Merchandising Operations
Chapter 5
1
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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.
2.
3.
4.
Accounting period
Operating cycle
Accounting cycle
Operating period
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Answer: 2
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The inventory system that keeps a running record
of all inventory as it is bought and sold is called
1.
2.
3.
4.
Periodic inventory system
Computerized inventory system
Perpetual inventory system
Physical inventory system
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Answer: 3
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Clark Company uses a perpetual inventory system.
The entry to record the purchase of inventory on
account would include
1.
2.
3.
4.
A credit to sales revenue
A debit to inventory
A debit to purchases
A credit to inventory
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Answer: 2
The entry is:
GENERAL JOURNAL
DATE
DESCRIPTION
REF
DEBIT
CREDIT
Inventory
Accounts Payable
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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.
2.
3.
4.
Accounts Payable
Purchase Discounts
Inventory
Sales Discounts
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Answer: 3
The entry is
GENERAL JOURNAL
DATE
DESCRIPTION
Accounts Payable
Inventory
Cash
REF
DEBIT
CREDIT
600
6
594
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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.
2.
3.
4.
Purchase Returns and Allowances
Inventory
Sales Returns and Allowances
Accounts Payable
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Answer: 2
The entry is
GENERAL JOURNAL
DATE
DESCRIPTION
Accounts Payable
Inventory
REF
DEBIT
CREDIT
100
100
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Collins Company uses a perpetual inventory
system. If Collins purchases inventory and the
freight terms of FOB destination, then the
1.
2.
3.
4.
Inventory account is not affected
Delivery expense increases
Inventory account increases
Freight-in account increases
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Answer: 1
FOB Destination means that the seller pays the
shipping costs.
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Sales revenue minus cost of goods sold is called
1.
2.
3.
4.
Cost of goods sold
Gross profit
Net profit
Net income
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Answer: 2
15
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Miller Company sold merchandise on account for
$200. These goods cost Miller $160. The entry to
record this transaction would include:
1.
2.
3.
4.
Debit cost of goods sold; credit inventory, $200
Debit inventory; credit accounts receivable, $200
Debit sales revenue; credit cost of goods sold, $200
Debit accounts receivable; credit sales revenue,
$200
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Answer: 4
The entry is
GENERAL JOURNAL
DATE
DESCRIPTION
REF
DEBIT
Accounts Receivable
Sales Revenue
200
Cost of Goods Sold
Inventory
160
CREDIT
200
160
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The Sales Returns and Allowances account is
classified as a(n)
1.
2.
3.
4.
Asset account
Expense account
Contra asset account
Contra revenue account
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Answer: 4
Sales Returns and Allowances and Sales
Discounts are both contra revenue accounts.
They are deducted from Sales Revenue to
compute net sales.
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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?
20
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Answer:
Balance on account ($500 - $100)
Less 2% discount ($400 x .02)
Cash paid
$400
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$392
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What is the normal balance of the Sales Discounts
account?
1. Debit
2. Credit
22
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Answer: Debit (It is a contra revenue)
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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.
2.
3.
4.
Debit inventory; credit cost of goods sold
Debit cost of goods sold; credit inventory
Debit inventory; credit accounts payable
Debit sales revenue; credit cost of goods sold
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Inventory
Balance $7,000
Answer: 2
$500
Desired balance $6,500
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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?
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Answer:
Sales revenue
Less Sales returns and allowances
Sales discounts
Net sales
$900
$40
60
100
$800
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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?
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Answer:
Net Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating Income
$800
(300)
$500
(200)
$300
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Which one of the following is found on a multi-step
income statement but not on a single-step income
statement?
1.
2.
3.
4.
Net income
Cost of goods sold
Gross profit
Net sales
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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.
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The gross profit percentage is computed by
dividing gross profit by
1.
2.
3.
4.
Net sales revenue
Operating income
Cost of goods sold
Net income
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Answer: 1
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The following information is available for Clarence
Company, which uses a periodic inventory system:
Beginning inventory
Ending inventory
Net purchases
$200
300
800
What is the amount of the cost of goods sold?
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Answer:
Beginning inventory
Net purchases
Cost of goods available for sale
Less: Ending inventory
Cost of goods sold
$200
800
$1,000
300
$700
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