 purchase returns and allowances.

 purchase discounts.
6. In a perpetual inventory system, which account would be debited
when goods are purchased with the intent of being resold?
1. Net income is gross profit less
 Purchases
 other expenses and losses.
 Inventory.
 administrative expenses.
 Accounts Payable
 selling expenses.
 Cost of Goods Sold
 operating expenses.
7. In a perpetual inventory system, the Cost of Goods Sold account
2. Gross profit will result if
is used
 operating expenses are greater than cost of goods sold.
 only when a sale of merchandise occurs.
 sales revenue are greater than cost of goods sold.
 only when a credit sale of merchandise occurs.
 operating expenses are less than net income.
 whenever there is a sale of merchandise or a return of
 sales revenue are greater than operating expenses. merchandise sold.
3. A company determines the cost of goods sold each time a sale  only when a cash sale of merchandise occurs.
occurs in
8. The contra revenue account that normally has a debit balance is
 a periodic inventory system only.
 purchase returns and allowances.
 a perpetual inventory system only.
 freight out.
 both a periodic and perpetual inventory system.
 sales returns and allowances.
 neither a periodic nor perpetual inventory system.
 purchase discounts.
4. A perpetual inventory system would most likely be used by a(n)
9. Which of the following accounts will normally appear in the ledger
 convenience store. of a merchandising company that uses a perpetual inventory
 automobile dealership. system?
 hardware store.  Freight-In.
 drugstore.  Purchase Discounts.
5. In a perpetual inventory system, a return of defective merchandise  Cost of Goods Sold.
by a purchaser is recorded by crediting  Purchases.

 purchases. 10. Which of the following is not part of the journal entries made
 inventory. when merchandise is sold on credit?
  Credit the Sales Revenue account.  Income from operations
 Credit the Inventory account.
15. Which of the following accounts will appear in the trial balance of
 Credit the Cost of Goods Sold account.
a merchandising company but not a service company?
 Debit the Accounts Receivable account.
 Accumulated Depreciation - Equipment.
11. A company that maintains a perpetual inventory system has an
 Owner’s Drawings.
inventory account balance of $50,000. The physical count of goods
 Salaries and Wages Expense.
on hand totals $49,600. Which of the following adjusting entries is
correct?  Inventory.
16. In a periodic inventory system, a return of defective merchandise
 debit Purchases and credit Inventory.
to a supplier is recorded by crediting
 debit Cost of Goods Sold and credit Inventory.
 debit Inventory and credit Purchases.  purchases.
 debit Sales Discounts and credit Inventory.  purchase returns and allowances.
 inventory.
12. The multiple-step income statement for a merchandising
company shows each of the following items except  accounts payable.
17. In determining cost of goods sold
 sales revenue section.
 gross profit.  freight-out is added to net purchases.
 investing activities section.  purchase returns and allowances are deducted from net
 cost of goods sold. purchases.
 freight-in is added to net purchases.
13. Which of the following appears on both a single-step and a
multiple-step income statement?  purchase discounts are deducted from net purchases.
18. When goods are purchased for resale on account by a company
 Income from operations
using a periodic inventory system, they are
 Gross profit
 Cost of goods sold.  debited to Purchases.
 Inventory  debited to Purchase Returns and Allowances.
 debited to Inventory.
14. Which of the following is shown on both a multiple-step and a
 debited to Cost of Goods Sold.
single-step income statement?
19. The following amounts relate to Amato Company for the current
 Gross profit
year: beginning Inventory, $20,000; ending inventory, $28,000;
 Other expenses and losses
purchases, $166,000; purchase returns, $4,800; and freight-out,
 Net sales.
$6,000. The amount of cost of goods sold for the period is
  $153,200.  net profit.
 $159,200.  marginal income.
 $169,200.  gross profit.
 $162,800.  net income.
20. Which of the following statements is true? 25. Cost of goods sold is determined only at the end of the
accounting period in
 Under IFRS, revaluation of land, buildings and intangible
assets is prohibited.  a perpetual inventory system.
 Under IFRS, companies must classify expenses by either  a periodic inventory system.
nature or function.  both a perpetual and a periodic inventory system.
 IFRS specifically prohibits the use of the multi-step income  neither a perpetual nor a periodic inventory system.
statement.
26. Detailed records of goods held for resale are not maintained
 IFRS requires the use of the perpetual inventory method.
under a
21. Net income is gross profit less
 perpetual inventory system.
 financing expenses.  periodic inventory system.
 operating expenses.  single entry accounting system.
 other expenses and losses.  double entry accounting system.
 other expenses.
27. Which of the following is a true statement about inventory
22. Which of the following would not be considered a merchandising systems?
company?
 A perpetual system determines cost of goods sold only at the
 Service firm. end of the accounting period.
 Wholesaler  Periodic inventory systems require more detailed inventory
 Dot Com firm records.
 Retailer  A periodic system requires cost of goods sold be determined
after each sale.
23. Two categories of expenses for merchandising companies are
 Perpetual inventory systems require more detailed inventory
 cost of goods sold and operating expenses. records.
 sales and cost of goods sold. 28. If a company determines cost of goods sold each time a sale
 cost of goods sold and financing expenses. occurs, it
 operating expenses and financing expenses.
 must have a computer accounting system.
24. Sales revenue less cost of goods sold is called
  uses a periodic inventory system.  $8550
 uses a perpetual inventory system.
33. If a company is given credit terms of 2/10, n/30, it should
 uses a combination of the perpetual and periodic inventory
systems.  pay within the discount period and recognize a savings.
 hold off paying the bill until the end of the credit period, while
29. The journal entry to record a return of merchandise purchased on
investing the money at 10% annual interest during this time.
account under a perpetual inventory system would credit
 pay within the credit period but don’t take the trouble to invest
 Sales Revenue. the cash while waiting to pay the bill.
 Inventory.  recognize that the supplier is desperate for cash and withhold
 Accounts Payable. payment until the end of the credit period while negotiating a
 Purchase Returns and Allowances. lower sales price.

30. A buyer would record a payment within the discount period under 34. Sheffield’s Market recorded the following events involving a
a perpetual inventory system by crediting recent purchase of merchandise:

 Purchase Discounts. Received goods for $61000, terms 1/10, n/30.

 Sales Discounts. Returned $1300 of the shipment for credit.
 Inventory. Paid $300 freight on the shipment.
 Accounts Payable. Paid the invoice within the discount period.

31. Freight costs paid by a seller on merchandise sold to customers As a result of these events, the company’s inventory increased by
will cause an increase  $60000.
 to a contra-revenue account of the seller.  $59103.
 to the cost of goods sold of the seller.  $59397.
 in operating expenses for the seller.  $59403.
 in the selling expense of the buyer. 35. Under the perpetual system, cash freight costs incurred by the
32. Sheridan Company purchased merchandise inventory with an buyer for the transporting of goods is recorded in
invoice price of $9000 and credit terms of 5/10, n/30. What is the net  Inventory.
cost of the goods if Sheridan Company pays within the discount  Freight - Out.
period?  Freight - In.
 $7200  Freight Expense.
 $8100 36. Concord Company made a purchase of merchandise on credit
 $9000 from Pharoah Company on August 8, for $8300, terms 3/10, n/30.
On August 17, Concord makes the appropriate payment to Pharoah.  $980
The entry on August 17 for Concord Company is:  $730
 $820
 Accounts Payable 8300
Cash 8300  $910
 Accounts Payable 8300 40. The collection of a $3900 account after the 2 percent discount
Purchase Returns and Allowances 249 period will result in a
Cash 8051
 Accounts Payable 8300  debit to Sales Discounts for $78.
Inventory 249  debit to Cash for $3900.
Cash 8051  debit to Cash for $3822.
 Accounts Payable 8051  debit to Accounts Receivable for $3900.
Cash 8051 41. In a perpetual inventory system, the Cost of Goods Sold account
37. On November 2, 2016, Waterway Company has cash sales of is used
$6020 from merchandise having a cost of $3570. The entries to  only when a credit sale of merchandise occurs.
record the day's cash sales will include:  only when a cash sale of merchandise occurs.
 a $6020 credit to Cash.  only when a sale of merchandise occurs.
 a $3570 credit to Cost of Goods Sold.  whenever there is a sale of merchandise or a return of
 a $3570 credit to Inventory. merchandise sold.
 a $6020 debit to Accounts Receivable. 42. A sales invoice is a source document that
38. The entry to record the receipt of payment within the discount  serves only as a customer receipt.
period on a sale of $2300 with terms of 1/10, n/30 will include a  provides support for goods purchased for resale.
credit to
 provides evidence of incurred operating expenses.
 Sales Discounts for $23.  provides evidence of credit sales.
 Sales Revenue for $2300. 43. The journal entry to record a credit sale is
 Cash for $2277.
 Accounts Receivable for $2300.  Accounts Receivable
Service Revenue
39. Company Coronado sells $1000 of merchandise on account to  Cash
Company Wildhorse with credit terms of 2/15, n/30. If Company Service Revenue
Wildhorse remits a check taking advantage of the discount offered,
 Accounts Receivable
what is the amount of Company Wildhorse's check?
Sales Revenue
  Cash  two sales returns can be made within 10 days of the invoice
Sales Revenue date and no returns thereafter.
 the customer must pay the bill within 10 days.
44. The Sales Returns and Allowances account is classified as a(n)
 the customer can deduct a 2.6% discount if the bill is paid
 contra revenue account. between the 10th and 30th day from the invoice date.
 asset account.  the customer can deduct a 2.6% discount if the bill is paid
 contra asset account. within 10 days of the invoice date.
 expense account. 46. Company Concord sells $2300 of merchandise on account to
42. If a customer agrees to retain merchandise that is defective Company Pharoah with credit terms of 1/10, n/30. If Company
because the seller is willing to reduce the selling price, this Pharoah remits a check taking advantage of the discount offered,
transaction is known as a sales what is the amount of Company Pharoah's check?

 discount.  $2277.
 return.  $2050.
 contra asset.  $1550.
 allowance.  $1800.

43. When goods are returned that relate to a prior cash sale, 47. Bramble Company sells merchandise on account for $5200 to
Blossom Company with credit terms of 2/10, n/30. Blossom
 Sales Returns and Allowances will be credited. Company returns $800 of merchandise that was damaged, along
 the cash account will be credited. with a check to settle the account within the discount period. What
 the Sales Returns and Allowances account should not be entry does Bramble Company make upon receipt of the check?
used.
 Accounts Receivable will be credited.  Cash 4312
Sales Returns and Allowances 888
44. A Sales Returns and Allowances account is not debited if a Accounts Receivable 5200
customer  Cash 5096
 receives a credit for merchandise of inferior quality. Sales Discounts 104
Sales Returns and Allowances 800
 returns goods that are not in accordance with specifications.
Accounts Receivable 4400
 returns defective merchandise.
 Cash 4312
 utilizes a prompt payment incentive.
Sales Returns and Allowances 800
45. The credit terms offered to a customer by a business firm are Sales Discounts 88
2.6/10, n/30, which means that Accounts Receivable 5200
  Cash 4400  about the same as for a service company.
Accounts Receivable 4400
53. Sheffield Company's financial information is presented below.
48. Which of the following accounts has a normal credit balance?
Sales Revenue $ ???? Cost of Goods Sold 545000
 Sales Revenue. Sales Returns and Allowances 36000 Gross Profit ????
 Selling Expense. Net Sales 864000
 Sales Discounts. The missing amounts above are:
 Sales Returns and Allowances.
Sales Revenue Gross Profit
49. When a seller grants credit for returned goods, the account that
is credited is  $900000 $425000
 $819000 $319000
 Sales Revenue.
 $900000 $319000
 Sales Returns and Allowances.
 $819000 $425000
 Inventory.
 Accounts Receivable. 54. The operating expense section of an income statement for a
wholesaler would not include
50. All of the following are contra revenue accounts except
 freight-out.
 sales discounts.  utilities expense.
 sales returns.  insurance expense.
 sales allowances.  cost of goods sold.
 sales revenue.
55. Indicate which one of the following would appear on the income
51. In preparing closing entries for a merchandising company, the statement of both a merchandising company and a service company.
Income Summary account will be credited for the balance of
 Cost of goods sold.
 sales discounts.  Gross profit.
 freight-out.  Operating expenses.
 sales revenue.  Sales revenues.
 inventory.
56. Income from operations appears on
52. The operating cycle of a merchandiser is
 both a multiple-step and a single-step income statement.
 always one year in length.  neither a multiple-step nor a single-step income statement.
 generally longer than it is for a service company.  a single-step income statement.
 generally shorter than it is for a service company.  a multiple-step income statement.
57. Which of the following is not a true statement about a multiple- 61. Gross profit for a merchandiser is net sales minus
step income statement?
 cost of goods sold.
 There may be a section for nonoperating activities.  sales discounts.
 There is a section for cost of goods sold.  cost of goods available for sale.
 Operating expenses are similar for merchandising and service  operating expenses.
enterprises.
62. During 2016, Concord Co. generated revenues of $83000. The
 There may be a section for operating assets.
company’s expenses were as follows: cost of goods sold of $43000,
58. All of the following items would be reported as other expenses operating expenses of $18000 and a loss on the sale of equipment
and losses except of $2700. Concord’s income from operations is
 interest expense.  $43000.
 loss from employees’ strikes.  $22000.
 freight-out.  $18000.
 casualty losses.  $83000.
59. A company shows the following balances: 63. Financial information is presented below:
Sales Revenue $2964000 Operating Expenses $ 52000
Sales Returns and Allowances 424000 Sales Revenue 227000
Sales Discounts 40000 Cost of Goods Sold 134000
Cost of Goods Sold 1470000
Gross profit would be
What is the gross profit rate?
 $227000.
 67.2%  $41000.
 58.8%  $93000.
 41.2%  $175000.
 55.2%
64. Financial information is presented below:
60. In terms of liquidity, inventory is
Operating Expenses $ 91300
 more liquid than accounts receivable. Sales Returns and Allowances 26200
 more liquid than prepaid expenses. Sales Discounts 12900
 less liquid than store equipment. Sales 308000
 more liquid than cash. Cost of Goods Sold 157500
Gross profit would be
  $111400. company’s gross profit rate is 30%, Bramble’s will report monthly net
 $124300. sales revenue and cost of goods sold of
 $137600.
 $37000 and $26600.
 $150500.
 $38000 and $25900.
65. Financial information is presented below:  $38000 and $26600.
 $37000 and $25900.
Operating Expenses $ 91100
Sales Returns and Allowances 17000 68. During August, 2016, Concord’s Supply Store generated
Sales Discounts 12400 revenues of $59300. The company’s expenses were as follows: cost
Sales Revenue 320100 of goods sold of $36400 and operating expenses of $4200. The
Cost of Goods Sold 174200 company also had rent revenue of $1000 and a loss on the sale of a
delivery truck of $2000.
The amount of net sales on the income statement would be
Concord’s non-operating income (loss) for the month of August,
 $303100. 2016 is
 $290700.
 $307700.  $2200.
 $320100.  $0.
 $3000.
66. Financial information is presented below:
 $1000.
Operating Expenses $ 99000
69. During August, 2016, Crane’s Supply Store generated revenues
Sales Returns and Allowances 17000
of $60400. The company’s expenses were as follows: cost of goods
Sales Discounts 10000
sold of $35400 and operating expenses of $3800. The company also
Sales Revenue 277000
had rent revenue of $1000 and a loss on the sale of a delivery truck
Cost of Goods Sold 175000
of $2000.
The gross profit rate would be
Crane’s net income for August, 2016 is
 0.356.
 $25000.
 0.263.
 $20200.
 0.403.
 $21200.
 0.300.
 $22200.
67. Bramble’s Fashions sold merchandise for $38000 cash during
61. The Inventory account balance appearing in a perpetual
the month of July. Returns that month totaled $1000. If the
inventory worksheet represents the
  beginning inventory. Delivery Expense 9000
 ending inventory. The cost of goods purchased for the period is
 cost of merchandise purchased.
 $104200.
 cost of merchandise sold.
 $81300.
62. At the beginning of September, 2016, Coronado Company  $88200.
reported Inventory of $8300. During the month, the company made  $94500.
purchases of $34600. At September 30, 2016, a physical count of
66. In a periodic inventory system, a return of defective merchandise
inventory reported $8200 on hand. Cost of goods sold for the month
to a supplier is recorded by crediting
is
 Accounts Payable.
 $34600.
 Purchase Returns and Allowances.
 $34500.
 Inventory.
 $42900.
 Purchases.
 $34700.
67. The journal entry to record a return of merchandise purchased on
63. During the year, Swifty’s Pet Shop’s inventory decreased by
account under a periodic inventory system would be
$30000. If the company’s cost of goods sold for the year was
$505000, purchases must have been  Purchase Returns and Allowances
Accounts Payable
 $475000.
 Accounts Payable
 $535000.
Purchase Returns and Allowances
 Unable to determine.
 Accounts Payable
 $505000.
Inventory
64. The Freight-In account  Inventory
Accounts Payable
 is a permanent account.
 has a normal credit balance. 68. Which of the following accounts has a normal credit balance?
 increases the cost of merchandise purchased.
 Freight-In
 is contra to the Purchases account.
 Purchases
65. Waterway Company has the following account balances:  Purchase Discounts
 Sales Returns and Allowances
Purchases $96200
Sales Returns and Allowances 12100 69. Swifty Company's accounting records show the following at the
Purchase Discounts 8000 year ending on December 31, 2016:
Freight-In 6300
Purchase Discounts $ 11100 72. On October 4, 2016, Marigold Corporation had credit sales
Freight - In 15400 transactions of $4600 from merchandise having cost $2400. The
Purchases 402500 entries to record the day's credit transactions include a
Beginning Inventory 47100
Ending Inventory 57900  credit of $4600 to Sales Revenue.
Purchase Returns 13000  credit of $2400 to Cost of Goods Sold.
 debit of $4600 to Inventory.
Using the periodic system, the cost of goods purchased is  debit of $2400 to Inventory.
 $404600. 73. In the Marigold Company, sales were $740000, sales returns and
 $378400. allowances were $29000, and cost of goods sold was $511920. The
 $383000. gross profit rate was
 $393800.
 26.9%.
70. Sunland Company has sales revenue of $61100, cost of goods  28.0%.
sold of $36800 and operating expenses of $13000 for the year  30.8%.
ended December 31. Sunland's gross profit is  32.5%.
 $48100. 74. In the balance sheet, ending inventory is reported
 $0.
 $11300.  in current assets immediately following prepaid expenses.
 $24300.  in current assets immediately following accounts receivable.
 in current assets immediately following cash.
71. Swifty Company uses a perpetual inventory system purchased  under property, plant, and equipment.
inventory from Cullumber Company. The shipping costs were $410
and the terms of the shipment were FOB shipping point. Swifty would 75. The Income statement is
have the following entry regarding the shipping charges:  required under IFRS in the same format as under GAAP.
 Freight Expense 410  required under IFRS but not under GAAP.
Cash 410  required under IFRS with some differences as compared to
 Freight-Out 410 GAAP.
Cash 410  required under GAAP but not under IFRS.
 There is no entry on Swifty's books for this transaction. 76. Under GAAP, companies can choose which inventory system?
 Inventory 410
Cash 410 Perpetual Periodic
 Yes No
  Yes Yes.  but net income and other comprehensive income.
 No Yes  neither net income nor other comprehensive income.
 No No
82. The number of years of income statement information to be
77. Companies cannot use the presented is

 periodic inventory system under GAAP.  3 years under GAAP and 2 years under IFRS.
 periodic inventory system under IFRS.  3 years under both GAAP and IFRS.
 perpetual system under IFRS.  2 years under GAAP and 3 years under IFRS.
 both periodic and perpetual can be used under GAAP and  2 years under both GAAP and IFRS.
IFRS.
78. Under GAAP, companies generally classify income statement
items by
 nature.
 date incurred.
 function.
 nature or function
79. Under GAAP, income statement items are generally described as
 administration, distribution, manufacturing, etc.
 administration, depreciation, manufacturing, etc.
 salaries, distribution, utilities, etc.
 salaries, depreciation, utilities, etc.
80. For the income statement, IFRS requires
 no specific income statement approach.
 single-step approach.
 multiple-step approach.
 single-step approach or multiple-step approach.
81. The use of IFRS results in more transactions affecting
 net income but not other comprehensive income.
 other comprehensive income, but not net income.