Orion Ch 5: Merchandising Operation – Flashcards

All of the following would be considered merchandising companies EXCEPT A a tech startup B an Internet retailer C a commercial winery D a service firm

Q 5.2: A department store uses a perpetual inventory system. At year-end, the balance in the merchandise inventory account is $2 million. Assuming that the inventory records have been maintained properly, a year-end physical inventory A : will probably indicate less than $2 million in merchandise on hand. B : is unnecessary. C : will probably indicate more than $2 million in merchandise on hand. D : is required to determine the cost of goods sold for the period.

Q 5.3: In a _____ inventory system, the cost of goods is determined only at the end of the accounting period.

Q 5.4: How do you calculate the cost of goods for sale if closing inventory is nil? A : by adding beginning inventory to purchases and freight-in B : by adding freight-in to net purchases C : by adding beginning inventory to net purchases D : by adding inventory to cost of goods purchased

Q 5.5: A company receives a discount for paying for merchandise purchased within the discount period. How will the amount of the discount be recorded in a perpetual inventory system? A : debited to Cash B : credited to Accounts Payable C : debited to Accounts Payable D : credited to Inventory

Q 5.6: What does the freight term "FOB destination" mean? A : the buyer and seller split the freight costs B : the seller pays the freight costs C : the buyer pays the freight costs D : the freight costs are shifted to the consumer

Q 5.7: A retailer acquires merchandise for resale. How would this be recorded in a perpetual inventory system? A : debited to the Inventory account B : credited to the Supplies account C : credited to the Inventory account D : debited to the Supplies account

Q 5.8: If the credit terms on a sales invoice read "2/10, n/30," what does this mean? A : The buyer should pay within the credit period but should not invest the cash while waiting to pay the bill. B : The buyer should hold off on paying the bill until the end of the credit period while investing the money at 10% annual interest during this time. C : The buyer should recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price. D : The buyer should pay within the discount period and recognize a savings.

Q 5.9: In which of the following scenarios would a Sales and Returns and Allowances account NOT be debited? A : A customer utilizes a prompt payment incentive. B : A customer returns goods that are not in accordance with specifications. C : A customer receives a credit for merchandise of inferior quality. D : A customer returns defective merchandise.

Q 5.10: ________ has a normal credit balance. A : Sales Discounts B : Sales Revenue C : Sales Returns and Allowances D : Selling Expense

Q 5.11: Which of the following is NOT a contra revenue account? A : Sales Discounts B : Sales Returns C : Sales Revenue D : Sales Allowances

Q 5.12: In a perpetual inventory system, when is the Cost of Goods Sold account 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

Q 5.13: ________ is shown on a multiple-step but not on a single-step income statement. A : Net sales B : Gross profit C : Cost of goods sold D : Net income

Q 5.14: Why might a company choose to use the single-step income statement? Select all that apply. A : The company does not realize any type of profit or income until total revenues exceed total expenses. B : The single-step income statement allows companies more flexibility in categorizing revenues. C : The single-step income statement is easier to read. D : The single-step income statement highlights the components of net income.

Q 5.15: At the beginning of January 2014, a company reported inventory of $4,000. During the month, the company made purchases of $17,800. On January 31, 2014, a physical count of inventory reported $4,200 on hand. Find the cost of goods sold for the month. A : $21,800 B : $17,800 C : $17,600 D : $18,000

Q 5.16: ________ requires a physical count of goods on hand to compute the cost of goods sold. A : A periodic inventory system B : A pyramid inventory system C : A perpetual inventory system D : A physical inventory system

Q 5.17: During the year, a company's inventory decreased by $20,000. If the company's cost of goods sold for the year was $400,000, find the amount for purchases. A : $380,000 B : $420,000 C : $20,000 D : $400,000

Q 5.18: How is the gross profit rate computed? A : by dividing net cash provided by operating activities by net income B : by dividing net income by net sales C : by subtracting ending inventory from the goods available for sale D : by dividing the amount of gross profit by net sales

Q 5.19: How is the profit margin computed? A : by dividing net cash provided by operating activities by net income B : by dividing the amount of gross profit by net sales C : by subtracting ending inventory from the goods available for sale D : by dividing net income by net sales

Q 5.20: How is the quality of earnings ratio computed? A : by subtracting ending inventory from the goods available for sale B : by dividing net cash provided by operating activities by net income C : by dividing net income by net sales D : by dividing the amount of gross profit by net sales

Q 5.21: To assess earnings quality, a company employs the quality of earnings ratio by dividing net cash provided by operating expenses by A : gross profits. B : net income. C : net sales. D : net cash provided by operating activities.

Q 5.22: Which of the following statements about gross profit are true? Select all that apply. A : Selling products with a lower markup decreases gross profit. B : Paying lower prices to suppliers for goods increases gross profit. C : Selling overstocked inventory at reduced prices will increase gross profit. D : Raising the price of merchandise when consumer demand is low will increase gross profit.

Q 5.23: When the performance obligation is satisfied, the merchandising company records the sales revenue. This represents the A : cost principle. B : expense principle. C : revenue recognition principle. D : matching principle.

Q 5.24: Bucky's Hardware sold merchandise worth $1,200 to a customer, and offered terms of 2/10, n/30. If the customer pays within 10 days, Bucky's Hardware will receive A : $1,200. B : $1,080. C : $1,208. D : $1,176.

Q 5.25: The single-step income statement is considered more useful than the multiple-step income statement because it highlights the components of net income. A : True B : False

Q 5.26: Operating expenses are subtracted from revenue for a merchandising enterprise to find net income. A : True B : False

Q 5.27: Adding beginning inventory to the cost of goods purchased will give you A : gross profit. B : net purchases. C : the cost of goods sold. D : the cost of goods available for sale.

Q 5.28: What will be a merchandiser's operating income if its operating expenses are equal to its gross profit? A : less than $0 B : greater than $0 C : exactly $0

Q 5.29: In order to have net income, a merchandiser's operating expenses can exceed gross profit. A True B False

Q 5.30: To calculate the gross profit rate, you divide net income by net sales. A : True B : False

Q 5.31: A wholesaler offers credit terms 1/10, n/30. A fabric store bought goods worth $6,500 from the wholesaler. Within the discount period, the fabric store returned defective goods worth $300 and paid the amount owed. How much did the wholesaler receive as payment? A : $6,435 B : $6,138 C : $6,200 D : $6,076

Q 5.32: A perpetual inventory system A : continuously updates information about inventory on hand. B : tracks inventory periodically. C : tracks inventory on the first and fifteenth of a month. D : requires a physical count of inventory to determine cost of goods sold.

Q 5.33: How is the quality of earnings ratio calculated? A : gross profit divided by net sales B : net cash provided by operating expenses divided by net income C : net income divided by net cash provided by operating expenses D : net income divided by net sales

Q 5.34: Which of the following quality of earnings ratios suggests a company is using the most aggressive accounting techniques? A : 0.6 B : 1.8 C : 1.0 D : 0.2

Q 5.35: On a multiple-step income statement, a jewelry retailer might include the journal entry "Gain on sale of display cases" under the heading A : Sales Revenue. B : Other Expenses and Losses. C : Operating Expenses. D : Other Revenues and Gains.

Q 5.36: In an income statement, where does freight-out appear? A : as an operating expense B : as a loss C : in contra revenue account D : as revenue

Q 5.37: A company reports Sales Returns and Allowances of $26,000 and Net Sales of $370,000. It also reports Cost of Goods Sold of $230,000. Find the company's Sales and Gross Profit. A : Sales: $396,000; Gross Profit: $166,000 B : Sales: $396,000; Gross Profit: $140,000 C : Sales: $344,000; Gross Profit: $140,000 D : Sales: $344,000; Gross Profit: $166,000

Q 5.38: When the cost of good sold is subtracted from net sales, the result is A : sales revenue. B : operating expenses. C : gross profit. D : net income.

Q 5.39: Positive operating income will result if operating expenses are lower than A : salaries and wages expense. B : sales allowances. C : gross profit. D : purchase discounts.

Q 5.40: To calculate the profit margin, you divide net income by net sales. A : True B : False