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New revenue recognition rules require that sellers report sales at the amount expected to be received.

A) True
B) False

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What is the acid-test ratio? How does it measure a company's liquidity?

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The acid-test ratio is a measure of a me...

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Merchandise inventory refers to products that a company owns and intends to sell to customers.

A) True
B) False

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All of the following statements regarding inventory shrinkage are true except:


A) Inventory shrinkage refers to the loss of inventory.
B) Inventory shrinkage is determined by comparing a physical count of inventory with recorded inventory amounts.
C) Inventory shrinkage is recognized by debiting an operating expense.
D) Inventory shrinkage is recognized by debiting Cost of Goods Sold.
E) Inventory shrinkage can be caused by theft or deterioration.

F) A) and B)
G) All of the above

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Sales Discounts is added to the Sales account when computing a company's net sales.

A) True
B) False

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Jasper Company is a wholesaler that buys merchandise in large quantities.Its supplier's catalog indicates a list price of $500 per unit on merchandise Jasper intends to purchase,and offers a 30% trade discount for large quantity purchases.The cost of shipping for the merchandise is $7 per unit.Jasper's total purchase price per unit will be:


A) $507
B) $350
C) $357
D) $343
E) $157

F) A) and B)
G) B) and C)

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A company had a gross profit of $200,000 based on sales of $450,000.Its cost of goods sold equals $250,000.

A) True
B) False

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What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory)and FOB destination.

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FOB stands for free on board,and it dete...

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What is gross margin ratio? How is it used as an indicator of profitability?

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The gross margin ratio computes the rela...

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Under a perpetual inventory system,when a credit customer returns non-defective merchandise to the seller,the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.

A) True
B) False

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Describe why tracking inventory activities are necessary for a merchandising company.

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Tracking merchandise activities are nece...

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Fragment Company is a wholesaler that sells merchandise in large quantities.Its catalog indicates a list price of $300 per unit on a particular product and a 40% trade discount is offered for quantity purchases of 50 units or more.The cost of shipping the merchandise is $7 per unit under terms FOB shipping point.If a customer purchases 100 units of this product,what is the amount of sales revenue that Fragment will record from this sale?


A) $18,000
B) $30,000
C) $18,700
D) $29,300
E) $30,700

F) A) and D)
G) A) and E)

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The gross margin ratio:


A) Is also called the net profit ratio.
B) Indicates the percent of sales revenue remaining after covering the cost of the goods sold.
C) Is also called the profit margin.
D) Is a measure of liquidity and should exceed 2.0 to be acceptable.
E) Should be greater than 1 for merchandising companies.

F) A) and E)
G) A) and B)

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A company purchased $1,800 of merchandise on July 5 with terms 2/10,n/30.On July 7,it returned $200 worth of merchandise.On July 28,it paid the full amount due.Assuming the company uses a perpetual inventory system,and records purchases using the gross method,The correct journal entry to record the purchase on July 5 is:


A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.
C) Debit Merchandise Inventory $1,800; credit Sales Returns $200; credit Cash $1,600.
D) Debit Accounts Payable $1,800; credit Merchandise Inventory $1,800.
E) Debit Accounts Payable $1,800; credit Purchase Returns $200; credit Merchandise Inventory $1,600.

F) B) and C)
G) A) and E)

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On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ryan uses the periodic inventory system and the net method of accounting for sales.On September 14,Johnson returns some of the non-defective merchandise,which is restored to inventory.The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350.The entry or entries that Ryan must make on September 14 is (are) :


A)  Sales returns and allowances 490 Accounts receivable 490 Merchandise inventory 350 Cost of goods sold 350\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 490 & \\\hline \text { Accounts receivable } & & 490 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}
B)  Sales retums and allowances 500 Accounts receivable 500\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 500 & \\\hline \text { Accounts receivable } & & 500 \\\hline\end{array}
C)  Sales retums and allowances 490 Accounts receivable 490\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 490 & \\\hline \text { Accounts receivable } & & 490 \\\hline\end{array}
D)  Sales returns and allowances 490 Accounts receivable 490 Merchandise inventory 343 Cost of goods sold 343\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 490 & \\\hline \text { Accounts receivable } & & 490 \\\hline \text { Merchandise inventory } & 343 & \\\hline \text { Cost of goods sold } & & 343 \\\hline\end{array}
E)  Sales retums and allowances 350 Accounts receivable 350\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}

F) All of the above
G) B) and C)

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An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a:


A) Balanced income statement.
B) Single-step income statement.
C) Multiple-step income statement.
D) Combined income statement.
E) Simplified income statement.

F) C) and D)
G) B) and C)

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Cost of goods sold is an expense,and is reported on the income statement.

A) True
B) False

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The gross method requires a period-end adjusting entry to estimate future sales discounts.

A) True
B) False

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In the current year,Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000.Borden expects returns in the following year to equal 8% of sales.The unadjusted balance in Inventory Returns Estimated is a debit of $6,000,and the unadjusted balance in Sales Refund Payable is a credit of $10,000.The adjusting entry or entries to record the expected sales returns is (are) :


A)  Accounts Receivable 2,000,000 Sales 2,000,000\begin{array}{|l|l|l|}\hline \text { Accounts Receivable } & 2,000,000 & \\\hline \text { Sales } & & 2,000,000 \\\hline\end{array}
B)  Sales returns and allowances 150,000 Sales 150,000 Cost of Goods Sold 90,000 Inventory Returns Estimated 90,000\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 150,000 & \\\hline \text { Sales } & & 150,000 \\\hline \text { Cost of Goods Sold } & 90,000 & \\\hline \text { Inventory Returns Estimated } & & 90,000 \\\hline\end{array}
C)  Sales 2,000,000 Sales Refund Payable 160,000 Accounts receivable 1,840,000\begin{array}{|l|r|r|}\hline \text { Sales } & 2,000,000 & \\\hline \text { Sales Refund Payable } & & 160,000 \\\hline \text { Accounts receivable } & & 1,840,000 \\\hline\end{array}
D)  Sales Refurd Payable 150,0000 Accourits receivable 150,000\begin{array} { | l | l | l | } \hline \text { Sales Refurd Payable } & 150,0000 & \\\hline \text { Accourits receivable } & & 150,000 \\\hline\end{array}
E)  Sales Returns and Allowances 150,000 Sales Refund Payable 150,000 Inventory Returns Estimated 90,000 Cost of goods sold 90,000\begin{array}{|l|r|r|}\hline \text { Sales Returns and Allowances } & 150,000 & \\\hline \text { Sales Refund Payable } & & 150,000 \\\hline \text { Inventory Returns Estimated } & 90,000 & \\\hline \text { Cost of goods sold } & & 90,000 \\\hline\end{array}

F) A) and B)
G) A) and C)

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Sales Discounts and Sales Returns and Allowances are subtracted in the calculation of net sales.

A) True
B) False

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