1. Copyright © 2007 Prentice-Hall. All rights reserved 1 Merchandising Operations Chapter 5

2. Copyright © 2007 Prentice-Hall. All rights reserved 2 The series of events that begins when the company purchases inventory, then sells the inventory, and lastly, collects cash from customers is called the 1.Accounting period 2.Operating cycle 3.Accounting cycle 4.Operating period

3. Copyright © 2007 Prentice-Hall. All rights reserved 3 Answer: 2

4. Copyright © 2007 Prentice-Hall. All rights reserved 4 The inventory system that keeps a running record of all inventory as it is bought and sold is called 1.Periodic inventory system 2.Computerized inventory system 3.Perpetual inventory system 4.Physical inventory system

5. Copyright © 2007 Prentice-Hall. All rights reserved 5 Answer: 3

6. Copyright © 2007 Prentice-Hall. All rights reserved 6 Clark Company uses a perpetual inventory system. The entry to record the purchase of inventory on account would include 1.A credit to sales revenue 2.A debit to inventory 3.A debit to purchases 4.A credit to inventory

7. Copyright © 2007 Prentice-Hall. All rights reserved 7 Answer: 2 The entry is: GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Inventory Accounts Payable

8. Copyright © 2007 Prentice-Hall. All rights reserved 8 Harris Company purchased inventory for $600, credit terms 1/10, n/30. Under a perpetual inventory system, the entry to record a payment within the discount period includes a credit to 1.Accounts Payable 2.Purchase Discounts 3.Inventory 4.Sales Discounts

9. Copyright © 2007 Prentice-Hall. All rights reserved 9 Answer: 3 The entry is GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts Payable600 Inventory6 Cash594

10. Copyright © 2007 Prentice-Hall. All rights reserved 10 Harris Company purchased inventory for $600, credit terms 1/10, n/30. Under a perpetual inventory system, Harris would record a return of $100 of merchandise purchased by crediting 1.Purchase Returns and Allowances 2.Inventory 3.Sales Returns and Allowances 4.Accounts Payable

11. Copyright © 2007 Prentice-Hall. All rights reserved 11 Answer: 2 The entry is GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts Payable100 Inventory100

12. Copyright © 2007 Prentice-Hall. All rights reserved 12 Collins Company uses a perpetual inventory system. If Collins purchases inventory and the freight terms of FOB destination, then the 1.Inventory account is not affected 2.Delivery expense increases 3.Inventory account increases 4.Freight-in account increases

13. Copyright © 2007 Prentice-Hall. All rights reserved 13 Answer: 1 FOB Destination means that the seller pays the shipping costs.

14. Copyright © 2007 Prentice-Hall. All rights reserved 14 Sales revenue minus cost of goods sold is called 1.Cost of goods sold 2.Gross profit 3.Net profit 4.Net income

15. Copyright © 2007 Prentice-Hall. All rights reserved 15 Answer: 2

16. Copyright © 2007 Prentice-Hall. All rights reserved 16 Miller Company sold merchandise on account for $200. These goods cost Miller $160. The entry to record this transaction would include: 1.Debit cost of goods sold; credit inventory, $200 2.Debit inventory; credit accounts receivable, $200 3.Debit sales revenue; credit cost of goods sold, $200 4.Debit accounts receivable; credit sales revenue, $200

17. Copyright © 2007 Prentice-Hall. All rights reserved 17 Answer: 4 The entry is GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Accounts Receivable200 Sales Revenue200 Cost of Goods Sold160 Inventory160

18. Copyright © 2007 Prentice-Hall. All rights reserved 18 The Sales Returns and Allowances account is classified as a(n) 1.Asset account 2.Expense account 3.Contra asset account 4.Contra revenue account

19. Copyright © 2007 Prentice-Hall. All rights reserved 19 Answer: 4 Sales Returns and Allowances and Sales Discounts are both contra revenue accounts. They are deducted from Sales Revenue to compute net sales.

20. Copyright © 2007 Prentice-Hall. All rights reserved 20 Leake Co. sells merchandise on account for $500 to Sakers Co. (credit terms of 2/10, n/30). Sakers Co. returns $100 of damaged merchandise, along with a check to pay the invoice within the discount period. How much did Sakers Company pay?

21. Copyright © 2007 Prentice-Hall. All rights reserved 21 Answer: Balance on account ($500 - $100)$400 Less 2% discount ($400 x.02)8 Cash paid$392

22. Copyright © 2007 Prentice-Hall. All rights reserved 22 What is the normal balance of the Sales Discounts account? 1.Debit 2.Credit

23. Copyright © 2007 Prentice-Hall. All rights reserved 23 Answer: Debit (It is a contra revenue)

24. Copyright © 2007 Prentice-Hall. All rights reserved 24 At the end of the year, Jensen Company’s Inventory account shows an unadjusted balance of $7,000. A physical count of inventory comes to $6,500. The entry to adjust the account for inventory shrinkage would be 1.Debit inventory; credit cost of goods sold 2.Debit cost of goods sold; credit inventory 3.Debit inventory; credit accounts payable 4.Debit sales revenue; credit cost of goods sold

25. Copyright © 2007 Prentice-Hall. All rights reserved 25 Answer: 2 Inventory Balance $7,000 Desired balance $6,500 $500

26. Copyright © 2007 Prentice-Hall. All rights reserved 26 The following balances are in Baker Company’s accounts at the end of the year: Cost of goods sold………………….$300 Interest expense…………………….100 Operating expenses………………..200 Sales discounts……………………..60 Sales returns and allowances……..40 Sales revenue……………………….900 What is the dollar amount of net sales revenue?

27. Copyright © 2007 Prentice-Hall. All rights reserved 27 Answer: Sales revenue$900 Less Sales returns and allowances$40 Sales discounts60100 Net sales$800

28. Copyright © 2007 Prentice-Hall. All rights reserved 28 The following balances are in Baker Company’s accounts at the end of the year: Cost of goods sold………………….$300 Interest expense…………………….100 Operating expenses………………..200 Sales discounts……………………..60 Sales returns and allowances……..40 Sales revenue……………………….900 How much is operating income?

29. Copyright © 2007 Prentice-Hall. All rights reserved 29 Answer: Net Sales$800 Cost of Goods Sold(300) Gross Profit$500 Operating Expenses(200) Operating Income$300

30. Copyright © 2007 Prentice-Hall. All rights reserved 30 Which one of the following is found on a multi-step income statement but not on a single-step income statement? 1.Net income 2.Cost of goods sold 3.Gross profit 4.Net sales

31. Copyright © 2007 Prentice-Hall. All rights reserved 31 Answer: 3 The single step income statement reports total revenues less total expenses. Cost of goods sold is part of the total expenses, so the subtotal, Gross Profit, is not reported.

32. Copyright © 2007 Prentice-Hall. All rights reserved 32 The gross profit percentage is computed by dividing gross profit by 1.Net sales revenue 2.Operating income 3.Cost of goods sold 4.Net income

33. Copyright © 2007 Prentice-Hall. All rights reserved 33 Answer: 1

34. Copyright © 2007 Prentice-Hall. All rights reserved 34 The following information is available for Clarence Company, which uses a periodic inventory system: Beginning inventory$200 Ending inventory300 Net purchases800 What is the amount of the cost of goods sold?

35. Copyright © 2007 Prentice-Hall. All rights reserved 35 Answer: Beginning inventory$200 Net purchases800 Cost of goods available for sale$1,000 Less: Ending inventory300 Cost of goods sold$700

36. Copyright © 2007 Prentice-Hall. All rights reserved 36