question

Operating expenses are subtracted from fees earned for a service business and from gross profit for a merchandising business

answer

True

question

Net sales is equal to sales plus cost of merchandise sold

answer

False

question

The merchandise inventory account is found on the balance sheet

answer

True

question

Net income of loss may appear on the income statement of both a service business and a merchandising business

answer

True

question

On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales

answer

False

question

On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold

answer

False

question

On the income statement, the merchandise inventory at the beginning of the period is added to sales to yield the cost of merchandise sold during the period

answer

False

question

On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues

answer

True

question

A criticism of the single step income statement is that gross profit and income from operations are NOT readily available for analysis

answer

True

question

Sales returns are granted by the seller to customers for damaged or defective merchandise

answer

True

question

Sales returns and allowances is a contra-asset account

answer

False

question

Sales discounts are granted by the seller to customers for payment at the end of the month

answer

False

question

Revenue from sources other than the primary operating activity of a business is called other income

answer

True

question

A criticism of a single step income statement is that net income is NOT available for analysis

answer

False

question

When merchandise that was sold is returned, the seller decreases accounts payable

answer

False

question

The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities

answer

True

question

The sales discount account is a contra account to sales

answer

True

question

Freight in is the amount paid by the seller to deliver merchandise sold to a customer

answer

False

question

In a multiple step income statement, sales will be reduced by sales discounts and sales returns and allowances to arrive at net sales

answer

True

question

Interest expenses is an example of an expense classified under "other expense"

answer

True

question

Purchase discounts reduce sales

answer

False

question

It is unusual for the credit period to begin with the date the merchandise is received by the buyer

answer

False

question

If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/eom

answer

True

question

Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made

answer

True

question

Sales discounts is used in accounting for transactions with customers

answer

True

question

A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570

answer

False

question

Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales

answer

False

question

The document issued by the seller that informs the buyer of the details of sales returns is called a debit memorandum

answer

False

question

The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable

answer

True

question

When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period

answer

True

question

If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchase discount is $48

answer

False

question

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

answer

False

question

Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller

answer

True

question

Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system

answer

True

question

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

answer

True

question

Discounts taken by the buyer for early payment of an invoice are called purchases discounts by there buyer

answer

True

question

In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account

answer

True

question

Purchase discounts are discounts given to the seller

answer

False

question

If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination

answer

False

question

Merchandise is sold for $2,500, terms FOB destination, 2/10. n/30 with transportation costs of $150. If $500 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $40

answer

True

question

When the terms of sale are FOB shipping point, the buyer should pay transportation charges

answer

True

question

If merchandise costing $2,500, terms FOB destination, 2/10, n/30 with transportation of $100, is paid within 10 days, the amount of the purchase discount is $52

answer

False

question

When someone purchases merchandise and incurs the cost of transportation, these costs of purchasing inventory are added to the cost of the inventory

answer

True

question

Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise

answer

True

question

In a transaction where purchased merchandise has been returned, the buyer will increase the Sales Returns and Allowances account and the seller will increase purchases Returns and Allowances account

answer

False

question

Merchandise inventory shrinkage will decrease Retained Earnings

answer

True

question

Merchandise inventory shrinkage will increase Merchandise inventory

answer

False

question

There are two alternatives to reporting cash flows from operating actives in the statement of cash flows: 1. the direct method and 2. the indirect method

answer

True

question

If cash dividends of $145,000 were declared during the year and the decrease in the dividends payable from the beginning to the end of the year was $7,000 the statement of cash flows would report $152,000 in the financing activities section

answer

True

question

Repayments of bonds would be shown as a cash outflow in the investing section go the statement of cash flows

answer

False

question

To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation

answer

False

question

Which of the following statements is true?

answer

The revenue activities of a service business involve providing services to customers

question

Which of the following businesses is a merchandising business?

answer

Kohl's

question

Gross profit is determined by subtracting the cost of merchandise sold from what?

answer

Net sales

question

Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet?

answer

As a current asset

question

Generally, the revenue account for a merchandising business is entitled

answer

Sales

question

Which of the following statements is TRUE?

answer

Sales is the total amount charged customers, including cash sales and sales on account

question

The difference between sales and cost of merchandise sold for a merchandising business is

answer

gross profit

question

What is subtracted from sales to arrive at net sales

answer

Both sales discounts and sales returns and allowances

question

East, Inc. had beginning inventory of $10,000, purchases of $25,000, and ending inventory of $5,000. What is East's cost of merchandise sold?

answer

$30,000

question

Dig, Inc. had the following merchandise transactions in October: Purchases $50,000 Purchase returns $ 4,000 Purchase discounts $ 1,000 Transportation in $ 2,000 What is the total cost of merchandise purchased for Dig, Inc

answer

$47,000

question

Which expenses are subtracted from gross profit to arrive at income from operations?

answer

Operating expenses

question

Which of the following is are examples of selling expenses?

answer

Salesperson's salaries, depreciation of store equipment, advertising

question

Which of the following accounts is a contra account to Sales?

answer

Sales returns and allowances

question

Which of the following is an administrative expense?

answer

Office salaries, depreciation of office equipment, office supplies used

question

Which of the following is NOT an administrative expense?

answer

Salesperson's salaries

question

Which of the following is NOT an example of selling expenses?

answer

Office salaries

question

NBC Company had $32,000 in net sales, $15,000 in cost of merchandise sold, $18,000 in operating expenses, and $2,000 in other income. What is NBC Comapny's gross profit?

answer

$17,000

question

When the perpetual inventory system is used, the inventory sold is shown on the income statement as

answer

cost of merchandise sold

question

What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?

answer

Gross profit

question

Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as

answer

selling expenses

question

Office salaries, depreciation of office equipment, and office supplies are examples of what type of expenses?

answer

Administrative expense

question

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

answer

single-step statement

question

Multiple step income statements show

answer

both gross profit and income from operations

question

A. Bonds Company Income Statement For the Year Ended December 31, 2010 Revenues: Net Sales $250,000 Interest Income 17,500 Total Revenues $267,500 Expenses: Cost of Goods Sold $50,000 Selling Expenses 20,000 General and Administrative Expenses 27,500 Interest Expense 12,500 Income Tax Expense 39,000 Total Expenses 149,000 Net Income $118,500 If the income statement were prepared in a multiple step format, gross profit would be

answer

$217, 500

question

Bonds Company Income Statement For the Year Ended December 31, 2010 Revenues: Net Sales $250,000 Interest Income 17,500 Total Revenues $267,500 Expenses: Cost of Goods Sold $50,000 Selling Expenses 20,000 General and Administrative Expenses 27,500 Interest Expense 12,500 Income Tax Expense 39,000 Total Expenses 149,000 Net Income $118,500 If the income statement were prepared in a multiple step format, income from operations would be

answer

$152,500

question

Which of the following would be subtracted from gross profit to reach operating income?

answer

Operating expenses

question

Inventory NOT sold at the end of the period is reported as

answer

merchandise inventory

question

Which of the following is NOT a subsection in a multiple step income statement?

answer

purchase discounts

question

Which of the following are subsections in a multiple step income statement?

answer

Gross profit, operating income, income before taxes

question

Which of the following are subtracted from sales to arrive at net sales?

answer

Sales returns

question

Gross profit is equal to

answer

sales less (sales discounts and sales returns and allowances) less cost of merchandise sold

question

Deana, Inc. purchased merchandise for $500,000, received credit for purchase returns of $25,000, took purchase discounts of $10,000, and paid transportation in of $20,000. What is the total cost of merchandise purchased?

answer

$485,000

question

Deana, Inc. purchased merchandise for $500,000, received credit for purchase returns of $25,000, took purchase discounts of $10,000, and paid transportation in of $20,000. If Deanna, Inc. had $20,000 in beginning inventory, and sold goods costing $300,000, what is the ending inventory balance?

answer

$185,000

question

Which of the following is NOT considered when figuring net purchase?

answer

Cost of goods sold

question

Which of the following are considered when figuring net purchases?

answer

Purchase returns, purchase discounts, purchases

question

Which of the following accounts will NOT be found in the Cost of Merchandise Sold section on the income statement

answer

Sales returns and allowances

question

Which of the following accounts will be found in the Cost of Merchandise Sold section on the income statement

answer

Purchases, transportation In, merchandise inventory

question

Multiple step income statements show...

answer

Gross profit, cost of merchandise sold, income from operations and net income

question

Under a perpetual inventory system

answer

accounting records continuously disclose the amount of inventory

question

Where are selling and administrative expenses found on the multi step income statement

answer

After the gross profit

question

Gold Co. sold merchandise to Bronze Co. on account, $25,000, terms 2/15, net 45. The cost of the merchandise sold is $18,500. Gold Co. issued a credit memorandum for $2,500 for merchandise returned that originally cost $1,900. Bronze Co. paid the invoice within the discount period. What is amount of net sales from the transactions?

answer

$22,050

question

Expenses that CANNOT be traced directly to operations are identified as

answer

other expenses

question

What is one criticism of the single step income statement

answer

Gross profit and income from operations are not available for analysis

question

Which financial statement reconciles net income with net cash flows from operating activities?

answer

statement of cash flows

question

If Martin, Inc. sold $550,000 worth of merchandise, had $50,000 returned, and then the balance paid during the 2% discount period, how much was Martin's net sales?

answer

$490,000

question

The credit terms of a sale are normally indicated on a

answer

invoice

question

Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the transaction is recorded in the buyer's accounts on November 18. The credit period begins with what date?

answer

Nov 15

question

Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the transaction is recorded in the seller's accounts on November 15. If the credit terms are 1/10, n/30, the credit period begins with what date?

answer

No 15

question

A sales invoice included the following information: merchandise price, $4,500; transportation, $300; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $600 is granted prior to payment, that the transportation is prepaid by the seller, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?

answer

$4,158

question

Sometimes a ______ is offered to buyers as a means of encouraging them to pay before the end of the credit period

answer

sales discounts

question

The arrangements between buyer and seller as to when payments for merchandise are to be made are called

answer

credit terms

question

If a $20,000 sale is made on Jan 1, with terms of 2/10, n/30, how much would the discount be if payment is made Jan 9

answer

$400

question

In credit terms of 1/10, n/30, the "1" represents

answer

percent of the cash discount

question

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a

answer

increase in Cash and increase in sales

question

In recording the cost of merchandise sold for cash using a perpetual inventory system the effect on the account is

answer

increase cost of merchandise sold, decrease merchandise inventory

question

When merchandise that was sold on account is returned, which accounts are affected

answer

sales returns, accounts receivable, merchandise inventory, and cost of goods sold

question

For the perpetual inventory system, which of the following effects does NOT occur upon the return from a customer of merchandise sold on account

answer

Increases purchase returns and allowances and decreases merchandise inventory

question

If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a

answer

credit memorandum

question

Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $20,000. The seller paid transportation costs of $1,000 and issued a credit memorandum for $5,000 prior to payment. What is the amount of the cash discount allowable?

answer

$150

question

Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 with terms of 1/15, net 45. What is the amount of the discount, and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?

answer

$90, Sept 30

question

Based on the following information, what would be recorded as purchases discount if the invoice is paid within the discount period? 1. $5,000 of merchandise inventory was ordered on April 2, 2010. 2. $2,000 of this merchandise was received on April 5, 2010. 3. On April 6, 2010, an invoice dated April 4, 2010, with terms of 2/10, net 30 for $2,150 which included a $150 prepaid freight cost, was received. 4. On April 10, 2010, $500 of the merchandise was returned to the seller.

answer

$30

question

In credit terms of 1/10, n/30, the "10" represents the

answer

number of days in the discount period

question

When purchases of merchandise are made for cash, the transaction

answer

increases merchandise inventory, decreases cash

question

When merchandise is purchased to resell to customers, it is recorded in the account entitled

answer

merchandise inventory

question

Using a perpetual inventory system, the purchase of $30,000 of merchandise on account would include a

answer

increase in merchandise inventory

question

Using a perpetual inventory system, the return of merchandise purchased on account includes a

answer

decrease in merchandise inventory

question

The amount of the total cash paid to the seller for merchandise purchased would normally include

answer

the list price plus the sales tax

question

A sales invoice included the following information: merchandise price, $5,000; terms 1/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?

answer

$4,356

question

A sales invoice included the following information: merchandise price, $6,000; terms 2/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?

answer

$5,292

question

Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $17,500. The seller issued a credit memorandum for $4,000 prior to payment. What is the amount of the cash discount allowable?

answer

$135

question

If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as

answer

FOB shipping point

question

If the seller is to pay the delivery expense of delivering merchandise, the delivery terms are stated as

answer

FOB destination

question

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

answer

FOB shipping point

question

If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are

answer

FOB destination

question

Merchandise with an invoice price of $6,000 is purchased subject to terms of 2/10, n/30, FOB destination. Transportation costs paid by the seller totaled $125. What is the net cost of the merchandise?

answer

$5,880

question

Which term indicated the merchandise is free of transportation charges to the buyer

answer

FOB destination

question

Inventory shortage is recorded when

answer

there is a difference between a physical count of inventory and inventory records

question

Cash paid to purchase long term investments would be reported in the statement of cash flows in

answer

the cash flows from investing activities section

question

Which of the following should be shown on a statement of cash flows under the financing activity section

answer

the payment of cash to retire a long term note

question

Under the indirect method for preparing the statement of cash flows, increases in current liabilities are ______ net income in the cash flows from operating activities section

answer

added to

question

Which of the following would NOT affect the operating activities section of the statement of cash flows, using the indirect method

answer

payment on a note payable

question

Which of the following would affect the operating activities section of the statement of cash flows, using the indirect method

answer

decrease in merchandise inventory, decrease in unearned rent, depreciation expense

question

Using the indirect method for preparing the statement of cash flows, what is the net cash flow from operating activities if net income is $39,000; depreciation expense is $9,000; and the decrease in accounts payable is $5,000.

answer

$43,000

question

Under the indirect method for preparing the statement of cash flows, decreases in current assets are __________ net income in the cash flows from operating activities section.

answer

added to

question

A payment of dividends decrease which section on the statement of cash flows

answer

financing activities

question

ONI, Inc. purchased $60,000 of equipment for cash. How does this transaction impact the statement of cash flows?

answer

decreases the investing activities section by $60,000

question

Investing activités include

answer

collecting cash on loans made

Accounting test 2 chapter 4 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards