chapter 5 review

The Sales Returns and Allowances account is classified as a(n) A. asset account. B. contra asset account. C. expense account. D. contra revenue account.

D. contra revenue account.

A credit purchase of $3,800 is made on April 25, terms 2/10, n/30, on which a return of $200 is made on April 28. What amount will be the cash payment if the company pays on May 4? A. $3,528 B. $3,724 C. $3,800 D. $3,600

A. $3,528

If a purchaser using a perpetual inventory system pays the transportation costs for goods purchased, then the A. Inventory account is increased. B. Inventory account is not affected. C. Freight-Out account is increased. D. Delivery Expense account is increased.

A. Inventory account is increased.

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 account purchase returns and allowances is credited when goods are returned to vendors.

A. accounting records continuously disclose the amount of inventory.

A company using a perpetual inventory system that returns goods previously purchased on Credit would A. debit Accounts Payable and credit Inventory. B. debit Sales and credit Accounts Payable. C. debit Cash and credit Accounts Payable. D. debit Accounts Payable and credit Purchases.

A. debit Accounts Payable and credit Inventory.

Under the accrual basis of accounting, sales revenue A. may be recorded before cash is collected. B. will always equal cash collections in a month. C. only results from credit sales. D. is only recorded after cash is collected.

A. may be recorded before cash is collected.

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount? A. The gross profit amount is more informative than the gross profit rate because it is a dollar amount rather than a ratio. B. The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales. C. The gross profit amount is more informative than the gross profit rate because the gross profit rate is only used to describe a few industries while the gross profit amount is universally used. D. The gross profit amount is more informative than the gross profit rate because high volume operations are able to calculate the gross profit rate but not the gross profit amount.

B. The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales.

Freight costs incurred by a seller on merchandise sold to customers will cause an increase A. in the selling expenses of the buyer. B. in operating expenses for the seller. C. to the cost of goods sold of the seller. D. to a contra-revenue account of the seller.

B. in operating expenses for the seller.

Gross profit does NOT appear A. on a multiple-step income statement. B. on a single-step income statement. C. to be relevant in analyzing the operation of a merchandising company. D. on either a multiple-step or single-step income statement.

B. on a single-step income statement.

The operating cycle of a merchandising company is A. always one year in length. B. ordinarily longer than that of a service company. C. about the same as that of a service company. D. ordinarily shorter than that of a service company.

B. ordinarily longer than that of a service company.

Gross profit equals the difference between A. net income and operating expenses. B. sales revenue and cost of goods sold. C. sales revenue and operating expenses. D. sales revenue and cost of goods sold plus operating expenses.

B. sales revenue and cost of goods sold.

Which of the following accounts normally have debit balances? A. Sales Discounts B. Sales Returns and Allowances. C. Both Sales Discounts and Sales Returns and Allowances have debit balances. D. Neither Sales Discounts or Sales Returns and Allowances have debit balances.

C. Both Sales Discounts and Sales Returns and Allowances have debit balances.

Two major categories of expenses in merchandising companies are A. cost of goods sold and financing expenses. B. operating expenses and financing expenses. C. cost of goods sold and operating expenses. D. other expenses and cost of goods sold.

C. cost of goods sold and operating expenses.

The entry to record the receipt of payment within the discount period on a sale of $900 with terms of 2/10, n/30 will include a A. credit to Sales Discounts for $18. B. debit to Sales Revenue for $882. C. credit to Accounts Receivable for $900. D. credit to Sales Revenue for $900.

C. credit to Accounts Receivable for $900.

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

C. debit to Sales Returns and Allowances.

Sales revenues are usually considered earned when A. cash is received from credit sales. B. an order is received. C. goods have been transferred from the seller to the buyer. D. adjusting entries are made.

C. goods have been transferred from the seller to the buyer.

An advantage of the single-step income statement over the multiple-step form is A. the amount of information it provides. B. its comprehensiveness. C. its simplicity. D. its use in computing ratios.

C. its simplicity.

In the credit terms of 1/10, n/30, the "1" 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.

C. number of days when the entire amount is due.

If a company using a perpetual inventory system pays within the discount period, the discount amount will A. reduce accounts payable account. B. increase purchase discount account. C. reduce inventory account. D. increase cash account.

C. reduce inventory account.

When a seller records a return of goods, the account that is credited is A. Sales Revenue. B. Sales Returns and Allowances. C. Inventory. D. Accounts Receivable.

D. Accounts Receivable.

The entry to record a sale of $900 with terms of 2/10, n/30 will include a A. credit to Sales Discounts for $18. B. debit to Cash for $882. C. credit to Accounts Receivable for $900. D. credit to Sales Revenue for $900.

D. credit to Sales Revenue for $900.

The primary difference between a periodic and perpetual inventory system is that a periodic system A. keeps a record showing the inventory on hand at all time. B. provides better control over inventories. C. records the cost of the sale on the date the sale is made. D. determines the inventory on hand only at the end of the accounting period.

D. determines the inventory on hand only at the end of the accounting period.

In a perpetual inventory system, cost of goods sold is recorded A. on a daily basis. B. on a monthly basis. C. on an annual basis. D. each time a sale occurs.

D. each time a sale occurs.

The form of the 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.

D. single-step statement.