Question 1

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Accepted Answer

A)  a sales discount.
B)  free delivery.
C)  a sales allowance.
D)  a sales return.

Question 2

When goods are returned that relate to a prior cash sale

Accepted Answer

A)  the Sales Returns and Allowances account should not be used.
B)  the Cash account will be credited.
C)  Sales Returns and Allowances will be credited.
D)  Accounts Receivable will be credited.

Question 3

Discounts taken by the buyer for early payment of an invoice are called sales discounts by the buyer.

Accepted Answer

A) True 
 B)False

Question 4

Gross profit for a merchandising company is net sales minus

Accepted Answer

A)  operating expenses.
B)  cost of goods sold.
C)  sales discounts.
D)  cost of goods available for sale.

Question 5

Sales revenue less cost of goods sold is called

Accepted Answer

A)  gross profit.
B)  net profit.
C)  net income.
D)  marginal income.

Question 6

If a company is given credit terms of 2/10, n/30, it should

Accepted Answer

A)  hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time.
B)  pay within the discount period and recognize a savings.
C)  pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill.
D)  recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.

Question 7

The amount of cost of good available for sale during the year depends on the amounts of

Accepted Answer

A)  beginning merchandise inventory and cost of goods sold.
B)  beginning merchandise inventory, the net cost of purchases, and ending merchandise inventory.
C)  beginning merchandise inventory, cost of goods sold and ending merchandise inventory.
D)  beginning merchandise inventory and net costs of purchases.

Question 8

Bolton Company's gross profit rate last year was 32.0% and this year it is 28.4%.Which of the following would not be a possible cause for this decline in the gross profit rate?

Accepted Answer

A)  Bolton must pay higher prices to suppliers without passing these costs on to customers.
B)  Bolton may have begun selling products with a higher markup.
C)  Bolton's average margin between selling price and inventory cost is decreasing.
D)  Bolton may have seen a decline in total gross profit while maintaining net sales.

Question 9

With the periodic inventory system, goods available for sale must be calculated before determining cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 10

Operating expenses would include

Accepted Answer

A)  interest expense.
B)  income tax expense.
C)  freight-out.
D)  freight-out and interest.

Question 11

A decline in a company's gross profit could be caused by all of the following except

Accepted Answer

A)  selling products with a lower markup.
B)  clearance of discontinued inventory.
C)  paying lower prices to its suppliers.
D)  increasing competition resulting in a lower selling price.

Question 12

The normal balance of the Sales Returns and Allowances account is a credit.

Accepted Answer

A) True 
 B)False

Question 13

At the beginning of the year, Uptown Athletic had an inventory of $600,000.During the year, the company purchased goods costing $2,250,000.If Uptown Athletic reported ending inventory of $750,000 and sales of $3,000,000, their cost of goods sold and gross profit rate would be

Accepted Answer

A)  $1,500,000 and 70%.
B)  $2,100,000 and 30%.
C)  $1,500,000 and 30%.
D)  $2,100,000 and 70%.

Question 14

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

Accepted Answer

A)  Accounts Payable.
B)  Purchase Returns and Allowances.
C)  Sales Revenue.
D)  Inventory.

Question 15

After gross profit is calculated, operating expenses are deducted to determine

Accepted Answer

A)  gross margin.
B)  net income.
C)  gross profit on sales.
D)  net margin.

Question 16

If a company determines cost of goods sold each time a sale occurs, it

Accepted Answer

A)  must have a computerized accounting system.
B)  uses a combination of the perpetual and periodic inventory systems.
C)  uses a periodic inventory system.
D)  uses a perpetual inventory system.

Question 17

Which of the following would not be considered a merchandising operation?

Accepted Answer

A)  Retailer
B)  Wholesaler
C)  Service firm
D)  Merchandising company

Question 18

A merchandiser will earn an operating income of exactly $0 when

Accepted Answer

A)  net sales equals cost of goods sold.
B)  cost of goods sold equals gross margin.
C)  operating expenses equal net sales.
D)  gross profit equals operating expenses.

Question 19

Retailers and wholesalers are both considered merchandising enterprises.

Accepted Answer

A) True 
 B)False

Question 20

Gross profit rate is computed by dividing the cost of goods sold by net sales.

Accepted Answer

A) True 
 B)False

Exam 5: Merchandising Operations and the Multiple-Step Income Statement

Retailers and wholesalers are both considered merchandising enterprises.

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A merchandiser will earn an operating income of exactly $0 when

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Discounts taken by the buyer for early payment of an invoice are called sales discounts by the buyer.

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Gross profit for a merchandising company is net sales minus

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When goods are returned that relate to a prior cash sale

Correct AnswerverifiedShow Answer

The normal balance of the Sales Returns and Allowances account is a credit.

Correct AnswerverifiedShow Answer

Operating expenses would include

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As an incentive for customers to pay their accounts promptly, a business may offer its customers

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A decline in a company's gross profit could be caused by all of the following except

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If a company is given credit terms of 2/10, n/30, it should

Correct AnswerverifiedShow Answer

If a company determines cost of goods sold each time a sale occurs, it

Correct AnswerverifiedShow Answer

At the beginning of the year, Uptown Athletic had an inventory of $600,000.During the year, the company purchased goods costing $2,250,000.If Uptown Athletic reported ending inventory of $750,000 and sales of $3,000,000, their cost of goods sold and gross profit rate would be

Correct AnswerverifiedShow Answer

After gross profit is calculated, operating expenses are deducted to determine

Correct AnswerverifiedShow Answer

Sales revenue less cost of goods sold is called

Correct AnswerverifiedShow Answer

Gross profit rate is computed by dividing the cost of goods sold by net sales.

Correct AnswerverifiedShow Answer

With the periodic inventory system, goods available for sale must be calculated before determining cost of goods sold.

Correct AnswerverifiedShow Answer

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

Correct AnswerverifiedShow Answer

Bolton Company's gross profit rate last year was 32.0% and this year it is 28.4%.Which of the following would not be a possible cause for this decline in the gross profit rate?

Correct AnswerverifiedShow Answer

The amount of cost of good available for sale during the year depends on the amounts of

Correct AnswerverifiedShow Answer

Which of the following would not be considered a merchandising operation?

Correct AnswerverifiedShow Answer

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