported in the:

Current assets section

Sales is a(n) ______ account.

Revenue

Determine which of the following statements below regarding a merchandiser are correct. (Check all that apply.)

-A merchandiser earns net income by buying and selling merchandise. -Merchandisers are often identified as retailers. -Merchandisers are also identified as wholesalers.

The components of a merchandiser's multi-step income statement are shown below. In which order would they appear on the statement?

1. Net Sales 2. Cost of Goods Sold 3. Gross Profit 4. Expenses 5. Net income

Review the following credit terms and identify the one that states that the buyer will receive a 3% discount if the payment is made within 15 days. Otherwise, full payment is expected within 45 days of the invoice date.

3/15,n/45

What is a purchase return?

A purchase return refers to merchandise a buyer acquires, but then returns to the seller.

What is a sales return?

A sales return refers to merchandise that customers return to the seller after a sale.

Merchandise inventory can be described as: (Check all that apply.)

An account appearing on a balance sheet of a merchandiser. An asset account. An account increased with a debit. Products that a company owns and intends to sell.

Determine which statements below are correct regarding merchandise available for sale during a period.

Beginning inventory + Net purchases = Merchandise available for sale Ending inventory + Cost of goods sold = Merchandise available for sale

A purchase return refers to merchandise a ______________ purchased, but then returns to the ____________ for a refund of the purchase price or reduction in the amount owed.

Buyer Seller

A merchandiser has four closing journal entries at the end of an accounting cycle. Select the correct entries below.

Close revenue accounts. Close the income summary account. Close the dividends account. Close expense accounts.

Cost of goods sold is characterized by which of the following statements? (Check all that apply.)

Cost of goods sold is also called cost of sales. Cost of goods sold is used to figure gross profit. Cost of goods sold includes the expenses of buying and preparing an item for sale. Cost of goods sold is an expense reported on the income statement.

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system.

Cost of goods sold is closed with the expense accounts. Sales Returns and Allowances is closed with the expense accounts. The Dividends account is closed to Retained Earnings Sales Discounts is closed with the expense accounts. Sales is closed as a revenue account.

Explain how to determine gross profit on an income statement by selecting the correct statement below.

Cost of goods sold is subtracted from net sales.

Which of the statements below are correct regarding cost of goods sold?

Cost of goods sold is the expense of buying and preparing merchandise.

XYZ Company uses the periodic inventory system to account for its merchandise purchases. A physical count of inventory at year end revealed that $6,000 of inventory was on hand. Given the partial list of accounts below, show your understanding of the entry to close the temporary debit balance accounts and update the Merchandise Inventory account by selecting all of the correct answers below. (Check all that apply.)

Credit Sales Discounts $500. Credit Purchases $36,000. Credit Merchandise Inventory for the beginning balance $5,000.

Sticky Company's merchandise inventory balance at year end is $15,050, but a physical count reveals that only $15,000 of inventory exists. The adjusting entry to record the shrinkage includes: (Select all that apply).

Credit to Merchandise Inventory for $50 Debit to Cost of Goods Sold for $50

A sales return refers to merchandise that ______________ return to the ____________ after a sale for a refund of the purchase price or reduction in the amount owed.

Customers, Sellers

Jo's Market makes a credit sale for $1,000 with terms of 2/10,n/30. The cost of the merchandise is $400. The required journal entry to record the sale and cost of the sale is:

Debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400

Jan's Jams makes a credit sale for $300 with terms of 2/10,n/30. The cost of the merchandise is $200. The required journal entry to record the sale and the cost of the sale is:

Debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200

X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Cash $300.

Identify the statements below which are correct regarding a merchandiser's multi-step income statement.

Expenses are subtracted from gross profit in order to calculate net income. Cost of goods sold is subtracted from net sales in order to determine gross profit.

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

FOB destination

True or false: Merchandise inventory is generally converted to cash more quickly than accounts receivable.

False

A single-step income statement can be identified by which of the following formats?

It shows only one total for all expenses.

Which statement below correctly explains what merchandise inventory is?

Merchandise inventory is an asset reported on the balance sheet and contains the cost of products purchased for sale.

Select the statements below that correctly describe the flow of costs in a merchandiser's accounting cycle.

Merchandise that is sold becomes an expense reported on the income statement. Merchandise that is purchased becomes an asset reported on the balance sheet. Beginning inventory + net purchases = Merchandise available for sale. Ending inventory + Cost of goods sold = Total merchandise available for sale.

Which of the following equations correctly identify the cost flow of a merchandising company?

Net purchases plus beginning inventory equals merchandise available for sale

Gross profit is computed as net ____________ minus cost of goods sold.

Revenue

Sales is a(n) _______________ account and is reported on the _______________, __________________.

Revenue Income Statement

Identify the statement below that is the correct definition of "shrinkage".

Shrinkage is the term used to refer to the loss of inventory due to theft, breakage or deterioration.

The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below. (Check all that apply.)

Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business. Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges. Terms FOB destination means that the seller is responsible for shipping costs.

Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.)

The full payment is due within a 30-day credit period. The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

True or false: A single-step income statement shows only one subtotal for expenses.

True