ACCOUNTING 26TH EDITION BY WARREN -TEST BANK

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ACCOUNTING 26TH EDITION BY WARREN -TEST BANK

Chapter_06_Accounting_for_Merchandising_Businesses

 

 

 

  1. The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.03 – Business Forms

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In a merchandise business, sales minus operating expenses equal net income.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Service businesses provide services for income, while a merchandising business sells merchandise.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.03 – Business Forms

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In retail businesses, inventory is reported as a current asset.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under a periodic inventory system, the cost of merchandise on hand at the end of the year is determined by a physical count of the inventory.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Freight in is the amount paid by the company to deliver merchandise sold to a customer.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Freight in is considered a cost of purchasing inventory.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The cost of merchandise inventory is limited to the purchase price less any purchase discounts.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When merchandise that was sold is returned, a credit to sales returns and allowances is made.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. In a perpetual inventory system, when merchandise is returned to the supplier, Cost of Merchandise Sold is debited as part of the transaction.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Customer Refunds Payable is an account used to record merchandise returns from customers.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Estimated Returns Inventory is an account used when adjusting for expected merchandise sales in the next period.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Large businesses that make sales to customers who use nonbank credit cards, such as American Express, generally treat these sales as credit sales.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Most retailers record all credit card sales as credit sales.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The fees associated with credit card sales are periodically recorded as expenses.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A seller may grant a buyer a reduction in selling price and this is called a customer discount.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A customer discount encourages customers to pay accounts more quickly than if a discount were not available.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.15 – Current Assets Reporting

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Merchandise Inventory normally has a debit balance.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. 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 sales discount.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. The entry to record the purchase will include a debit to Cash and a credit to Sales.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. 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.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Buyers and sellers do not normally record the list prices of merchandise and the trade discounts in accounts.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade discount.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Sellers and buyers are required to record trade discounts.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

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

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A sale of $750 on account, subject to a sales tax of 6%, would be recorded as an account receivable of $750.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.15 – Current Assets Reporting

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. When merchandise is sold for $600 plus 6% sales tax, the Sales account should be credited for $636.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The abbreviation FOB stands for “free on board.”
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Merchandise is sold for $3,600, terms FOB destination, 2/10, n/30, with prepaid freight costs of $150. The amount of the sales recorded is $3,528.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. If the buyer bears the freight costs related to a purchase, the terms are said to be FOB destination.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When the terms of sale are FOB shipping point, the buyer should pay the freight charges.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If merchandise costing $3,500, terms FOB destination, 2/10, n/30, with prepaid freight costs of $125, is paid within 10 days, the amount of the purchases discount is $70.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The chart of accounts for a merchandising business would include an account called Delivery Expense.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. There is no difference between the recording of cash sales and the recording of MasterCard or VISA sales.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When companies use a perpetual inventory system, the recording of the purchase of inventory will include a debit to
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Most companies will not take a purchase discount, because 1% or 2% discounts are insignificant.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The seller may prepay the freight costs even though the terms are FOB shipping point.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The seller records the sales tax as part of the sales amount.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take a physical inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer’s place of business.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the buyer.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Because many companies use computerized accounting systems, periodic inventory is widely used.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped FOB shipping point.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The form of the balance sheet in which assets, liabilities, and owner’s equity are presented in a downward sequence is called the report form.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Sales are equal to the cost of merchandise sold less the gross profit.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is listed as Other Income on the multiple-step income statement.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In a multiple-step income statement, the dollar amount for income from operations is always the same as net
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Gross profit minus selling expenses equals net income.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The account form of the balance sheet is presented in a downward sequence in three sections.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In the merchandising income statement, sales will be reduced by administrative expenses to arrive at operating
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. As we compare a merchandise business to a service business, the financial statement that changes the most is the balance sheet.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Cost of merchandise sold is often the largest expense on a merchandising company income statement.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. When a merchandising business is compared to a service business, the financial statement that is not affected by that change is the statement of owner’s equity.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Other income and expenses are items that are not related to the primary operating activity.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Challenging

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.07 – Adjusting Entries

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Closing entries for a merchandising business are not similar to those for a service business.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.08 – Closing Entries

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The ratio of sales to assets measures how effectively a business is using its assets to generate sales.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-05 – 06-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

  1. Under the periodic inventory system, the cost of merchandise sold is equal to the beginning merchandise inventory plus the cost of merchandise purchased plus the ending merchandise inventory.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. In a periodic inventory system, the cost of merchandise purchased includes the cost of freight in.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.
    1. True
    2. False

 

ANSWER:                                  True

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under the periodic inventory system, the cost of merchandise sold is recorded when sales are made.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Freight In are found on the balance sheet.
    1. True
    2. False

 

ANSWER:                                  False

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Merchandise inventory is classified on the balance sheet as a
    1. current liability
    2. current asset
    3. long-term asset
    4. long-term liability

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following is not a difference between a retail business and a service business?
    1. in what is sold
    2. the inclusion of gross profit on the income statement
    3. accounting equation
    4. merchandise inventory included on the balance sheet

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.03 – Business Forms

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Net income plus operating expenses is equal to
    1. cost of merchandise sold
    2. cost of merchandise available for sale
    3. sales
    4. gross profit

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
    1. gross profit
    2. income from operations
    3. net income
    4. gross sales

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The inventory system employing accounting records that continuously disclose the amount of inventory is called
    1. retail
    2. periodic
    3. physical
    4. perpetual

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Calculate income from operations for Jonas Company based on the following data:

 

Sales $764,000
Operating expenses 52,500
Cost of merchandise sold 538,000
  1. $485,500
  2. $711,500
  3. $173,500
  4. $226,000

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCTWARD.16.06-01 – 06-01

ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Gross profit is equal to
    1. sales plus cost of merchandise sold
    2. sales plus selling expenses
    3. sales less selling expenses
    4. sales less cost of merchandise sold

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCTWARD.16.06-01 – 06-01

ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When comparing a retail business to a service business, the financial statement that changes the most is the
    1. balance sheet
    2. income statement
    3. statement of owner’s equity
    4. statement of cash flows

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-01 – 06-01

ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Calculate the gross profit for Jefferson Company based on the following:

 

Sales $764,000
Selling Expenses 42,500
Cost of Merchandise Sold 538,000
  1. $495,500
  2. $183,500
  3. $721,500
  4. $226,000

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. The Pound Co. paid the invoice within the discount period. What is amount of sales from the above transactions?
  2. $25,500
  3. $26,010
  4. $24,990
  5. $16,000

ANSWER:                                  c

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The primary difference between a periodic and perpetual inventory system is that a
    1. periodic system determines the inventory on hand only at the end of the accounting period
    2. periodic system keeps a record showing the inventory on hand at all times
    3. periodic system provides an easy means to determine inventory shrinkage
    4. periodic system records the cost of the sale on the date the sale is made

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
    1. debit to Sales
    2. debit to Merchandise Inventory
    3. credit to Merchandise Inventory
    4. credit to Accounts Receivable

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following accounts has a normal debit balance?
    1. Accounts Payable
    2. Merchandise Inventory
    3. Sales
    4. Interest Revenue

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Merchandise is ordered on November 10; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 13; the merchandise is received by the buyer on November 18; the entry is made in the buyer’s accounts on November 20. The credit period begins with what date?
    1. November 10
    2. November 13
    3. November 18
    4. November 20

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes a
    1. credit to Customer Refunds Payable
    2. debit to Merchandise Inventory
    3. credit to Merchandise Inventory
    4. debit to Cash

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a
    1. sales invoice
    2. purchase invoice
    3. credit memo
    4. debit memo

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. The arrangements between buyer and seller as to when payments for merchandise are to be made are called
    1. credit terms
    2. net cash
    3. cash on demand
    4. gross cash

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. In credit terms of 3/15, n/45, the “3” represents the
    1. number of days in the discount period
    2. full amount of the invoice
    3. number of days when the entire amount is due
    4. percent of the cash discount

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale would include a
    1. debit to Cash for $5,000
    2. debit to Sales Discounts for $100
    3. credit to Sales for $4,900
    4. debit to Accounts Receivable for $4,880

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is the amount of the sales discount allowable?
  2. $260
  3. $500
  4. $460
  5. $150

ANSWER:                                  b

DIFFICULTY:                           Bloom’s: Applying Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following accounts has a normal credit balance?
    1. Accounts Receivable
    2. Sales
    3. Merchandise Inventory
    4. Delivery Expense

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The entry to record the return of merchandise from a customer would include a
    1. debit to Sales
    2. credit to Sales
    3. debit to Customer Refunds Payable
    4. debit to Estimated Returns Inventory

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
    1. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
    2. debit to Cash and a credit to Sales
    3. debit to Cash, credit to Credit Card Expense, and a credit to Sales
    4. debit to Sales, debit to Credit Card Expense, and a credit to Cash

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as
    1. sales on account
    2. sales returns
    3. cash sales
    4. sales when the credit card company remits the cash

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a
    1. debit to Merchandise Inventory; a credit to Cash
    2. debit to Cash; a credit to Merchandise Inventory
    3. debit to Cash; a credit to Sales
    4. debit to Sales; a credit to Accounts Payable

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When merchandise purchased on account is returned under the perpetual inventory system, the buyer would debit
    1. Merchandise Inventory
    2. Purchases Returns and Allowances
    3. Accounts Payable
    4. Accounts Receivable

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry?
    1. debit Accounts Payable; credit Merchandise Inventory
    2. debit Merchandise Inventory; credit Accounts Payable
    3. debit Merchandise Inventory; credit Cash Discounts
    4. debit Merchandise Inventory; credit Purchases

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a
    1. debit to Accounts Payable
    2. debit to Merchandise Inventory
    3. credit to Merchandise Inventory
    4. credit to Sales

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a
    1. debit to Cost of Merchandise Sold
    2. credit to Accounts Payable
    3. credit to Merchandise Inventory
    4. credit to Sales

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is
    1. debit Cost of Merchandise Sold; credit Sales
    2. debit Cost of Merchandise Sold; credit Merchandise Inventory
    3. debit Merchandise Inventory; credit Cost of Merchandise Sold
    4. debit Accounts Receivable; credit Merchandise Inventory

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include
    1. only the list price
    2. only the sales tax
    3. the list price plus the sales tax
    4. the list price less the sales tax

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should Norfolk debit to the Merchandise Inventory account?
  2. $21,000
  3. $20,580
  4. $30,000
  5. $29,400

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom, FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?
  2. $12,285
  3. $11,500
  4. $10,480
  5. $11,385

ANSWER:                                  a

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following accounts usually has a debit balance?
    1. Accounts Payable
    2. Sales Tax Payable
    3. Sales
    4. Merchandise Inventory

 

ANSWER:                                  d

DIFFICULTY:                           Bloom’s: Remembering Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to
    1. cash for $6,000
    2. sales for $6,240
    3. sales tax payable for $420
    4. sales for $5,580

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
    1. FOB shipping point
    2. FOB destination
    3. FOB n/30
    4. FOB buyer

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
    1. FOB shipping point
    2. FOB destination
    3. FOB n/30
    4. FOB seller

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
    1. n/30
    2. FOB shipping point
    3. FOB destination
    4. consigned

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When goods are shipped FOB destination and the seller pays the freight charges, the buyer
    1. journalizes a reduction for the cost of the merchandise
    2. journalizes a reimbursement to the seller
    3. does not take a discount
    4. makes no journal entry for the freight

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?
    1. Accounts Receivable—Stanton, debit $20,000; Sales, credit $20,000
    2. Accounts Receivable—Stanton, debit $19,600; Sales, credit $19,600, and Accounts Receivable—Stanton, debit $500; Cash, credit $500
    3. Accounts Receivable—Stanton, debit $20,100; Sales, credit $20,100
    4. Accounts Receivable—Stanton, debit $20,000; Sales, credit $20,000, and

Delivery Expense, debit $500; Cash, credit $500

 

ANSWER:                                  b

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Emma Co. sold to Isabella Co. merchandise on account FOB shipping point, 2/10, net 30, for $15,000. Emma prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the discount period?
    1. Accounts Payable—Emma Co., debit $15,000; Cash, credit $15,000
    2. Accounts Payable—Emma Co., debit $15,450; Cash, credit $15,450
    3. Accounts Payable—Emma Co., debit $15,000; Freight In, debit $750; Cash, credit $15,750
    4. Accounts Payable—Emma Co., debit $15,750; Merchandise Inventory, debit $300; Cash, credit $16,050

 

ANSWER:                                  b

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A chart of accounts for a merchandising business
    1. usually is the same as the chart of accounts for a service business
    2. usually requires more accounts than does the chart of accounts for a service business
    3. usually is standardized by the FASB for all merchandising businesses
    4. always uses a three-digit numbering system

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry (ies) would be recorded?
    1. debit Cash, $2,000; credit Merchandise Inventory, $1,250
    2. debit Cash, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit Merchandise Inventory, $1,250
    3. debit Cash, $1,250; credit Sales, $1,250
    4. debit Accounts Receivable, $2,000; credit Sales, $2,000; and debit Cost of Merchandise Sold, $1,250; credit Merchandise Inventory, $1,250

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Jacob Co. sells merchandise on credit to Isaiah Co. in the amount of $9,700. The invoice is dated on May 1 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?
  2. $194, May 15
  3. $194, May 16
  4. $97, May 15
  5. $97, May 16

ANSWER:                                  d

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Kaden Co. sells merchandise on credit to Jase Co. in the amount of $9,600. The invoice is dated on July 15 with terms of 1/15, net 45. If Jase Co. chooses not to take the discount, by when should the payment be made?
    1. July 30
    2. August 29
    3. August 15
    4. July 25

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. To encourage a buyer to pay before the end of the credit period, the seller may offer a
    1. purchases discount
    2. sales discount
    3. trade discount
    4. payment discount

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately
    1. 2% 24% c. 20% d. 36%

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Who is responsible for the freight costs when the terms are FOB shipping point?
    1. the ultimate customer
    2. the buyer
    3. the seller
    4. either the seller or the buyer

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Who is responsible for the freight cost when the terms are FOB destination?
    1. the seller
    2. the buyer
    3. the customer
    4. either the buyer or the seller

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade discount and credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount period?
  2. $30,000
  3. $24,900
  4. $29,400
  5. $24,990

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. What type of company would normally offer trade discounts to its customers?
    1. service companies
    2. retailers
    3. wholesalers
    4. online retailers

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.03 – Business Forms

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following accounts will only be found in the chart of accounts of a merchandising company?
    1. Sales
    2. Accounts Receivable
    3. Merchandise Inventory
    4. Accounts Payable

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following items would not affect the cost of merchandise inventory acquired during the period?
    1. quantity discounts
    2. sales discounts
    3. freight-in
    4. sales commissions

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
    1. consigned
    2. n/30
    3. FOB shipping point
    4. FOB destination

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
    1. n/30
    2. FOB shipping point
    3. FOB destination
    4. consigned

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If merchandise sells for $3,500, with terms of 3/15, n/45 and the cost of the inventory sold is $2,100, the amount charged to sales is
  2. $3,395
  3. $3,500
  4. $2,037
  5. $2,100

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Under the perpetual inventory system, all purchases of merchandise are debited to the account
    1. Merchandise Inventory
    2. Cost of Merchandise Sold
    3. Cost of Merchandise Available for Sale
    4. Purchases

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. When the perpetual inventory system is used, the inventory sold is debited to
    1. Supplies Expense
    2. Cost of Merchandise Sold
    3. Merchandise Inventory
    4. Sales

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under a perpetual inventory system
    1. accounting records continuously disclose the amount of inventory
    2. increases in inventory resulting from purchases are debited to Purchases
    3. there is no need for a year-end physical count
    4. the purchase returns and allowances account is credited when goods are returned to vendors

 

ANSWER:                                  a

DIFFICULTY:                           Easy

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The journal entry to record the receipt of inventory purchased for cash in a perpetual inventory system would be

 

a. Jan. 1  Merchandise Inventory

Cash

1,500  

1,500

b. Jan. 1  Office Supplies

Cash

1,500  

1,500

c. Jan. 1  Purchases

Accounts Payable

1,500  

1,500

d. Jan. 1  Cash

Accounts Receivable

1,500  

1,500

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Which of the following items should not be included in the cost of ending merchandise inventory?
    1. purchased units in transit, shipped FOB shipping point
    2. purchased units in transit, shipped FOB destination
    3. units on hand in the warehouse
    4. sold units in transit, not invoiced, and shipped FOB destination

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. The Corbit Corp. sold merchandise for $10,000 cash. The cost of the merchandise sold was $7,590. The journal entries to record this transaction under the perpetual inventory system would be
    1. Cash 10,000

Merchandise Inventory                        10,000

Cost of Merchandise Sold Sales 7,590  

7,590

b. Cash

Sales

10,000  

10,000

Cost of Merchandise Sold Merchandise Inventory 7,590  

7,590

c. Cash

Sales

10,000  

10,000

Cost of Merchandise Sold Merchandise Inventory 10,000  

10,000

d. Cash

Sales

7,590  

7,590

Cost of Merchandise Sold            7,590 Merchandise Inventory                                                7,590

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold is $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700.  Gomez Co. paid the invoice within the discount period.  What is the amount of gross profit earned by Abbey Co. on the above transactions?
  2. $10,500
  3. $30,772
  4. $7,972
  5. $31,400

ANSWER:                                  c

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. What is the major difference between a periodic and perpetual inventory system?
    1. Under the periodic inventory system, the purchase of inventory will be debited to the Purchases account.
    2. Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the cost of the inventory.
    3. Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts are reconciled at the end of the month.
    4. All of the answers are correct.

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. When comparing a retail business to a service business, the financial statement that changes the least is the
    1. balance sheet
    2. income statement
    3. statement of owner’s equity
    4. statement of cash flows

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Generally, the revenue account for a merchandising business is entitled
    1. Sales
    2. Fees Earned
    3. Gross Sales
    4. Gross Profit

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which account is not classified as a selling expense?
    1. Sales Salaries
    2. Delivery Expense
    3. Cost of Goods Sold
    4. Advertising Expense

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. President’s salaries, depreciation of office furniture, and office supplies are
    1. selling expenses
    2. miscellaneous expenses
    3. administrative expenses
    4. inventory expenses

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
    1. selling expenses
    2. general expenses
    3. other expenses
    4. administrative expenses

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When the perpetual inventory system is used, the inventory sold is shown on the income statement as
    1. cost of merchandise sold
    2. purchases
    3. purchases returns and allowances
    4. net purchases

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The statement of owner’s equity shows
    1. only net income, beginning and ending capital
    2. only total assets, beginning and ending capital
    3. only net income, beginning capital, and withdrawals
    4. beginning and ending capital and all the changes in the owner’s capital as a result of net income (loss), and withdrawals

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Merchandise with an invoice price of $6,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September 12, assuming the discount is taken?
  2. $6,120
  3. $5,940
  4. $6,090
  5. $5,880

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the
    1. account form
    2. comparative form
    3. horizontal form
    4. report form

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Multiple-step income statements show
    1. gross profit but not income from operations
    2. neither gross profit nor income from operations
    3. both gross profit and income from operations
    4. income from operations but not gross profit

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. 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
    1. multiple-step statement
    2. revenue statement
    3. report-form statement
    4. single-step statement

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under the periodic inventory system, the journal entry to record the purchase of merchandise inventory will include a debit to
    1. Merchandise Inventory
    2. Purchases
    3. Accounts Payable
    4. Cost of Merchandise Purchased

 

ANSWER:                                  b

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Using the following information, what is the amount of net income?

 

Purchases $32,000 Selling expense $     960
Merchandise inventory, September 1  

5,700

Merchandise inventory, September 30  

6,370

Administrative expense 910 Sales 63,000
Rent revenue 1,200 Interest expense 1,040
  1. $29,510
  2. $27,560
  3. $28,310
  4. $29,350

ANSWER:                                  b

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Using the following information, what is the amount of gross profit?

 

Purchases $32,000 Selling expense $     960
Merchandise inventory, September 1  

5,700

Merchandise inventory, September 30  

6,370

Administrative expense 910 Sales 63,000
Rent revenue 1,200 Interest expense 1,040
  1. $25,300
  2. $31,670
  3. $30,600
  4. $62,840

ANSWER:                                  b

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Using the following information, what is the amount of income from operations?

 

Purchases $32,000 Selling expense $     960
Merchandise inventory, September 1  

5,700

Merchandise inventory, September 30  

6,370

Administrative expense 910 Sales 63,000
Rent revenue 1,200 Interest expense 1,040
  1. $32,870
  2. $31,910
  3. $30,710
  4. $29,800

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Which of the following accounts should be closed to Income Summary at the end of the fiscal year?
    1. Merchandise Inventory
    2. Accumulated Depreciation
    3. Drawing
    4. Cost of Merchandise Sold

 

ANSWER:                                  d

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.08 – Closing Entries

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Which account will be included in both service and merchandising companies, closing entries?
    1. Sales
    2. Cost of Merchandise Sold
    3. Purchase Discounts
    4. Sales Returns and Allowances

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.08 – Closing Entries

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. If the physical count of the inventory revealed $158,000 of merchandise on hand and the inventory records reported

$163,000, what would be the necessary adjusting entry to record inventory shrinkage?

  1. debit Merchandise Inventory, $158,000; credit Cost of Merchandise Sold, $158,000
  2. debit Merchandise Inventory, $5,000; credit Cost of Merchandise Sold, $5,000
  3. debit Cost of Merchandise Sold, $163,000; credit Merchandise Inventory, $158,000
  4. debit Cost of Merchandise Sold, $5,000; credit Merchandise Inventory, $5,000

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.07 – Adjusting Entries

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement ACCT.AICPA.FN.04 – Reporting

BUSPROG: Analytic

 

  1. Inventory shrinkage is recorded when
    1. merchandise is returned by a buyer
    2. merchandise purchased from a seller is incomplete or short
    3. merchandise is returned to a seller
    4. there is a difference between a physical count of inventory and inventory records

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Bradford Company had $700,000 in sales for the year. The total assets at the beginning of the year were $240,000 and total assets at the end of the year were $280,000. The ratio of sales to total assets is (round answer to 2 decimal places)
  2. 2.69
  3. 0.40
  4. 2.92
  5. 0.34

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-05 – 06-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

  1. Bountiful Company had sales of $650,000 and cost of merchandise sold of $200,000 during the year. The total assets balance at the beginning of the year was $175,000 and at the end of the year was $167,000. Calculate the ratio of sales to total assets.
  2. 3.00
  3. 3.80
  4. 0.29
  5. 0.26

 

ANSWER:                                  b

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-05 – 06-05

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

 

  1. A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year, $3,600; Freight In, $650; Purchases, $10,700; Purchases Returns and Allowances, $1,950; Purchases Discounts, $330. The cost of merchandise purchased is equal to
  2. $12,670
  3. $9,070
  4. $8,420
  5. $17,230

ANSWER:                                  b

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following accounts will not be found in the Cost of Merchandise Sold section of the income statement for a company using the periodic inventory method?
    1. Purchases
    2. Freight In
    3. Selling Expense
    4. Merchandise Inventory

 

ANSWER:                                  c

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. A company, using the periodic inventory system, has merchandise inventory costing $210 on hand at the beginning of the period. During the period, merchandise costing $635 is purchased. At year-end, merchandise inventory costing $160 is on hand.  The cost of merchandise sold for the year is
  2. $795
  3. $685
  4. $265
  5. $635

ANSWER:                                  b

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Where are selling and administrative expenses found on the multiple-step income statement?
    1. before gross profit
    2. after sales and before gross profit
    3. after net income and before expenses
    4. after gross profit

 

ANSWER:                                  d

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under the periodic inventory system, the journal entry to record the cost of merchandise sold at the point of sale will include which of the following?
    1. none of these
    2. Cost of Merchandise Sold
    3. Inventory
    4. Purchases

 

ANSWER:                                  a

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Under a periodic inventory system, closing entries will include
    1. debits to Sales, Purchases Returns and Allowances, and Purchases Discounts
    2. credits to Purchases and Sales Discounts
    3. adjustments to Merchandise Inventory account to match physical inventory
    4. all of these

 

ANSWER:                                  a

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.08 – Closing Entries

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. The proper journal entry to record the receipt of inventory purchased on account in a periodic inventory system would be
a. Jan. 1  Merchandise Inventory 1,600
Accounts Payable 1,600
b. Jan. 1  Office Supplies 1,600
Accounts Payable 1,600
c. Jan. 1  Purchases 1,600
Accounts Payable 1,600
d. Jan. 1  Purchases 1,600
Accounts Receivable 1,600

 

ANSWER:                                  c

DIFFICULTY:                           Moderate

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Using the following information, what is the amount of cost of merchandise sold?

 

Purchases $32,000 Selling expense $     960
Merchandise inventory, September 1  

5,700

Merchandise inventory, September 30  

6,370

Administrative expense 910 Sales 63,000
Rent revenue 1,200 Interest expense 1,040
  1. $32,400
  2. $32,670
  3. $31,330
  4. $38,370

ANSWER:                                  c

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Discuss the following statement:

 

“Operating cycles for all merchandising businesses are the same, with similar profit margins.”

 

Include an example(s) to illustrate your explanation.

ANSWER:                                  This is not true. While the operations of merchandising businesses generally all involve the purchase of merchandise (purchasing), the sale of products to customers (sales), and the receipt of cash from customers (collection), operating cycles may vary in length between merchandisers.  This is due to the nature of the product they sell. An example is a grocery store which depends on selling more products in a very short time span.

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.05 – Accounting Cycle

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Describe the major differences in preparing the financial statements for a service business and a merchandising

 

Service  Business Merchandising  Business
Income Statement: Income Statement:
Balance Sheet: Balance Sheet:

 

ANSWER:

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.BB.01 – Industry

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Complete the following data taken from the condensed income statements for merchandising Companies A, B, and

 

Company A Company B Company C
Net income $315 $    ? $215
Sales ? 865 560
Gross profit 430 ? 325
Operating expenses ? 125 ?
Cost of merchandise sold 545 320 ?

 

ANSWER:

Company A Company B Company C
Net income $315 $420 $215
Sales 975 865 560
Gross profit 430 545 325
Operating expenses 115 125 110
Cost of merchandise sold ​545 ​320 ​235

 

OR Rearranged in the order of the income statement:

Company A Company B Company C
Sales $975 $865 $560
Less cost of merchandise sold  

545

 

320

 

235

Gross profit 430 545 325
Less operating expenses 115 125 110
Net income 315 420 215

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Complete the following data taken from the condensed income statements for merchandising Companies X, Y, and

 

Company X Company Y Company Z
Net income (loss) $220 $        ? $( 70)
Sales ? 1,315 890
Gross profit 435 ? 465
Operating expenses ? 565 ?
Cost of merchandise sold 330 775 ?

 

ANSWER:

Company X Company Y Company Z
Net income or net loss $220 $    (25) $ (70)
Sales 765 1,315 890
Gross profit 435   540 465
Operating expenses 215   565 535
Cost of merchandise sold 330   775 425

 

OR Rearranged in the order of the income statement:

Company X Company Y Company Z
Sales $765 $1,315 $890
Less cost of merchandise sold 330 775 425
Gross profit 435 540 465
Less operating expenses 215 565 535
Net income or net loss 220 (25) (70)

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the merchandise sold is $322,325. What is the amount of the gross profit?

ANSWER:                                  $137,500 + $425,600 – $322,325 = $240,775

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. During the current year, merchandise is sold for $117,500 cash and $241,750 on account. The cost of the merchandise sold is $157,400. What is the amount of the gross profit?

ANSWER:                                  $117,500 + $241,750 – $157,400 = $201,850

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the merchandise sold is $76,240. What is the amount of the gross profit?

ANSWER:                                  Total sales, $179,950 – Cost of merchandise sold, $76,240 = Gross profit,

$103,710

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-01 – 06-01

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Travis Company purchased merchandise on account from a supplier for $5,700, terms 2/10, net 30. Travis Company paid for the merchandise within the discount period.

 

Under a perpetual inventory system, record the journal entries required for the above transactions.

ANSWER:                                        Merchandise Inventory                                 5,586

Accounts Payable                                       5,586

 

Accounts Payable

Cash

5,586  

5,586

DIFFICULTY: Moderate

Bloom’s: Applying

LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. On March 25, Osgood Company sold merchandise on account, $10,000, terms n/30. The applicable sales tax percentage is 7.5%. Record the transaction.

 

Journal

 

Date

 

Description

Post. Ref.  

Debit

 

Credit

 

ANSWER:

Journal
 

Date

Description Post.

Ref.

Debit Credit
Mar. 25 Accounts Receivable 10,750
     Sales 10,000
     Sales Tax Payable 750

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. On March 29, customers who owe $10,500 on account to Sonic Sales Company submit payments of $4,250. Journalize this event.

 

Mar. 29 Cash 4,250
Accounts Receivable 4,250

 

ANSWER:

 

 

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Journalize the following merchandise transactions:

 

  • Sold merchandise on account, $17,300, with terms 2/10, net 30. The cost of the merchandise sold was $12,600.
  • Received payment within the discount period.

 

ANSWER:

(a) Accounts Receivable 16,954
Sales 16,954
Cost of Merchandise Sold 12,600
Merchandise Inventory 12,600
(b) Cash 16,954
Accounts Receivable 16,954

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Determine the amount to be paid in full settlement of each invoice, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

 

Merchandise Freight Paid by

Seller

Freight Terms Returns and Allowances
(a) $4,500 $140 FOB Shipping Point, 2/10, net 30 $1,200
(b) $7,650 $200 FOB Destination, 1/10, net 45 $450

 

ANSWER:                                  (a) $3,374

(b) $7,128

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Sampson Co. sold merchandise to Batson Co. on account, $46,000, terms 2/15, net 45. The cost of the merchandise sold is $38,500. The Batson Co. paid the invoice within the discount period.  Prepare the entries that both Sampson and Batson Companies would record for the above.  Assume both Sampson and Batson use a perpetual inventory system.

ANSWER:                                  Sampson Company Journal Entries:

Accounts Receivable—Batson Co. 45,080
        Sales 45,080
Cost of Merchandise Sold 38,500
        Merchandise Inventory 38,500
Cash 45,080
        Accounts Receivable—Batson Co. 45,080

 

Batson Company Journal Entries:

Merchandise Inventory 45,080
        Accounts Payable—Sampson Co. 45,080
Accounts Payable—Sampson Co. 45,080
        Cash 45,080

 DIFFICULTY:                          Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Which of the following costs would be included in merchandise inventory?
  • Purchase price
  • Insurance in transit FOB shipping point
  • Freight for delivery FOB shipping point
  • Repair due to negligence of receiving clerk
  • Receiving department employee salary
  • Cost of processing purchase orders

ANSWER:                                  (a), (b), and (c)

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. On March 4, Micro Sales makes $4,850 in sales on bank credit cards which charge a 2.5% service charge and deposits the funds into Micro Sales’ bank accounts at the end of the business day. Journalize the sales and recognition of expense.

 

Mar. 4 Cash 4,728.75
Credit Card Expense 121.25
Sales 4,850.00

 

ANSWER:

 

 

 

The sales can be debited to cash since the deposit is at the end of the business day. Also, since the credit card expense is easily determined (2.5% of sales), that expense can be immediately identified and should be recorded.

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Journalize the following transactions for Armour Inc. using both the periodic inventory system and the perpetual inventory system, presented in the side-by-side format of the form provided below.

 

Oct.7  Sold merchandise on credit to Rondo Distributors, terms n/30, the cost of the merchandise was $720.

 

Oct. 8  Purchased merchandise, $10,000, terms FOB shipping point, 2/15, n/30, with prepaid freight charges of $525 added to the invoice.

 

 

PERIODIC INVENTORY                  PERPETUAL INVENTORY

 

 

 

 

 

 

 

 

 

 

 

Description DR CR | Description DR CR
|
|
|
|
|
|
|
 

 

 

 

 

 

 

ANSWER:

PERIODIC INVENTORY SYSTEM    PERPETUAL INVENTORY SYSTEM

 

Oct. 7 Accounts Receivable  

1,200

Accounts Receivable  

1,200

Sales 1,200 Sales 1,200
Cost of Merchandise Sold  

720

Merchandise Inventory  

720

    8  

Purchases

 

9,800

Merchandise Inventory  

10,325

 

Freight In

 

525

Accounts Payable  

10,325

Accounts Payable  

10,325

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. What is the normal balance of the following accounts?

 

  1. Sales Tax Payable
  2. Merchandise Inventory
  3. Delivery Expense
  4. Cost of Merchandise Sold
  5. Customer Refunds Payable
  6. Estimated Returns Inventory
  7. Sales

ANSWER:                                  a. credit

  1. debit
  2. debit
  3. debit
  4. credit
  5. debit
  6. credit

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.02 – GAAP

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. For each of the following, calculate the cost of inventory reported on the balance sheet.
  • The total merchandise on hand at the end of the year as determined by taking a physical inventory is $62,000. Of the $62,000, $8,000 has been sold FOB destination and is awaiting pickup by the carrier.
  • The total merchandise inventory counted at the end of the year was $63,000. Excluded from the count were purchases of $6,000 in transit under FOB shipping point terms.
  • The total merchandise inventory counted at the end of the year was $75,000. Excluded from the count were purchases of $5,000 in transit under FOB destination terms.

ANSWER:                                  (a)    $62,000 (b)    $69,000

(c)    $75,000

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement ACCT.AICPA.FN.04 – Reporting BUSPROG: Analytic

 

  1. Using the perpetual inventory system, journalize the entries for the following selected transactions:
  • Sold merchandise on account, for $12,000, terms n/30. The cost of the merchandise sold was $6,500.
  • Sold merchandise to customers who used MasterCard and VISA, $9,500. The cost of the merchandise sold was $5,300.
  • Sold merchandise to customers who used American Express, $2,900. The cost of the merchandise sold was $1,700.
  • Paid an invoice from First National Bank for $385, representing a service fee for processing MasterCard and VISA sales.
  • Received $2,825 from American Express Company after a $75 collection fee had been

ANSWER:                                  (a)  Accounts Receivable                                   12,000

Sales                                                                         12,000

 

Cost of Merchandise Sold                             6,500 Merchandise Inventory                                               6,500

 

  • Cash 9,500

Sales                                                                           9,500

 

Cost of Merchandise Sold                             5,300 Merchandise Inventory                                               5,300

 

  • Accounts Receivable 2,900

Sales                                                                           2,900

 

Cost of Merchandise Sold                             1,700 Merchandise Inventory                                               1,700

  • Credit Card Expense 385

Cash                                                                              385

 

(e)  Cash 2,825
Credit Card Expense Accounts Receivable 75  

2,900

DIFFICULTY: Challenging Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Merchandise with a list price of $4,200 and costing $2,300 is sold on account, subject to the following terms: FOB destination, 2/10, n/30. The seller prepays the freight costs of $85 (debit Delivery Expense for the freight

costs).  Prior to payment for the goods, the seller issues a credit memo for $750 to the customer for merchandise costing $425 that is returned.  Payment is received within the discount period.  The company uses a perpetual inventory system.

 

Record the foregoing transactions of the seller in the sequence indicated below.

  • Sold the merchandise, recognizing the sale and cost of merchandise sold.
  • Paid the freight charges.
  • Issued the credit memo.
  • Received payment from the customer.

ANSWER:                                  (a)  Accounts Receivable                                    4,116

Sales                                                                           4,116

 

Cost of Merchandise Sold                             2,300 Merchandise Inventory                                               2,300

  • Delivery Expense 85

Cash                                                                               85

  • Sales 735

Accounts Receivable                                                     735

Merchandise Inventory                                    425

Cost of Merchandise Sold                                             425

 

(d)  Cash

Accounts Receivable

3,381  

3,381

DIFFICULTY: Challenging
Bloom’s: Applying
LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.17 – Inventories Reporting
ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic
  1. Based on the information below, journalize the entries for the Seller and the Buyer. Both use a perpetual inventory
  • Seller sold merchandise on account to the buyer, $4,750, terms 2/10, net 30, FOB shipping The cost of the merchandise is $2,850.  The seller prepays the freight of $75.
  • Buyer returns $700 of merchandise as defective. The cost of the merchandise is $420.
  • Buyer pays within the discount period.

 

Seller                                                       Buyer

Description DR CR Description DR CR

 

ANSWER:                                  (a)

Seller                                                   Buyer

Accounts Receivable   4,655               Merchandise Inventory    4,730

Sales                                  4,655          Accounts Payable                 4,730

Cost of Merchandise

Sold                             2,850

Merchandise

Inventory                           2,850

Accounts Receivable         75

Cash                                       75

(b)

Customer Refunds

Payable                           686               Accounts Payable                686

Accounts Receivable            686           Merchandise Inventory            686

Merchandise Inventory   420

Estimated Returns

Inventory                              420

(c)

Cash                              3,969              Accounts Payable             3,969

Accounts Receivable         3,969           Cash                                      3,969

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Details of a purchase invoice and related credit memo are summarized as follows:

Invoice:         Cost of merchandise listed on purchase invoice                    $6,500 Prepaid freight charge added to invoice                                     150

Terms, FOB shipping point, 1/10, n/eom

Credit memo: Cost of merchandise returned                          $1,500

 

Assume that the credit memo was received prior to payment and that the invoice is paid within the discount period.  Determine the following:

 

  • Amount of the cash discount allowed.
  • Amount to be paid by the purchaser if the discount is taken.
  • Cost of the merchandise to the purchaser if the discount is not

ANSWER:                                  (a)    $50

(b)    $5,100

(c)    $5,150

 

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Conquest Company uses a perpetual inventory system. Conquest purchased $1,500 of merchandise on account and payment was made within the discount period. The credit terms were 2/10, n/30.  Journalize Conquest’s purchase and payment.

ANSWER:                                  (a)  Merchandise Inventory                                     1,470 Accounts Payable                                                                        1,470

 

(b)  Accounts Payable Cash 1,470  

1,470

DIFFICULTY: Easy

Bloom’s: Applying

LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

  1. Merchandise with a list price of $4,700 is purchased on account, terms FOB shipping point, 1/10, n/30. The seller prepaid freight costs of $100. Prior to payment, $1,600 of the merchandise is returned. The invoice is paid within the discount period.

 

Record the foregoing transactions of the buyer in the sequence indicated below, assuming a perpetual inventory system is used.

 

  • Purchased the merchandise.
  • Recorded receipt of the credit memo for merchandise returned.
  • Paid the amount owed.

ANSWER:                                  (a)  Merchandise Inventory                                     4,753 Accounts Payable                                                                     4,753

 

(b)  Accounts Payable                                             1,584

Merchandise Inventory                                             1,584

 

(c)  Accounts Payable Cash 3,169  

3,169

DIFFICULTY: Moderate

Bloom’s: Applying

LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic
  1. Details of invoices for purchases of merchandise are as follows:

 

Returns and
Merchandise Freight Terms Allowances
(a) $2,800 $45 FOB shipping point, 1/10, n/30 $200
(b) 7,600 60 FOB destination, n/30 800
(c) 1,400 55 FOB shipping point, 2/10, n/30 600
(d) 500 50 FOB destination, 1/10, n/30 0

 

Determine the amount to be paid in full settlement of each of the invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.

ANSWER:                                  (a)    $2,800 – $200 – $26 + $45 = $2,619 (b)    $7,600 – $800 = $6,800

(c)    $1,400 – $600 – $16 + $55 = $839 (d)    $500 – $5 = $495

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Journalize the entries to record the following selected transactions:

 

  • Sold $900 of merchandise on account, subject to 7% sales tax. The cost of the merchandise sold was $510.
  • Paid $436 to the state sales tax department for taxes collected.

ANSWER:                                  (a)  Accounts Receivable                                           963

Sales                                                                             900

Sales Tax Payable                                                          63

Cost of Merchandise Sold                                    510

Merchandise Inventory                                                 510

 

(b)  Sales Tax Payable

Cash

436  

436

DIFFICULTY: Easy

Bloom’s: Applying

LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Gadget Palace is a retailer selling unique hardware. Gadget Palace uses a perpetual inventory system. Journalize the following transactions:

On July 5, Gadget Palace purchases inventory for sale from Turbo Tools for $11,400.00 with terms 2/10, n/30.

On July 6, Gadget Palace pays Fast Truck Transport $75 for freight in on the July 5 order.

On July 8, Gadget Palace receives a credit memo from Turbo Tools for $215.00 for damaged merchandise.

On July 15, Gadget Palace pays Turbo Tools the balance due.

 

General Journal
Date Description Debit Credit

 

 

ANSWER:

General Journal
Date Description Debit Credit
July  5 Merchandise Inventory 11,172.00
A/P—Turbo Tools 11,172.00
6 Merchandise Inventory 75.00
Cash 75.00
8 A/P—Turbo Tools 210.70
Merchandise Inventory 210.70
15 A/P—Turbo Tools 10,961.30
Cash 10,961.30

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  • Marshall Supplies is a janitorial supply store that uses perpetual inventory. Journalize the following transactions:

On July 4, Marshall purchases inventory for sale from Tidy Wholesalers for $8,500.00 with terms 1/10, n/30.

On July 5, Marshall pays Express Transfer $45 for freight in on the July 4 order. On July 7, Marshall buys an additional $11,985 in inventory from Tidy Wholesalers with terms 1/10, n/30.

On July 13, Marshall pays Tidy Wholesalers the balance due on both invoices

 

Journal

Date Description Debit Credit

 

 

ANSWER:                                                                  Journal

Date Description Debit Credit
July 4 Merchandise Inventory 8,415.00
A/P—Tidy Wholesalers 8,415.00
5 Merchandise Inventory 45.00
Cash 45.00
7 Merchandise Inventory 11,865.15
A/P—Tidy Wholesalers 11,865.15
13 A/P—Tidy Wholesalers 20,280.15
Cash 20,280.15

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Bargain Wholesalers sells pet supplies to retailers including Pet World Supplies. Bargain Wholesalers uses a perpetual inventory. Journalize the following transactions:

 

May 4, Bargain Wholesalers sells inventory to Pet World Supplies for $8,250.00 with terms 1/10, n/30. The cost of the merchandise is $5,755.00.

May 7, Bargain Wholesalers sells an additional $10,985 in inventory to Pet World Supplies with terms 1/10, n/30. The cost of the merchandise is $6,925.00.

May 13, Bargain Wholesalers receives a check from Pet World Supplies paying the balance due on both invoices.

 

 

 

 

 

Journal

Date Description Debit Credit

 

ANSWER:                                                                         Journal

Date Description Debit Credit
May   4 A/R—Pet World Supplies 8,167.50
Sales 8,167.50
Cost of Merchandise Sold 5,755.00
Merchandise Inventory. I 5,755.00
          7 A/R—Pet World Supplies 10,875.15
Sales 10,875.15
Cost of Merchandise Sold 6,925.00
Merchandise Inventory 6,925.00
13 Cash 19,042.65
A/R—Pet World Supplies 19,042.65

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement

BUSPROG: Analytic

 

  1. On March 3, Bluebird Sales makes $4,350 in cash sales of general merchandise that has a cost of $1,512. Bluebird uses a perpetual inventory system.
  • Journalize the sale.
  • Journal the cost of merchandise sold.

ANSWER:                                  (a) Mar. 3  Cash                                                            4,350

Sales                                                                        4,350

 

(b) Mar. 3  Cost of Merchandise Sold

Merchandise Inventory

1,512  

1,512

DIFFICULTY: Easy

Bloom’s: Applying

LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic
  1. On March 5, Blowout Sales makes $22,500 in sales on the company’s own credit cards. The cost of merchandise

sold is $16,825. Journalize the sales and recognition of the cost of merchandise sold.

ANSWER:                                  Mar. 5                                                                        Accounts Receivable                                                      22,500

Sales                                                                          22,500

 

Cost of Merchandise Sold Merchandise Inventory 16,825  

16,825

DIFFICULTY: Easy

Bloom’s: Applying

LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

  1. On March 15, Monroe Sales sells $9,525 on account to Garrison Brewer with terms of 2/10, n/30. The cost of merchandise sold was $6,905.
  • Journalize the sale and the recognition of the cost of the sale.
  • On March 20, a $125 credit memo is given to Garrison Brewer due to merchandise that was the wrong color. Journalize this event. The cost of the returned merchandise was $65.
  • On March 25, Garrison Brewer submits payment in full. Journalize this event.

ANSWER:                                  (a)

Accounts Receivable—Garrison Brewer 9,334.50
Sales 9,334.50
Cost of Merchandise Sold 6,905.00
Merchandise Inventory 6,905.00

(b)

Customer Refunds Payable 122.50
Accounts Receivable—Garrison Brewer 122.50
Merchandise Inventory 65.00
Estimated Returns Inventory 65.00

(c)

Cash 9,212.00
Accounts Receivable—Garrison Brewer 9,212.00

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Journalize the following transactions assuming a perpetual inventory system:

May 5        Purchased merchandise from Archie Co., $6,000, terms FOB shipping point, 2/10, n/30.

Prepaid freight costs of $100 were added to the invoice.

12       Issued a debit memo to Archie Co. for $2,500 of merchandise returned from purchase on May 5.

14       Paid Archie Co.  for invoice of May 5, less debit memo of May 12 and discount.

 

Date Description Debit Credit

ANSWER:

Date Description Debit Credit
May    5 Merchandise Inventory 5,980
Accounts Payable 5,980
12 Accounts Payable 2,450
Merchandise Inventory 2,450
14 Accounts Payable 3,530
Cash 3,530

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Record the following transactions for Sparky’s Pet Shop using the general journal form provided below. Assume Sparky’s uses a perpetual inventory system. Omit transaction descriptions from entries:

 

Date Transaction
August   1 Purchased $6,000 of merchandise on account, terms 2/10, n/30.
3 Returned $1,500 of merchandise purchased on August 1 due to defects.
7 Recorded cash sales for the first week of August, $9,750; cost of the merchandise was $4,000.
10 Made sale on account to a local breeder for $500, terms 1/10 net 30; cost of the merchandise was $200.
11 Paid for the merchandise purchased on August 1, less return.
20 Received payment from sale of August 10.  The customer took the discount.

 

Date Description Debit Credit

 

 

ANSWER:

Date Description Debit Credit
Aug.  1 Merchandise Inventory 5,880
Accounts Payable 5,880
3 Accounts Payable 1,470
Merchandise Inventory 1,470
7 Cash 9,750
Sales 9,750
7 Cost of Merchandise Sold 4,000
Merchandise Inventory 4,000
10 Accounts Receivable 495
Sales 495
10 Cost of Merchandise Sold 200
Merchandise Inventory 200
11 Accounts Payable 4,410
Cash 4,410
20 Cash 495
Accounts Receivable 495

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Journalize the following transactions for both Abbott Co. (seller) and Dalton Co. (buyer). Assume both the companies use the perpetual inventory system.

 

July 3      Abbott Co. sold merchandise on account to Dalton Co., $7,500, terms FOB shipping point, net/eom.  The cost of the merchandise sold was $4,400.

5      Dalton Co. paid $275 freight charges on purchase from Abbott Co.

9      Abbott Co. issued Dalton Co. a credit memo for merchandise returned, $2,250. The cost of the merchandise returned was $1,325.

11    Abbott Co. received payment from Dalton Co. for purchase of July 3.

 

Abbott Co. Dalton Co.
Date Description Debit Credit Description Debit Credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ANSWER:

Abbott Co. Dalton Co.
Date Description Debit Credit Description Debit Credit
July 3 Accounts Receivable 7,500 Merch. Inventory 7,500
Sales 7,500 Accounts Payable 7,500
Cost of Merch. Sold 4,400
Merch. Inventory 4,400
      5 Merch. Inventory 275
Cash 275
9 Customer Refunds Payable  

2,250

 

Accounts Payable

 

2,250

Accounts Rec. 2,250 Merch. Inventory 2,250
9 Merchandise Inventory  

1,325

Est. Returns Inventory  

1,325

11 Cash 5,250 Accounts Payable 5,250
Accounts Rec. 5,250 Cash 5,250

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Using the list of accounts below, construct a chart of accounts for a merchandising business that rents out a portion of its building, and assign account numbers and arranging the accounts in balance sheet and income statement order (“1” for assets, and so on). Each account number should have three digits. Contra accounts should be designated with a decimal of the account (100.1 for contra of account 100). Assets and liabilities should be in order of liquidity, expenses should be in alphabetical order.

 

Accounts Payable Equipment Sales
Accounts Receivable Interest Expense Supplies Expense
Accumulated Depr.—Equip. Land Unearned Revenue
Advertising Expense Merchandise Inventory Utilities Expense
Capital, Owner Notes Payable
Cash Office Supplies
Cost of Merchandise Sold Rent Revenue
Depreciation Expense—

Equip.

Salaries Expense
Drawing, Owner Salaries Payable

 

Acct No. Description Acct. No. Description
100 Cash 302 Drawing, Owner
103 Accounts Receivable 400 Sales
105 Merchandise Inventory 500 Cost of Merchandise Sold
107 Office Supplies 502 Advertising Expense
 

110

 

Land

 

504

Depreciation Expense–

Equipment

120 Equipment 506 Salaries Expense
 

120.1

Accumulated Depr.—

Equip.

 

508

 

Supplies Expense

200 Accounts Payable 510 Utilities Expense
202 Salaries Payable 600 Rent Revenue
204 Unearned Revenue 700 Interest Expense
207 Notes Payable
300 Capital, Owner

 

ANSWER:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.05 – Accounting Cycle

ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

  1. Journalize the following transactions for the Evans Company. Assume the company uses a perpetual inventory

 

  • Sold merchandise for $645. The cost of merchandise sold was $375.
  • Sold merchandise for $432 and accepted VISA as the form of payment. The cost of merchandise sold was $195.
  • Sold merchandise on account for $670. The cost of merchandise sold was $438.
  • Paid credit card fees for the month of $85.

 

 

Journal
Date Description Debit Credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ANSWER:

Journal
Date Description Debit Credit
(a) Cash 645
Sales 645
Cost of Merchandise Sold 375
Merchandise Inventory 375
(b) Cash 432
Sales 432
Cost of Merchandise Sold 195
Merchandise Inventory 195
(c) Accounts Receivable 670
Sales 670
Cost of Merchandise Sold 438
Merchandise Inventory 438
(d) Credit Card Expense 85
Cash 85

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.06 – Recording Transactions

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Abbey Co. sold merchandise to Gomez Co. on account, $35,000, terms 2/15, net 45. The cost of the merchandise sold is $24,500. Abbey Co. issued a credit memo for $3,600 for merchandise returned that originally cost $1,700.  Gomez Co. paid the invoice within the discount period.  What is the amount of gross profit earned by Abbey Co. on the above transactions?

ANSWER:                                  Sales [$35,000 – ($35,000 × 2%)] – [$3,600 – ($3,600 × 2%)] – Cost of

merchandise sold ($24,500 – $1,700) = Gross profit $7,972

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

  1. Calculate the gross profit for Jonas Company based on the following data:

 

Sales $764,000
Selling expenses 52,500
Cost of merchandise sold 538,000

 

ANSWER: Sales, $764,000 – Cost of merchandise sold, $538,000 = Gross profit, $226,000
DIFFICULTY: Moderate

Bloom’s: Applying

LEARNING OBJECTIVES: ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-03 – 06-03

ACCREDITING  STANDARDS: ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

  1. Which of the following accounts would be included in the chart of accounts of a merchandising company using the

(a) periodic inventory system, (b) perpetual inventory system, or (c) both systems?

 

(1) Purchases
(2) Merchandise Inventory
(3) Sales
(4) Purchases Discounts
(5) Cost of Merchandise Sold
(6) Freight In
(7) Delivery Expense
ANSWER: (1) a (2) c (3) c (4) a (5) b (6) a (7) c

DIFFICULTY:                           Easy

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.17 – Inventories Reporting

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Using the letter preceding each account, arrange the following selected accounts in the order they would normally appear in a chart of accounts of a company that uses a multiple-step income statement.
  • Accounts Payable
  • Accounts Receivable
  • Merchandise Inventory
  • Miscellaneous Selling Expense
  • Interest Expense
  • Income Summary
  • Admin. Expense
  • Freight Out

ANSWER:                                  (b) (c) (a) (f) (h) (d) (g) (e)

DIFFICULTY:                           Moderate

Bloom’s: Understanding

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement ACCT.AICPA.FN.04 – Reporting BUSPROG: Analytic

  1. Journalize the following transactions assuming the perpetual inventory system:

July 3       Sold merchandise on account for $3,750 including terms.  The cost of the merchandise sold was $2,000.

5        Issued credit memo for $1,050 for merchandise returned from sale on July 3. The cost of the merchandise returned was $610.

12       Received check for the amount due for sale on July 3 less return on July 5.

17       Sold merchandise for $7,000 plus 6% sales tax to cash customers.  The cost of the merchandise sold was $3,830.

 

Date Description Debit Credit

 

ANSWER:

Journal

 

 

Date

 

Description

 

Debit

 

Credit

July   3 Accounts Receivable 3,750
Sales 3,750
3 Cost of Merchandise Sold 2,000
Merchandise Inventory 2,000
5 Customer Refunds Payable 1,050
Accounts Receivable 1,050
5 Merchandise Inventory 610
Estimated Returns Inventory 610
12 Cash 2,700
Accounts Receivable 2,700
17 Cash 7,420
Sales 7,000
Sales Tax Payable 420
17 Cost of Merchandise Sold 3,830
Merchandise Inventory 3,830

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Using the following data taken from Hsu’s Imports Inc. which uses a periodic inventory system, determine the

gross profit to be reported on the income statement for the year ended March 31.

 

Merchandise inventory, April 1 $   193,250
Merchandise inventory, March 31 180,100
Purchases 1,079,600
Purchases returns and allowances 51,200
Purchases discounts 18,500
Sales 1,860,000
Freight in 19,250

 

ANSWER:                                  Gross Profit = Sales – COMS* = $1,860,000 – $1,042,300** = $817,700

*Cost of merchandise sold

**Cost of merchandise sold:

Merchandise inventory, April 1                                                     $ 193,250 Purchases                                                                  $1,079,600

Less:  Purchases returns and allowances    $51,200

Purchases discounts                          18,500         69,700

Net purchases                                                  $1,009,900

Add freight in                                                                   19,250

Cost of merchandise purchased                                            1,029,150 Merchandise available for sale                                                      $1,222,400 Less merchandise inventory, March 31                                             180,100 Cost of merchandise sold                                                              $1,042,300

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Using the following data taken from Hsu’s Imports Inc. which uses a periodic inventory system, prepare the cost of

merchandise sold section of the income statement for the year ended March 31.

 

Merchandise inventory, April 1 $   193,250
Merchandise inventory, March 31 180,100
Purchases 1,079,600
Purchases returns and allowances 51,200
Purchases discounts 18,500
Sales 1,860,000
Freight in 19,250

 

ANSWER:                                  Cost of merchandise sold:

Merchandise inventory, April 1                                                     $  193,250

Purchases                                                                 $1,079,600

Less:                                                       Purchases returns and allowances                                                                $51,200

Purchases discounts                        18,500           69,700

Net purchases                                                           $1,009,900

Add freight in                                                                 19,250

Cost of merchandise purchased                                            1,029,150

Merchandise available for sale                                                     $1,222,400

Less merchandise inventory, March 31                                             180,100

Cost of merchandise sold                                                             $1,042,300

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Using the following data taken from Payton Inc. which uses a periodic inventory system, prepare the cost of merchandise sold section of the income statement for the year ended May 31.

 

Merchandise inventory, June 1 $    393,250
Merchandise inventory, May 31 380,100
Purchases 1,579,600
Purchases returns and allowances 81,200
Purchases discounts 16,500
Sales 2,060,000
Freight in 59,250

 

ANSWER:                                  Cost of merchandise sold:

Merchandise inventory, June 1                                                      $  393,250

Purchases                                                               $1,579,600

Less: Purchases returns and allowances  $81,200

Purchases discounts                        16,500           97,700

Net purchases                                                          $1,481,900

Add freight in                                                                 59,250

Cost of merchandise purchased                                            1,541,150

Merchandise available for sale                                                      $1,934,400

Less merchandise inventory, May 31                                                380,100

Cost of merchandise sold                                                             $1,554,300

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Using the following data taken from Connor Inc., determine the gross profit to be reported on the income statement for the year ended May 31.

 

Merchandise inventory, June 1 $    393,250
Merchandise inventory, May 31 380,100
Purchases 1,579,600
Purchases returns and allowances 81,200
Purchases discounts 16,500
Sales 2,060,000
Freight in 59,250

 

ANSWER:                                  Gross profit = Sales – COMS* = $2,060,000 – $1,554,300** = $505,700

*Cost of merchandise sold

**Cost of merchandise sold:

Merchandise inventory, June 1                                                      $  393,250

Purchases                                                               $1,579,600

Less: Purchases returns and allowances  $81,200

Purchases discounts                        16,500           97,700

Net purchases                                                          $1,481,900

Add freight in                                                                 59,250

Cost of merchandise purchased                                            1,541,150

Merchandise available for sale                                                      $1,934,400

Less merchandise inventory, May 31                                                380,100

Cost of merchandise sold                                                             $1,554,300

 

DIFFICULTY:                           Challenging Bloom’s: Application

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Prepare (a) a single-step income statement, (b) a statement of owner’s equity, and (c) a balance sheet in report form from the following data for Burt Co., taken from the ledger after adjustments on December 31, the end of the fiscal year.

 

Accounts Payable $  97,200
Accounts Receivable 64,300
Accumulated Depreciation—Office Equipment 72,750
Accumulated Depreciation—Store Equipment 162,100
Administrative Expenses 56,500
Maeve Burt, Capital 81,750
Cash 53,000
Cost of Merchandise Sold 121,700
Maeve Burt, Drawing 52,000
Interest Expense 12,000
Merchandise Inventory 93,250
Note Payable, Due in two years 154,000
Office Equipment 149,750
Prepaid Insurance 6,500
Rent Revenue 17,500
Salaries Payable 28,700
Sales 365,500
Selling Expenses 41,500
Store Equipment 325,000
Supplies 4,000

 

ANSWER:                           (a)

Burt Co.

Income Statement

For the Year Ended December 31

Revenues:
Sales $365,500
Rent revenue     17,500
Total revenues $383,000
Expenses:
Cost of merchandise sold $121,700
Selling expenses 41,500
Administrative expenses 56,500
Interest expense Total expenses     12,000  

  231,700

Net income $151,300

(b)

Burt Co.

Statement of Owner’s Equity

For the Year Ended December 31

Maeve Burt, capital, January 1 $  81,750
Net income for year $151,300
Less withdrawals     52,000
Increase in owner’s equity     99,300
Maeve Burt, Capital, December 31 $181,050

 

(c)

Burt Co.

Balance Sheet

December 31

Assets
Current assets:
Cash $  53,000
Accounts receivable 64,300
Merchandise inventory 93,250
Prepaid insurance 6,500
Supplies

Total current assets

      4,000  

$221,050

Property, plant, and equipment:

Store equipment

 

$325,000

Less accum. depreciation   162,100 $162,900
Office equipment $149,750
Less accum. depreciation

Total property, plant, and equipment

    72,750     77,000  

  239,900

Total assets $460,950

Liabilities

Current liabilities:

Accounts payable $  97,200
Salaries payable     28,700
Total current liabilities $125,900

Long-term liabilities:

Note payable (due in two years)                                                      154,000

Total liabilities                                                                              $279,900

Owner’s Equity

Maeve Burt, Capital   181,050
Total liabilities and owner’s equity $460,950
 
DIFFICULTY: Challenging Bloom’s: Applying
LEARNING OBJECTIVES: ACCTWARD.16.06-03 – 06-03
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

  1. The following data were extracted from the accounting records of Dana Designs for the year ended March 31.

 

Merchandise inventory, April 1 $530,000
Merchandise inventory, March 31 375,000
Purchases 270,000
Purchase returns and allowances 25,000
Purchase discounts 10,000
Sales 770,000
Freight in 3,000

 

Prepare the cost of merchandise sold section of the income statement for the year ended March 31, using the periodic method.

 

ANSWER:

Dana Designs

Income Statement

For the Year Ended March 31

Sales $770,000
Cost of merchandise sold:
Merchandise inventory, April 1 $530,000
Purchases $270,000
Less: Purchases returns and allowances (25,000)
Purchase discounts    (10,000)
Net purchases $235,000
Plus: Freight in       3,000
Cost of merchandise purchased   238,000
Merchandise available for sale $768,000
Less merchandise inventory, March 31   375,000
Cost of merchandise sold   393,000
Gross profit $377,000
DIFFICULTY: Moderate

Bloom’s: Applying

LEARNING OBJECTIVES: ACCTWARD.16.06-03 – 06-03
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

  1. Prepare a multiple-step income statement for Armstrong Co. from the following data for the year ended December

 

Sales, $755,000; cost of merchandise sold, $330,000; administrative expenses, $35,000; interest expense, $30,000; rent revenue, $25,000; selling expenses, $50,000.

ANSWER:

Armstrong Co.

Income Statement

For the Year Ended December 31

Sales $755,000
Cost of merchandise sold   330,000
Gross profit $425,000
Operating expenses:
Selling expenses $50,000
Administrative expenses   35,000
Total operating expenses     85,000
Income from operations $340,000
Other income and expense:
Rent revenue $25,000
Interest expense   30,000      (5,000)
Net income $335,000

 

DIFFICULTY:                           Challenging Bloom’s: Applying

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Selected data from the ledger of Burt Co., after adjustments, on September 30, the end of the fiscal year, are listed as follows:

 

Accounts Receivable $  39,120 Office Equipment $  82,700
Accumulated  Depreciation 60,540 Prepaid Insurance 4,680
Administrative Expenses 90,000 Note Payable 77,750
Bob Burt, Capital 85,000 Salaries Payable 3,060
Cost of Merchandise Sold 550,000 Sales 950,000
Bob Burt, Drawing 65,000 Selling Expenses 102,000
Interest Revenue 10,000 Supplies 3,125

 

Prepare a single-step income statement and a statement of owner’s equity.

ANSWER:

Burt Co.

Income Statement

For the Year Ended September 30

Revenues:
Sales $950,000
Interest revenue     10,000
Total revenues $960,000
Expenses:

Cost of merchandise sold

 

$550,000

Selling expenses 102,000
Administrative expenses

Total expenses

    90,000  

  742,000

Net income $218,000

 

Burt Co.

Statement of Owner’s Equity For the Year Ended September 30

 

Bob Burt, capital, October 1

Net income for the year

 

 

$218,000

 

$  85,000

Less withdrawals

Increase in owner’s equity

    65,000  

  153,000

Bob Burt, capital, September 30 $238,000
 
DIFFICULTY: Challenging Bloom’s: Applying
LEARNING OBJECTIVES: ACCTWARD.16.06-03 – 06-03
ACCREDITING  STANDARDS: ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

  1. The following data for the current year ended June 30 are from the accounting records of Zanadu Co.:

 

Administrative expenses $  28,750
Cost of merchandise sold 181,440
Interest expense 3,600
Rent revenue 1,500
Sales 534,440
Selling expenses 65,000
Prepare a multiple-step income statement for the year ended June 30.

ANSWER:

Zanadu Co.

Income Statement

For the Year Ended June 30

Sales $534,440
Cost of merchandise sold   181,440
Gross profit $353,000
Operating expenses:
Selling expenses 65,000
Administrative expenses     28,750
Total operating expenses     93,750
Income from operations $259,250
Other income and expense:
Rent revenue 1,500
Interest expense      (3,600)
Net income $257,150

 

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

  1. Madison Company’s perpetual inventory records indicate that $875,300 of merchandise should be on hand on October 31. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Madison Company for the year ended October 31.

 

Oct. 31 Cost of Merchandise Sold 93,400
Merchandise Inventory 93,400

 

ANSWER:

 

 

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.07 – Adjusting Entries

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Selected accounts and amounts appear below. Journalize the closing entry, assuming a perpetual inventory system.

 

Merchandise Inventory                                                   $  45,500

Cost of Merchandise Sold                                                 652,500

 

Income Summary 652,500
Cost of Merchandise Sold 652,500

 

ANSWER:

 

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.08 – Closing Entries

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. The records of Penny Co. indicated that $415,000 of merchandise should be on hand on December 31. The physical inventory indicates that $370,000 of merchandise is actually on hand. Journalize the adjusting entry for the inventory shrinkage for the year ended December 31.

 

Journal

 

Date

 

Description

 

Post. Ref.

 

 

Debit

 

 

Credit

 

ANSWER:

 

Journal

 

Date

 

Description

Post. Ref.  

Debit

 

Credit

Dec. 31 Cost of Merchandise Sold 45,000
Merchandise Inventory 45,000

DIFFICULTY:                           Easy

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-04 – 06-04

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.07 – Adjusting Entries

ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

  1. Based upon the following data for a business with a periodic inventory system, determine the cost of merchandise sold for August.

 

Merchandise inventory, August 1 $  75,560
Merchandise inventory, August 31 96,330
Purchases 373,880
Purchases returns & allowances 14,760
Purchases discounts 10,900
Freight in 4,135

 

ANSWER:                                  Cost of merchandise sold:

Merchandise inventory, August 1                                                         $ 75,560

Purchases                                                                      $373,880

Less: Purchases returns and allowances      $14,760

Purchases discounts                           10,900           25,660

Net purchases                                                                $348,220

Add freight in                                                                      4,135

Cost of merchandise purchased                                                       352,355

Merchandise available for sale                                                             $427,915

Less merchandise inventory, August 31                                                   96,330

Cost of merchandise sold                                                                     $331,585

 

DIFFICULTY:                           Moderate

Bloom’s: Applying

LEARNING OBJECTIVES:        ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.09 – Financial Statements

ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Match each of the following items (a–h) with the appropriate definition below.

  1. Freight
  2. Delivery Expense
  3. Merchandise Inventory
  4. Sales discount
  5. Purchase Returns and Allowances
  6. Debit memo
  7. Purchase discount
  8. Trade discount

 

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-APP – 06-APP

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.06 – Recording Transactions ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Discount taken by the buyer for early payment of invoice.

ANSWER:  g

 

  1. Account used to record merchandise on hand under a perpetual inventory system.

ANSWER:  c

 

  1. Early payment discount offered to customers by the seller.

ANSWER:  d

 

  1. Expense account for recording shipping costs paid by the seller.

ANSWER:  b

 

  1. Discount to government agencies or customers who purchase large quantities of merchandise.

ANSWER:  h

 

  1. Account where returned merchandise or price adjustments are recorded by the buyer under the periodic inventory

ANSWER:  e

  1. The cost associated with delivery of merchandise to the customer.

ANSWER:  a

 

  1. Informs the seller of the reasons for the return of merchandise or the request for a price allowance.

ANSWER:  f

 

 

Match each of the following terms (a–h) with the correct definition below.

  1. Credit terms
  2. FOB destination
  3. FOB shipping point
  4. Periodic inventory system
  5. Perpetual inventory system
  6. Inventory shrinkage
  7. Single-step income statement
  8. Multiple-step income statement

 

DIFFICULTY:                           Easy

Bloom’s: Remembering

LEARNING OBJECTIVES:        ACCT.WARD.16.06-02 – 06-02

ACCT.WARD.16.06-04 – 06-04 ACCT.WARD.16.06-APP – 06-APP ACCTWARD.16.06-03 – 06-03

ACCREDITING STANDARDS:  ACCT.ACBSP.APC.04 – Cash vs. Accrual

ACCT.ACBSP.APC.09 – Financial Statements ACCT.ACBSP.APC.17 – Inventories Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

  1. Shipping terms where the ownership of merchandise passes to the buyer when the buyer receives the merchandise.

ANSWER:  b

 

  1. Losses of inventory due to theft, damage, spoilage, etc. that cause the actual inventory on hand to be less than that on record.

ANSWER:  f

 

  1. Statement where net income is determined by deducting all expenses from all revenues.

ANSWER:  g

 

 

  1. Payment arrangements determined by the seller as to when invoices are due and whether early payment discount is

ANSWER:  a

 

  1. Inventory system that updates the merchandise inventory account for every purchase and sale transaction.

ANSWER:  e

 

  1. Inventory system that updates the merchandise inventory account only at the end of the accounting period based on a physical count of merchandise on hand.

ANSWER:  d

 

  1. Statement that includes subtotals for net sales, gross profit, and net operating income in determining net income.

ANSWER:  h

 

  1. Shipping terms where the ownership of merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier.

ANSWER:  c

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