ACCN ch.5 multiple choice

Which of the following would affect the gross profit rate? (Assume sales remains constant.) a) An increase in advertising expense. b) A decrease in depreciation expense. c) An increase in cost of goods sold. d) A decrease in insurance expense.

c) An increase in cost of goods sold.

Which sales accounts normally have a debit balance? a) Sales Discounts. b) Sales Returns and Allowances. c) Both Sales Discounts and Sales Returns and Allowances. d) Neither Sales Discounts nor Sales Returns and Allowances

c) Both Sales Discounts and Sales Returns and Allowances.

Which of the following means that a 2% discount is allowed on payments made within 10 days of the invoice date? a) Terms are n/30. b) Terms are n/10, 2/30. c) Terms are 2/10, n/30. d) Terms are 1/10.

c) Terms are 2/10, n/30.

Which section of the adjusted trial balance is used to help prepare the balance sheet?

The assets and liabilities accounts that occur at the top of the adjusted trial balance.

Dani's Denim sells blue jeans. In 2022, Dani's specialized in selling moderately priced jeans with a 25% markup. In 2023, Dani's management decided to sell more expensive designer jeans with a markup of 30% and eliminate the moderately priced options. If Dani's Denim has the same annual net sales in both years, how will Dani's gross profit rate in 2023 differ from its gross profit rate in 2022?

The gross profit rate will be higher than the GPR in 2022

On May 2, Tiny Tim's Toys receives an online order from Kid's Toys for $4,200 of merchandise. Tiny Tim's Toys ships the order (FOB shipping point) on May 4th, and Kid's Toys receives it on May 6th. According to the revenue-recognition principle, when should Tiny Tim's Toys record the revenue and related cost of goods sold?

The revenue recognition principle states that companies should record sales revenue when the performance obligation is satisfied. Tiny Tim's receipt of an order on May 2nd does not meet the performance obligation test. However, Tiny Tim's shipment of the order, FOB shipping point, on May 4th, meets the performance obligation test. The term FOB shipping point means ownership of the goods transfers at the time Tiny Tim delivers the goods for shipment. The date the customer receives the goods shipped FOB shipping point has no impact on when Tiny Tim records revenue.

Pickett, Inc. recorded its monthly transactions in the journal but failed to record a transaction involving cash received from customers on January 14. Assuming Pickett performed all subsequent steps in the recording process correctly for the month, what will likely occur?

The transaction will not be transferred to the ledger, nor incorporated in the financial statements.

Ace Corp. is a headhunting firm. Uno Corp. sells office furniture. Which firm has a longer operating cycle? Why?

Uno Corp. because it purchases and sells inventory

When calculating the balance of the Sales Revenue account, you find that the balance is lower than expected. However, according to your Balance Sheet and your analysis of the accounting equation, all of your debits and credits are equal across accounts. What is the most likely explanation for this?

You failed to record a sales transaction in the journal, so it never got transferred to the ledger or financial documents.

Freight costs paid are journalized as __________ for the purchaser and as _________ for the seller of inventory.

a component of inventory cost; an operating expense

What is a purchase invoice?

a document that provides evidence of credit purchases

Which of the following retailers is most likely to utilize a sophisticated, computerized perpetual inventory system?

a family owned hardware store

journal entry for keeping goods after being granted an allowance for goods purchased on credit?

debit accts payable, credit inventory

journal entry for freight costs incurred by seller?

debit freight-out; credit cash

journal entry for freight costs incurred by buyer?

debit inventory; credit cash

A retailer acquires merchandise for resale. How would this be recorded in a perpetual inventory system?

debited to the Inventory account

Dave is shopping at a local store. If he takes advantage of the store's purchase discounts, this will ________ the inventory of the purchaser, and the store will ultimately receive ________ cash than if the discount had not been taken. increase; more reduce; more reduce; less increase; less

increase; less

When a merchandising company purchases goods, it initially records them as ________, then as ________ after a sale is completed.

inventory (current asset); and expense (COGS)

Although the perpetual inventory system is used by most businesses, a year-end ________ is performed to reconcile actual inventory with inventory records.

inventory count

Which of the following journal entries records a credit sale? a) Accounts Receivable Sales Revenue b) Cash Sales revenue c) Cash Service revenue d) Accounts Receivable Sales returns and allowances

a) Accounts Receivable Sales Revenue

When can sales revenues be recorded?

before cash is collected

When gross profit equals operating expenses, a merchandiser will earn an operating income of

$0

During the year, a discount retailer's merchandise inventory decreased by $560,000. If the company's cost of goods sold for the year was $1,500,000, purchases would have been

$1,500,000 - 560,000 = 940,000

Sales revenue can be recorded

before the cash is received.

McLeod Company purchases inventory on account with terms 2/10, n/30 for $2,600 on April 13th. McLeod also pays shipping costs of $125 on April 13th. What would be the net cost of the inventory if McLeod pays the invoice on April 27th?

$2,725

Duland Industries purchases inventory on account with terms 3/10, n/30 for $3,800 on July 15th. McLeod also pays shipping costs of $150 on July 15th. What would be the net cost of the inventory if McLeod pays the invoice on July 29th?

$3,950

How do you calculate the cost of goods available for sale?

beginning inventory + cost of goods purchased

For Standing Bear Company, sales revenue is $200,000, sales returns and allowances are $5,000, sales discounts are $3,000, and cost of goods sold is $120,000. Gross profit is

(200,000 - 5,000 - 3000) - 120,000 = $72,000

Bucky's Hardware sold merchandise worth $1,200 to a customer, and offered terms of 2/10, n/30. If the customer pays within 10 days, Bucky's Hardware will receive

1,200 x 0.03 = 24 1,200 - 24 = $1,176.00

Last month a company had net sales revenues of $10,000; Cost of goods sold of $4,000; other operating expenses of $3,000; non-operating expenses of $1,000; no non-operating revenues, gains or losses; and income taxes of $500. The gross profit was

10,000 - 4,000 = 6,000

Bloom Corp. uses the periodic inventory system. Determine Bloom's cost of goods sold if its beginning inventory was $124,000, purchases for the year were $265,700, and the ending inventory was $73,220.

124,000 + 265,700 - 73220 = 316,480

If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, the gross profit is

400,000 - 310,000 = 90,000

Supermart purchased merchandise inventory with an invoice price of $5,000 and credit terms of 3/10, n/30. What is the net cost of the goods if Supermart pays within the discount period?

5,000 x .03 = $4850

If a seller offers terms 2/10, net/30, which of the following statements is correct?

A 2% discount is allowed when payment is made within 10 days.

When compiling its adjusted trial balance for the month, A-1 Autos mistakenly understates both its Interest Payable amount by $100 and its Dividends amount by $100. In this scenario,

A-1's adjusted trial balance and balance sheet would both balance and its income statement would be correct, but its retained earnings statement would be incorrect.

purchase allowance

buyer gets to keep merchandise they initially wanted to return if the seller is willing to grant a reduction from purchase price.

FOB shipping point

buyer pays freight costs

Nestor Company uses the periodic inventory system. Its purchases for the most recent year were $72,000, ending inventory was $18,000, and the cost of goods sold was $112,000. How much inventory was in stock at the beginning of the year?

Beginning Inventory = Cost of Goods Sold - Cost of Goods Purchased + Ending Inventory so, 58,000

How is the quality of earnings ratio computed?

by dividing net cash provided by operating activities by net income

If the seller pays the freight costs, the sales agreement should read,

FOB destination

Joanie's Caterers bought 10 green tablecloths from Fabric Town for a reception planned for one of their clients. When the package arrived, there were 10 red tablecloths included, but no green. If Joanie's Caterers decides to keep the tablecloths, then

Fabric Town may grant a purchase allowance, which will reduce the caterer's accounts payable.

If net sales are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit? a) $30,000. b) $90,000. c) $340,000. d) $400,000

Gross profit = Net sales ($400,000) − Cost of goods sold ($310,000) so, b) $90,000

Howe Corporation calculates inventory and cost of goods sold one time at the end of every accounting period. In contrast, Kelty Industries updates their inventory and cost of goods sold accounts multiple times in one day. What is the difference between Howe and Kelty?

Howe uses a periodic system of inventory, whereas Kelty uses a perpetual system of inventory.

What is one advantage of the periodic inventory system?

It requires less record keeping than a perpetual inventory system.

Assume that a company uses a periodic inventory system and has these account balances: Purchases $700,000, Purchase Returns and Allowances $30,000, Purchase Discounts $14,000, and Freight-in $35,000. Determine net purchases and cost of goods purchased.

Net Purchases are comprised of purchases, less purchase returns and allowances, less purchase discounts. In this example, net purchases are $656,000 ($700,000 - $30,000 - $14,000). The cost of goods purchased equals net purchases plus freight-in. In this example, cost of goods purchased is $691,000 ($656,000 + $35,000).

Assume that a company uses a periodic inventory system and has these account balances: Purchases $820,000, Purchase Returns and Allowances $90,000, Purchase Discounts $110,000, and Freight-in $108,000. Determine net purchases and cost of goods purchased.

Net Purchases is calculated as Purchases less Purchase Returns and Allowances, and Purchase Discounts. $820,000 - $90,000 - $110,000 = $620,000 Cost of Goods Purchased is calculated as Net Purchases plus Freight-In. $620,000 + $108,000 = $728,000

Madison Leather sold merchandise for $91,000 cash in January. Returns that month totaled $1,000. If the company's gross profit rate is 30%, Madison Leather will report monthly net sales revenue and cost of goods sold of

Net Sales is Sales less Returns.$91,000 - $1,000 = $90,000; Cost of Goods sold is 70% of Net sales.$90,000 x .70 = $63,000

A company purchasing goods uses a perpetual inventory system. The company would record a return of merchandise purchased on account by crediting which of the following accounts?

Purchase returns is recorded as a debit to Accounts Payable and a credit to Inventory Account.

A company reports Sales Returns and Allowances of $86,000 and Net Sales of $700,000. It also reports Cost of Goods Sold of $370,000. Find the company's Sales and Gross Profit.

Sales - Sales Returns and Allowances = Net Sales; Restated to solve for Sales: Net Sales + Sales Returns and Allowances = Sales. Therefore sales equals $786,000 ($700,000 + $86,000). Net Sales - Cost of Goods Sold = Gross Profit. Therefore gross profit is $330,000 ($700,000 - $370,000).

Which of the following statements about a periodic inventory system is true? a) Companies determine cost of goods sold only at the end of the accounting period. b) Companies continuously maintain detailed records of the cost of each inventory purchase and sale. c) The periodic system provides better control over inventories than a perpetual system. d) The increased use of computerized systems has increased the use of the periodic system

a) Companies determine cost of goods sold only at the end of the accounting period.

Sales of merchandise using the perpetual system of inventory include a second entry to increase ________ and decrease a) cost of goods sold; the seller's inventory. b) administrative expenses; gross profit. c) cost of goods sold; the purchaser's inventory. d) cost of goods sold; sales revenue.

a) cost of goods sold; the seller's inventory.

If a company using a perpetual inventory system purchases goods and pays the transportation costs, which account is increased? a) Inventory b) Delivery Expense c) Contra Revenue d) Freight-Out

a) inventory

Under a perpetual inventory system, when goods are purchased for resale by a company: a) purchases on account are debited to Inventory. b) purchases on account are debited to Purchases. c) purchase returns are debited to Purchase Returns and Allowances. d) freight costs are debited to Freight-Out.

a) purchases on account are debited to Inventory.

Which document is most important to complete before the company's financial statements can be prepared?

adjusted trial balance

The perpetual inventory system requires two journal entries for each sale of merchandise. ________ for each sale is calculated by finding the difference between the amounts for each entry. a) Cost of goods sold b) Gross profit c) Sales revenue d) Sales returns

b) gross profit

If there are no sales discounts, subtracting sales returns and allowances from sales revenue results in a) net income. b) net sales. c) gross profit. d) gross sales.

b) net sales.

When goods are purchased for resale by a company using a periodic inventory system: a) purchases on account are debited to Inventory. b) purchases on account are debited to Purchases. c) purchase returns are debited to Purchase Returns and Allowances. d) freight costs are debited to Purchases.

b) purchases on account are debited to Purchases.

A quality of earnings ratio: a) is computed as net income divided by net cash provided by operating activities. b) that is less than 1 indicates that a company might be using aggressive accounting tactics. c) that is greater than 1 indicates that a company might be using aggressive accounting tactics. d) is computed as net cash provided by operating activities divided by total assets

b) that is less than 1 indicates that a company might be using aggressive accounting tactics.

Which of the following is true concerning any account? a)The debit side indicates an increase. b)The left side is a debit. c)The credit side indicates a decrease. d)The identification of which side is debit or credit depends upon the type of account.

b) the left side is a debit

Grocery and clothing stores have benefitted by the advent of ________ and ________ to better track inventory.

bar codes; scanners

Why are storage costs reduced under a perpetual inventory system?

because companies can better track when to replenish inventory

During the month of May, Apex Industries recorded a $3,000 debit to an expense account. Which of the following explanations of this transaction is the MOST accurate? a) This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 debit to an asset account in order to offset the corresponding decrease in stockholders' equity. b) This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 debit to an asset account in order to offset the corresponding increase in stockholders' equity. c) This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding decrease in stockholders' equity. d) This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding increase in stockholders' equity.

c) This entry indicates that Apex incurred $3,000 in expenses. It also suggests that the firm may have recorded a $3,000 credit to an asset account in order to offset the corresponding decrease in stockholders' equity.

A company receives a discount for paying for merchandise purchased within the discount period. How will the amount of the discount be recorded in a perpetual inventory system? a) credited to Accounts Payable b) debited to Cash c) credited to Inventory d) debited to Accounts Payable

c) credited to Inventory

Gross profit will result if: a) operating expenses are less than net income. b) net sales are greater than operating expenses. c) net sales are greater than cost of goods sold. d) operating expenses are greater than cost of goods sold.

c) net sales are greater than cost of goods sold.

The gross profit rate is equal to: a) net income divided by sales. b) cost of goods sold divided by sales. c) net sales minus cost of goods sold, divided by net sales. d) sales minus cost of goods sold, divided by cost of goods sold

c) net sales minus cost of goods sold, divided by net sales.

A company makes an entry to record a sale. Then it debits Cost of Goods sold and credits Inventory. What inventory system is the company using? a) inventory control system b) periodic inventory system c) perpetual inventory system d) multiple-step inventory system

c) perpetual inventory system

In the absence of sales discounts, net sales are calculated by subtracting ____________ from ____________ a) sales revenue; sales returns and allowances. b) cost of goods sold; sales revenue. c) sales returns and allowances; sales revenue. d) cost of goods sold; sales returns and allowances.

c) sales returns and allowances; sales revenue.

To record the sale of goods for cash in a perpetual inventory system: a) only one journal entry is necessary to record cost of goods sold and reduction of inventory. b) only one journal entry is necessary to record the receipt of cash and the sales revenue. c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory. d) two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue

c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

Wanda's Widgets uses the periodic inventory system. Its beginning inventory was $15,000, the ending inventory was $10,000, and the cost of goods sold for the year was $47,000. What was the firm's purchases of good during the year?

cost of goods purchased = cost of goods sold - beginning inventory + ending inventory so, 42,000

Which additional income statement items do merchandizing businesses use beyond the measures service businesses use?

cost of goods sold and gross profit

Which of the following is included in the journal entry for equipment purchased for $20,000 by paying $5,000 cash and signing a note for the remainder?

credit to Cash

The payment of a $3,200 account within the 2% discount period will result in a

credit to cash for $3,136.

Which of the following is a contra revenue account? a) inventory b) freight-out c) sales revenue d) sales discounts

d) sales discounts

journal entry for returning goods that were purchased on credit?

debit accounts payable, credit inventory

The percentage of each dollar of sales that results in net income is commonly referred to as the

profit margin

What is the transaction called when a customer agrees to retain defective merchandise because the seller is willing to reduce the selling price?

sales allowance

To record a credit sale in a journal entry, a merchandiser would enter a debit to

sales revenue

________ has a normal credit balance.

sales revenue

FOB destination

seller pays freight costs - ownership passes to buyer when goods are delivered.

Kate would like to shorten the operating cycle at her company, but she is unsure how to do this. She begins brainstorming with her coworkers. Which of the following would be the most likely way to achieve this goal?

she should offer purchase discounts to her customers

By using a perpetual inventory system, companies can better track when to replenish inventory, thus reducing

storage costs

Adding beginning inventory to the cost of goods purchased will give you

the cost of goods available for sale

How many steps in the accounting cycle involve preparing some kind of trial balance?

three

What is a main reason why businesses may offer their customers a sales discount?

to encourage them to pay their accounts promptly

A department store uses a perpetual inventory system. At year-end, it shows a balance in the merchandise inventory account of $2 million. Assuming that the inventory records have been maintained properly, a year-end physical inventory

will most likely indicate less than $2 million in merchandise on hand due to handling and related losses