Question 1

The operating cycle of a merchandising company is generally shorter than that of a service company.

Accepted Answer

A) True 
 B)False

Question 2

A decline in a company's gross profit could be caused by all of the following except

Accepted Answer

A)  selling products with a lower markup.
B)  clearance of discontinued inventory.
C)  paying lower prices to its suppliers.
D)  increased competition resulting in lower selling prices.E) A) and B)
F) A) and C)

Question 3

The operating expenses section of a multiple-step income statement for a merchandising company would not include

Accepted Answer

A)  freight out.
B)  utilities expense.
C)  cost of goods sold.
D)  loss on sale of equipment.E) A) and D)
F) A) and C) C

Question 4

Inventory is usually the largest current asset for a merchandiser.

Accepted Answer

A) True 
 B)False

Question 5

A Sales Returns and Allowances account is not debited if a customer

Accepted Answer

A)  returns defective merchandise.
B)  receives a credit for merchandise of inferior quality.
C)  pays within the discount period.
D)  returns goods that are not in accordance with specifications.E) C) and D)
F) A) and B)

Question 6

Gross profit does not appear

Accepted Answer

A)  on a multiple-step income statement.
B)  on a single-step income statement.
C)  to be relevant in analyzing the operation of a merchandising company.
D)  on either a multiple-step or a single-step income statement.E) B) and D)
F) B) and C)

Question 7

Prepare entries for sales under a perpetual inventory system.

Accepted Answer

When inventory is sold, two entries are ...

Question 8

If merchandise costing $2,500, terms 2/10 n/30, is paid within 10 days, the amount of the purchase discount is $250.

Accepted Answer

A) True 
 B)False

Question 9

Sales Discounts is a(n)

Accepted Answer

A)  contra revenue account.
B)  contra asset account.
C)  revenue account.
D)  expense account.E) A) and D)
F) A) and C)

Question 10

Gross profit margin is the same as the gross profit amount.

Accepted Answer

A) True 
 B)False

Question 11

If net sales are $1,000,000 and cost of goods sold is $800,000, the gross profit margin is 20%.

Accepted Answer

A) True 
 B)False

Question 12

A merchandising company's profit from operations is determined by subtracting cost of goods sold from net sales.

Accepted Answer

A) True 
 B)False

Question 13

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Accepted Answer

A)  a sales discount.
B)  free delivery.
C)  a sales allowance.
D)  a sales return.E) A) and B)
F) All of the above

Question 14

Net sales less cost of goods sold is called

Accepted Answer

A)  gross profit.
B)  cost of goods sold.
C)  profit.
D)  profit before income taxes.E) A) and B)
F) A) and C)

Question 15

Operating expenses are subtracted from revenue for a service company and from gross profit for a merchandising company.

Accepted Answer

A) True 
 B)False  True

Question 16

For a company using a perpetual inventory system, the journal entry to record the purchase of $3,500 of goods on account, with terms of 4/10, n/30, would include a

Accepted Answer

A)  debit to accounts payable of $3,500.
B)  credit to accounts payable of $3,360.
C)  debit to merchandise inventory of $3,360.
D)  debit to merchandise inventory of $3,500.E) B) and D)
F) None of the above D

Question 17

Profit margin is calculated by dividing

Accepted Answer

A)  profit by gross profit.
B)  profit by sales.
C)  profit by net sales.
D)  sales by profit.E) All of the above
F) A) and D)

Question 18

Inventory becomes part of the cost of goods sold when a company

Accepted Answer

A)  pays for the inventory.
B)  purchases the inventory.
C)  sells the inventory.
D)  receives payment from the customer.E) A) and C)
F) All of the above

Question 19

The collection of a $2,000 account within the 2 percent discount period will result in a

Accepted Answer

A)  debit to Sales Discounts for $40.
B)  debit to Accounts Receivable for $1,960.
C)  credit to Cash for $1,960.
D)  credit to Accounts Receivable for $1,960.E) A) and B)
F) B) and C)

Question 20

The respective normal account balances of Sales, Sales Returns and Allowances, and Sales Discounts are

Accepted Answer

A)  credit, credit, credit.
B)  debit, credit, debit.
C)  credit, debit, debit.
D)  credit, debit, credit.E) None of the above
F) B) and D)

Exam 5: Merchandising Operations and the Multiple-Step Income Statement

The operating cycle of a merchandising company is generally shorter than that of a service company.

Correct AnswerverifiedShow Answer

A decline in a company's gross profit could be caused by all of the following except

Correct AnswerverifiedShow Answer

The operating expenses section of a multiple-step income statement for a merchandising company would not include

Correct AnswerverifiedC

Inventory is usually the largest current asset for a merchandiser.

Correct AnswerverifiedShow Answer

A Sales Returns and Allowances account is not debited if a customer

Correct AnswerverifiedShow Answer

Gross profit does not appear

Correct AnswerverifiedShow Answer

Prepare entries for sales under a perpetual inventory system.

Correct AnswerverifiedWhen inventory is sold, two entries are ...View AnswerShow Answer

If merchandise costing $2,500, terms 2/10 n/30, is paid within 10 days, the amount of the purchase discount is $250.

Correct AnswerverifiedShow Answer

Sales Discounts is a(n)

Correct AnswerverifiedShow Answer

Gross profit margin is the same as the gross profit amount.

Correct AnswerverifiedShow Answer

If net sales are $1,000,000 and cost of goods sold is $800,000, the gross profit margin is 20%.

Correct AnswerverifiedShow Answer

A merchandising company's profit from operations is determined by subtracting cost of goods sold from net sales.

Correct AnswerverifiedShow Answer

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Correct AnswerverifiedShow Answer

Net sales less cost of goods sold is called

Correct AnswerverifiedShow Answer

Operating expenses are subtracted from revenue for a service company and from gross profit for a merchandising company.

Correct AnswerverifiedTrue

For a company using a perpetual inventory system, the journal entry to record the purchase of $3,500 of goods on account, with terms of 4/10, n/30, would include a

Correct AnswerverifiedD

Profit margin is calculated by dividing

Correct AnswerverifiedShow Answer

Inventory becomes part of the cost of goods sold when a company

Correct AnswerverifiedShow Answer

The collection of a $2,000 account within the 2 percent discount period will result in a

Correct AnswerverifiedShow Answer

The respective normal account balances of Sales, Sales Returns and Allowances, and Sales Discounts are

Correct AnswerverifiedShow Answer

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C

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When inventory is sold, two entries are ...
View Answer

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True

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D

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