Chapter Three

Walter Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information the sales revenue amounted to $72,000. $60,000. $122,000. $102,000.

$102,000.

During year 2, Omark Company sold merchandise costing $120,000 for $160,000. Customers returned 10% of the merchandise and a 2% cash discount was provided on $90,000 of the sales. Based on this information the amount of net sales is $144,000. $145,800. $142,200. $160,000.

$142,200.

At the beginning of Year 2, Donald company had $5,000 of inventory on hand. During the accounting period, Donald purchased inventory costing $25,000 and sold inventory for $32,000. Operating expenses were $2,000 during the accounting period. A physical count of inventory on December 31, Year 2 revealed $4,000 of inventory on hand. Based on this information, cost of goods sold is $4,000 $26,000. $30,000. $6,000.

$26,000.

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30 (2) Returned 1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable within the discount period for the inventory purchased in Event 1. Immediately after the three events have been recognized, the balance in the inventory account is $3,960. $4,000. $5,000. zero.

$3,960.

At the beginning of Year 2, Donald company had $5,000 of inventory on hand. During the accounting period Donald purchased inventory costing $25,000 and sold inventory for $32,000. Operating expenses were $2,000 during the accounting period. A physical count of inventory on December 31, Year 2 revealed $4,000 of inventory on hand. Based on this information, cost of goods available for sale is $4,000 $26,000. $30,000. $6,000.

$30,000.

Sales on account amounted to $80,000. Sales returns were $2,000 and sales discounts were $1,000. Cost of goods sold amounted to $45,000. Based on this information the amount of gross margin was $33,000. $48,000. $42,000. $32,000.

$32,000.

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account under terms 1/10/n30. (2) Returned 1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in account payable for the inventory purchased in Event 1. If the Company pays the account payable after the discount period has expired, how much cash will be required to settle the liability? $3,960. $4,000. $5,000. zero.

$4,000.

Keisha Dress Shops experienced the following events during its third accounting period. (1) Sold merchandise that cost $92,000 for $140,000 cash. (2) Paid $30,000 of operating expenses. (3) Paid a $4,000 cash dividend. Based on this information, the amount of the gross margin is $48,000. $18,000. $14,000. None of the answers is correct.

$48,000.

At the beginning of Year 2, Donald company had $5,000 of inventory on hand. During the accounting period, Donald purchased inventory costing $25,000 and sold inventory for $32,000. Operating expenses were $2,000 during the accounting period. A physical count of inventory on December 31, Year 2 revealed $4,000 of inventory on hand. Based on this information, gross margin is $4,000 $26,000. $30,000. $6,000.

$6,000.

Escrow Company's multistep income statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information, the net income or (net loss) amounted to $12,000. ($20,000). ($8,000). None of the answers is correct.

($8,000).

Mahan Company purchased inventory on account under terms 2/20/n60. Mahan would like to pay the account payable within the discount period in order to receive the discount. Unfortunately, Mahan does not have the cash. What is the maximum annual interest rate that Mahan would be willing to pay in order to borrow the money necessary to settle the account payable? 2% 20.2% 18.25% 40%

18.25%

Which of the following financial statements will be affected by a sales return? Assume the original sale and the sales return were cash transactions. Balance sheet Income statement Statement of cash flows All of these statements would be affected by the sales return.

All of these statements would be affected by the sales return.

The amount of net income shown on a multi-step income statement will differ from the amount of net income shown on a single-step income statement. True False

False

The amount of net sales is determined by which of the following formulas? Gross sales + Sales Returns and Allowances - Sales discounts Gross sales + Sales Returns and Allowances + Sales discounts Gross sales - Sales Returns and Allowances - Sales discounts Gross sales - Sales Returns and Allowances + Sales discounts

Gross sales - Sales Returns and Allowances - Sales discounts

Which of the following events experienced by a department store would be presented in the operating section of a multistep income statement? Inventory sold for less than its cost Equipment sold for more than its cost Land sold for less than its cost All of the above are reported within operating income.

Inventory sold for less than its cost

Davis company purchased inventory on account. Assuming Davis is using the periodic inventory method recognizing this event will increase the balance in the inventory account. decrease the balance in the accounts payable account. increase the amount of net income. None of the answers are correct.

None of the answers are correct.

When a merchandising company pays cash to purchase inventory the amount of total assets increases. the amount of expenses increases. the amount of total assets decreases. None of the answers is correct.

None of the answers is correct.

Underwood Company's gross margin percentage increased from 40% to 45%. Which of the following is not a possible explanation for this increase, assuming all other things being equal? Underwood raised its per unit sales price. Underwood's supplier lowered its per unit price. Underwood sold more products. Underwood started taking advantage of purchase discounts.

Underwood sold more products.

AmRon Company sold land that had cost $25,000 for $26,500. Based on this information, the company's year-end financial statements would show a cash inflow from operating activities of $1,500 on the statement of cash flows. a gain of $26,500 on the income statement. a cash inflow from investing activities of $26,500 on the statement of cash flows. a balance of $25,000 in the cash account on the balance sheet.

a cash inflow from investing activities of $26,500 on the statement of cash flows.

Inventory is an asset account that appears on the balance sheet. an expense account that appears on the income statement. a cash item that appears on the statement of cash flows. not an account. Instead, it is an information item like gross margin or net income.

an asset account that appears on the balance sheet.

Paying cash to purchase inventory is an asset source transaction. an asset use transaction. an asset exchange transaction. a claims exchange transaction.

an asset exchange transaction.

The gross margin percentage is determined by dividing net sales by the gross margin. dividing the gross margin by the net sales. dividing the gross margin by the cost of goods sold. dividing the cost of goods sold by the gross margin.

dividing the gross margin by the net sales.

McDonald's will recognize a gain if it generates an amount of revenue that is higher than its operating expenses. This statement is true. false.

false.

Product costs are expensed when they are incurred. This statement is true. false.

false.

Recognizing a sales discount will cause the amount of net sales to increase. This statement is true. false.

false.

Smith Company sold inventory that cost $5,000 for $9,000 cash. Freight cost was $600 paid in cash. The freight terms were FOB shipping point. Based on this information, gross margin would be $4,000. net income would be $3,400. gross margin would be $3,400. None of the answers are correct.

gross margin would be $4,000.

Davis company sold inventory on account. Assuming Davis is using the periodic inventory method recognizing this event will decrease the balance in the inventory account. increase the balance in the accounts receivable account. decrease the amount of net income. None of the answers are correct.

increase the balance in the accounts receivable account.

The gross margin appears on a single-step income statement. multistep income statement. single-step statement of cash flows. multistep statement of cash flows.

multistep income statement.

Smith Company sold inventory that cost $5,000 for $9,000 cash. Freight cost was $600 paid in cash. The freight terms were FOB destination. Based on this information, gross margin would be $3,400. net income would be $3,400. net income would be $4,000. None of the answers are correct.

net income would be $3,400.

When a merchandising company sells inventory it will recognize only an expense. recognize only revenue. recognize revenue and expense. not recognize revenue or expense.

recognize revenue and expense.

Zack's, Inc. sold land that cost $85,000 for $70,000 cash. As a result of this event total assets increased. total assets were not affected. total assets and liabilities increased. total assets decreased.

total assets decreased.

Common size statements are presented as percentages to promote comparisons between different size companies. This statement is true. false.

true.