44.

An enterprise which sells goods to customers is known as a

a. proprietorship. b. corporation.
c. retailer. d. service firm.

46. A merchandising company that sells directly to consumers is a

a. retailer. b. wholesaler.
c. broker. d. service company.

47. Two categories of expenses for 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. sales and cost of goods sold.

48. The primary source of revenue for a wholesaler is

a. investment income. b. service fees.
c. the sale of merchandise. d. the sale of fixed assets the company owns.

49. Sales revenue less cost of goods sold is called

a. gross profit. b. net profit.
c. net income. d. marginal income.

50. After gross profit is calculated, operating expenses are deducted to determine
a. gross margin. b. net income.
c. gross profit on sales. d. net margin.

51. Cost of goods sold is determined only at the end of the accounting period in
a. a perpetual inventory system.
b. a periodic inventory system.
c. both a perpetual and a periodic inventory system.
d. neither a perpetual nor a periodic inventory system.

53. Detailed records of goods held for resale are not maintained under a
a. perpetual inventory system. b. periodic inventory system.
c. double entry accounting system. d. single entry accounting system.

52. Which of the following expressions is incorrect?

a. Gross profit – operating expenses = net income
b. Sales – cost of goods sold – operating expenses = net income

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 c. Net income + operating expenses = gross profit
d. Operating expenses – cost of goods sold = gross profit

55. Which of the following is a true statement about inventory systems?

a. Periodic inventory systems require more detailed inventory records.
b. Perpetual inventory systems require more detailed inventory records.
c. A periodic system requires cost of goods sold be determined after each sale.
d. A perpetual system determines cost of goods sold only at the end of the accounting period

56. 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. with each sale.

57. If a company determines cost of goods sold each time a sale occurs, it
a. must have a computer 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.

58. Under a perpetual inventory system, acquisition of merchandise for resale is debited to
a. Merchandise Inventory account. b. Purchases account.
c. Supplies account. d. Cost of Goods Sold account.

59. The journal entry to record a return of merchandise purchased on account

under a perpetual inventory system would credit
a. Accounts Payable. b. Purchase Returns and Allowances.
c. Sales. d. Merchandise Inventory.

60. Merchandise Inventory account is used in each of the following except the entry to record
a. goods purchased on account. b. the return of goods purchased.
c. payment of freight on goods sold. d. payment within the discount period.

61. A buyer would record a payment within the discount period under a perpetual inventory
system by crediting
a. Accounts Payable. b. Merchandise Inventory.
c. Purchase Discounts. d. Sales Discounts.

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62. If a purchaser using a perpetual system agrees to freight terms of FOB shipping point,
then the
a. Merchandise Inventory account will be increased.
b. Merchandise Inventory account will not be affected.
c. seller will bear the freight cost.
d. carrier will bear the freight cost.

64. Bryan Company purchased merchandise from Cates Company with freight terms of FOB
shipping point. The freight costs will be paid by the
a. seller. b. buyer.
c. transportation company. d. buyer and the seller.

65. Flynn Company purchased merchandise inventory with an invoice price of $5,000 and
credit terms of 2/10, n/30. What is the net cost of the goods if Flynn Company pays within
the discount period?
a. $5,000
b. $4,900
c. $4,500
d. $4,600

68. In a perpetual inventory system, the amount of the discount allowed for paying for
merchandise purchased within the discount period is credited to
a. Merchandise Inventory. b. Purchase Discounts.
c. Purchase Allowance. d. Sales Discounts.

71. A credit sale of $800 is made on April 25, terms 2/10, n/30, on which a return of $50 is
granted on April 28. What amount is received as payment in full on May 4?
a. $735
b. $784
c. $800
d $750

72. The entry to record the receipt of payment within the discount period on a sale of $750
with terms of 2/10, n/30 will include a credit to
a. Sales Discounts for $15.
b. Cash for $735.
c. Accounts Receivable for $750.
d. Sales for $750.

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73. The collection of a $600 account within the 2 percent discount period will result in a
a. debit to Sales Discounts for $12.
b. debit to Accounts Receivable for $588.
c. credit to Cash for $588.
d. credit to Accounts Receivable for $588

76. The collection of a $900 account after the 2 percent discount period will result in a
a. debit to Cash for $882.
b. debit to Accounts Receivable for $900.
c. debit to Cash for $900.
d. debit to Sales Discounts for $18

78. In a perpetual inventory system, the Cost of Goods Sold account is used
a. only when a cash sale of merchandise occurs.
b. only when a credit sale of merchandise occurs.
c. only when a sale of merchandise occurs.
d. whenever there is a sale of merchandise or a return of merchandise sold.

84. 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.

87. A credit sale of $900 is made on July 15, terms 2/10, n/30, on which a return of $50 is
granted on July 18. What amount is received as payment in full on July 24?
a. $900
b. $833
c. $850
d $882

97. Which of the following would not be classified as a contra account?

a. Sales b. Sales Returns and Allowances
c. Accumulated Depreciation d. Sales Discounts

98. Which of the following accounts has a normal credit balance?

a. Sales Returns and Allowances b. Sales Discounts
c. Sales d. Selling Expense

111. Thelman Company reported the following balances at June 30, 2008:
 Sales $10,800
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  Sales Returns and Allowances 400
 Sales Discounts 200
 Cost of Goods Sold 5,000
Net sales for the month is
a. $10,800.
b. $10,400.
c. $10,200.
d. $ 5,200.

112. Income from operations appears on

a. both a multiple-step and a single-step income statement.
b. neither a multiple-step nor a single-step income statement.
c. a single-step income statement.
d. a multiple-step income statement.

113. 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 merchandiser.
d. on the income statement if the periodic inventory system is used because it cannot
be calculated.

114. Which of the following is not a true statement about a multiple-step income statement?
a. Operating expenses are often classified as selling and administrative expenses.
b. There may be a section for nonoperating activities.
c. There may be a section for operating assets.
d. There is a section for cost of goods sold.

117. If a company has net sales of $500,000 and cost of goods sold of $350,000, the gross
profit percentage is
a. 70%.
b. 30%.
c. 15%.
d. 100%.

118. A company shows the following balances:

 Sales $1,000,000
 Sales Returns and Allowances 180,000

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  Sales Discounts 20,000
 Cost of Goods Sold 560,000
What is the gross profit percentage?
a. 56%
b. 70%
c. 44%
d. 30%

119. The gross profit rate is computed by dividing gross profit by

a. cost of goods sold. b. net income.
c. net sales. d. sales

121. On a classified balance sheet, merchandise inventory is classified as

a. an intangible asset. b. property, plant, and equipment.
c. a current asset. d. a long-term investment.

122. Gross profit for a merchandiser is net sales minus

a. operating expenses. b. cost of goods sold.
c. sales discounts. d. cost of goods available for sale

Use the following information for questions 130–132.

Financial information is presented below:
 Operating Expenses $ 45,000
 Sales Returns and Allowances 13,000
 Sales Discounts 6,000
 Sales 160,000
 Cost of Goods Sold 77,000
130. The amount of net sales on the income statement would be
a. $154,000.
b. $141,000.
c. $160,000.
d. $166,000.

131. Gross profit would be

a. $77,000.
b. $70,000.
c. $64,000.
d. $83,000.

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132. The gross profit rate would be
a. .454. b. .546.
c. .500. d. .538

140. At the beginning of the year, Midtown Athletic had an inventory of $400,000. During the
year, the company purchased goods costing $1,600,000. If Midtown Athletic reported
ending inventory of $600,000 and sales of $2,000,000, the company’s cost of goods sold
and gross profit rate must be
a. $1,000,000 and 50%.
b. $1,400,000 and 30%.
c. $1,000,000 and 30%.
d. $1,400,000 and 70%

142. Cost of goods available for sale is computed by adding

a. beginning inventory to net purchases.
b. beginning inventory to the cost of goods purchased.
c. net purchases and freight-in.
d. purchases to beginning inventory.

143. The Freight-in account

a. increases the cost of merchandise purchased.
b. is contra to the Purchases account.
c. is a permanent account.
d. has a normal credit balance.

145. West Company has the following account balances:

Purchases $48,000
Sales Returns and Allowances 6,400
Purchase Discounts 4,000
Freight-in 3,000
Delivery Expense 4,000
The cost of goods purchased for the period is
a. $52,000.
b. $47,000.
c. $51,000.
d. $44,600

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146. Baden Shoe Store has a beginning merchandise inventory of $30,000. During the period,
purchases were $140,000; purchase returns, $4,000; and freight-in $10,000. A physical
count of inventory at the end of the period revealed that $20,000 was still on hand. The
cost of goods available for sale was
a. $164,000.
b. $156,000.
c. $176,000.
d. $184,000.
a147. In a periodic inventory system, a return of defective merchandise by a customer is
recorded by crediting
a. Accounts Payable.
b. Merchandise Inventory.
c. Purchases.
d. Purchase Returns and Allowances

148. Which one of the following transactions is recorded with the same entry in a perpetual
and
a periodic inventory system?
a. Cash received on account with a discount
b. Payment of freight costs on a purchase
c. Return of merchandise sold
d. Sale of merchandise on credit

150. Under a periodic inventory system, acquisition of merchandise is debited to the

a. Merchandise Inventory account.
b. Cost of Goods Sold account.
c. Purchases account.
d. Accounts Payable account.

a151. Which of the following accounts has a normal credit balance?

a. Purchases
b. Sales Returns and Allowances
c. Freight-in
d. Purchase Discounts

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155. Cole Company has sales revenue of $39,000, cost of goods sold of $24,000 and
operating expenses of $9,000 for the year ended December 31. Cole's gross profit is
a. $30,000.
b. $15,000.
c. $6,000.
d. $0.
156. Logan Company made a purchase of merchandise on credit from Claude Corporation on
August 3, for $6,000, terms 2/10, n/45. On August 10, Logan makes the appropriate
payment to Claude. The entry on August 10 for Logan Company is
a. Accounts Payable................................................................. 6,000
Cash.............................................................................. 6,000
b. Accounts Payable................................................................. 5,880
Cash.............................................................................. 5,880
c. Accounts Payable................................................................. 6,000
Purchase Returns and Allowances ............................... 120
Cash.............................................................................. 5,880
d. Accounts Payable................................................................. 6,000
Merchandise Inventory.................................................. 120
Cash.............................................................................. 5,880

157. Cartier Company purchased inventory from Pissaro Company. The shipping costs were
$400 and the terms of the shipment were FOB shipping point. Cartier would have the
following entry regarding the shipping charges:
a. There is no entry on Cartier's books for this transaction.
b. Freight Expense................................................................... 400
Cash ........................................................................... 400
c. Freight-out ........................................................................... 400
Cash ........................................................................... 400
d. Merchandise Inventory ........................................................ 400
Cash ........................................................................... 400
158. In a perpetual inventory system, a return of defective merchandise by a purchaser is
recorded by crediting
a. Purchases.
b. Purchase Returns.
c. Purchase Allowance.
d. Merchandise Inventory.

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159. On October 4, 2008, Terry Corporation had credit sales transactions of $2,800 from
merchandise having cost $1,900. The entries to record the day's credit transactions
include a
a. debit of $2,800 to Merchandise Inventory.
b. credit of $2,800 to Sales.
c. debit of $1,900 to Merchandise Inventory.
d. credit of $1,900 to Cost of Goods Sold.

161. In the Clark Company, sales were $480,000, sales returns and allowances were $30,000,
and cost of goods sold was $288,000. The gross profit rate was
a. 64%.
b. 36%.
c. 40%.
d. 60%.

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