Question 1

The terms 2/10, n/30 mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.

Accepted Answer

A) True 
 B)False

Question 2

Under IFRS, companies can apply revaluation to

Accepted Answer

A)  land, buildings, and intangible assets.
B)  land, buildings, but not intangible assets.
C)  intangible assets, but not land.
D)  no assets.

Question 3

Under GAAP, income statement items are generally described as

Accepted Answer

A)  administration, distribution, manufacturing, etc.
B)  salaries, depreciation, utilities, etc.
C)  administration, depreciation, manufacturing, etc.
D)  salaries, distribution, utilities, etc.

Question 4

Adams Company is a retailer and uses a perpetual inventory system. Which statement is correct?

Accepted Answer

A)  Returns of merchandise by Adams Company to a manufacturer are credited to Inventory.
B)  Freight paid to get merchandise to Adams Company's store is debited to Freight Expense.
C)  A return of merchandise by one of Adams Company's customers is credited to Inventory.
D)  Discounts taken by Adams Company's customers are credited to Inventory.

Question 5

Sales revenue minus operating expenses equals gross profit.

Accepted Answer

A) True 
 B)False

Question 6

Net income will result if gross profit exceeds

Accepted Answer

A)  cost of goods sold.
B)  operating expenses.
C)  purchases.
D)  cost of goods sold plus operating expenses.

Question 7

At the beginning of the year, Wildcat Athletic had an inventory of $300,000. During the year, the company purchased goods costing $1,200,000. If Wildcat Athletic reported ending inventory of $450,000 and sales of $1,500,000, their cost of goods sold and gross profit rate would be

Accepted Answer

A)  $750,000 and 70%
B)  $1,050,000 and 30%.
C)  $750,000 and 30%.
D)  $1,050,000 and 70%.

Question 8

Gross profit equals the difference between net sales and

Accepted Answer

A)  operating expenses.
B)  cost of goods sold.
C)  net income.
D)  cost of goods sold plus operating expenses.

Question 9

When using a periodic inventory system, which statement concerning the computation of cost of goods sold is correct?

Accepted Answer

A)  The amount of ending inventory is determined on the last day of the accounting period.
B)  Cost of goods available for sale includes net purchases plus the ending inventory.
C)  Purchases represent cash paid for purchases during the accounting period.
D)  Freight-in is ignored.

Question 10

Under the periodic inventory system, acquisitions of merchandise are not recorded in the Inventory account.

Accepted Answer

A) True 
 B)False

Question 11

The quality of earnings ratio is calculated as net income divided by net cash provided by operating activities.

Accepted Answer

A) True 
 B)False

Question 12

The periodic inventory system is used most commonly by companies that sell

Accepted Answer

A)  low-priced, high-volume merchandise.
B)  high-priced, high-volume merchandise.
C)  high-priced, low-volume merchandise.
D)  high-priced, low and high-volume merchandise.

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

Multiple-step income statements show

Accepted Answer

A)  gross profit but not income from operations.
B)  neither gross profit nor income from operations.
C)  both income from operations and gross profit.
D)  income from operations but not gross profit.

Question 15

For a jewelry retailer, which is an example of Other Revenues and Gains?

Accepted Answer

A)  Repair revenue
B)  Unearned revenue
C)  Gain on sale of display cases
D)  Discount received for paying for merchandise inventory within the discount period

Question 16

Andrea's Fashions sold merchandise for $190,000 cash during the month of July. Returns that month totaled $4,000. If the company's gross profit rate is 40%, Andrea's will report monthly net sales revenue and cost of goods sold of

Accepted Answer

A)  $190,000 and $114,000.
B)  $186,000 and $74,400.
C)  $186,000 and $111,600.
D)  $190,000 and $111,600.

Question 17

The income statement for a merchandising company presents only two amounts not shown on a service company income statement.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount?

Accepted Answer

A)  The gross profit amount is more informative than the gross profit rate because it is a dollar amount rather than a ratio.
B)  The gross profit amount is less informative than the gross profit rate because the latter presents a meaningful relationship between gross profit and net sales.
C)  The gross profit amount is more informative than the gross profit rate because the gross profit rate is only used to describe a few industries while the gross profit amount is universally used.
D)  The gross profit amount is more informative than the gross profit rate because high volume operations are able to calculate the gross profit rate but not the gross profit amount.

Question 19

If a purchaser using a perpetual inventory system pays the transportation costs, then the

Accepted Answer

A)  Inventory account is increased.
B)  Inventory account is not affected.
C)  Freight-Out account is increased.
D)  Delivery Expense account is increased.

Question 20

A buyer who acquires merchandise under credit terms of 1/10, n/30 has 20 days after the invoice date to take advantage of the cash discount.

Accepted Answer

A) True 
 B)False

Exam 4: Merchandising Operations and the Multiple-Step Income Statement

When using a periodic inventory system, which statement concerning the computation of cost of goods sold is correct?

Correct AnswerverifiedShow Answer

Under the periodic inventory system, acquisitions of merchandise are not recorded in the Inventory account.

Correct AnswerverifiedShow Answer

Which of the following provides the best rationale regarding analysts' views about the information value of the gross profit rate versus the gross profit amount?

Correct AnswerverifiedShow Answer

Andrea's Fashions sold merchandise for $190,000 cash during the month of July. Returns that month totaled $4,000. If the company's gross profit rate is 40%, Andrea's will report monthly net sales revenue and cost of goods sold of

Correct AnswerverifiedShow Answer

The terms 2/10, n/30 mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.

Correct AnswerverifiedShow Answer

At the beginning of the year, Wildcat Athletic had an inventory of $300,000. During the year, the company purchased goods costing $1,200,000. If Wildcat Athletic reported ending inventory of $450,000 and sales of $1,500,000, their cost of goods sold and gross profit rate would be

Correct AnswerverifiedShow Answer

The periodic inventory system is used most commonly by companies that sell

Correct AnswerverifiedShow Answer

Adams Company is a retailer and uses a perpetual inventory system. Which statement is correct?

Correct AnswerverifiedShow Answer

The quality of earnings ratio is calculated as net income divided by net cash provided by operating activities.

Correct AnswerverifiedShow Answer

The income statement for a merchandising company presents only two amounts not shown on a service company income statement.

Correct AnswerverifiedShow Answer

Multiple-step income statements show

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

If a purchaser using a perpetual inventory system pays the transportation costs, then the

Correct AnswerverifiedShow Answer

For a jewelry retailer, which is an example of Other Revenues and Gains?

Correct AnswerverifiedShow Answer

Gross profit equals the difference between net sales and

Correct AnswerverifiedShow Answer

A buyer who acquires merchandise under credit terms of 1/10, n/30 has 20 days after the invoice date to take advantage of the cash discount.

Correct AnswerverifiedShow Answer

Under GAAP, income statement items are generally described as

Correct AnswerverifiedShow Answer

Net income will result if gross profit exceeds

Correct AnswerverifiedShow Answer

Sales revenue minus operating expenses equals gross profit.

Correct AnswerverifiedShow Answer

Under IFRS, companies can apply revaluation to

Correct AnswerverifiedShow Answer

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