1. The amount recorded for merchandise inventory includes: Answer Any purchase discounts. Any returns and allowances. Any necessary freight costs. Any trade discounts. All of these. 2 points Question 2 Beginning inventory plus net purchases is: Answer Cost of goods sold. Merchandise available for sale. Ending inventory. Sales. Shown on the balance sheet. 2 points Question 3 A merchandising company: Answer Earns net income by buying and selling merchandise. Can buy products from manufacturers and sell to retailers. Can buy products from manufacturers and sell them to consumers. Can be a wholesaler or a retailer. All of these. 2 points Question 4 The operating cycle of a merchandising company: Answer Begins with the purchase of merchandise. Ends with the collection of cash from the sale of merchandise. Can vary in length among different merchandising companies. Sometimes involves accounts receivable. All of these. 2 points Question 5 On October 1, Robinson Company sold merchandise in the amount of $5,800 to Rosser, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robinson uses the perpetual inventory system. The journal entry or entries that Robinson will make on October 1 is: Answer 2 points Question 6 A company uses the perpetual inventory system and recorded the following entry: This entry reflects a: Answer Purchase. Return. Sale. Payment of the account payable and recognition of a cash discount taken. Purchase and recognition of a cash discount taken. 2 points Question 7 An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a: Answer Balanced income statement. Single-step income statement. Multiple-step income statement. Combined income statement. Simplified income statement. 2 points Question 8 Gross profit: Answer Is also called gross margin. Less other operating expenses equals income from operations. Equals net sales less cost of goods sold. Must cover all operating expenses to yield a return for the owner of the business. All of these. 2 points Question 9 Inventory shrinkage: Answer Refers to the loss of inventory. Is determined by comparing a physical count of inventory with recorded inventory amounts. Is recognized by debiting Cost of Goods Sold. Can be caused by theft or deterioration. All of these. 2 points Question 10 The acid-test ratio: Answer Is also called the quick ratio. Measures profitability. Measures inventory turnover. Is generally greater than the current ratio. All of these. 2 points Question 11 Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called: Answer Cost of goods sold. Selling expenses. Purchasing expenses. General and administrative expenses. Nonoperating activities. 2 points Question 12 A trade discount is: Answer A term used by a purchaser to describe a cash discount given to customers for prompt payment. A reduction in price below the list price. A term used by a seller to describe a cash discount granted to customers for prompt payment. A reduction in price for prompt payment. Also called a rebate. 2 points Question 13 A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that a customer has taken a ___ cash discount for early payment. Answer 1% 2% 5% 10% 15% 2 points Question 14 The credit terms 2/10, n/30 are interpreted as: Answer 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days. 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days. 30% discount if paid within 2 days. 30% discount if paid within 10 days. 2% discount if paid within 30 days. 2 points Question 15 A debit to Sales Returns and Allowances and a credit to Accounts Receivable: Answer Reflects an increase in amount due from a customer. Recognizes that a customer returned merchandise and/or received an allowance. Requires a debit memorandum to recognize the customer’s return. Is recorded when a customer takes a discount. All of these. 2 points Question 16 Multiple-step income statements: Answer Are required by the FASB. Contain more detail than a simple listing of revenues and expenses. Are required for the perpetual inventory system. List cost of goods sold as an operating expense. Can only be used in perpetual inventory systems. 2 points Question 17 J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092 million, and its net income was $997 million. Its gross margin ratio equals: Answer 3.5%. 5.2%. 33%. 67%. 149.3%. 2 points Question 18 Sales returns: Answer Refer to merchandise that customers return to the seller after the sale. Refer to reductions in the selling price of merchandise sold to customers. Represent cash discounts. Represent trade discounts. Are not recorded under the perpetual inventory system until the end of each accounting period. 2 points Question 19 A company purchased $1,800 of merchandise on December 5. On December 7, it returned $200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 equals: Answer $200. $1,564. $1,568. $1,600. $1,800. 2 points Question 20 A company had net sales and cost of goods sold of $752,000 and $543,000, respectively. Its net income was $17,530. The company’s gross margin ratio equals: Answer 18.9% 24.5% 27.8% 34.7% 35.2% 2 points Question 21 Merchandise inventory includes: Answer All goods owned by a company and held for sale. All goods in transit. All goods on consignment. Only damaged goods. All of these. 2 points Question 22 A company normally sells its product for $20 per unit. However, the selling price has fallen to $15 per unit. This company’s current inventory consists of 200 units purchased at $16 per unit. Replacement cost has now fallen to $13 per unit. Calculate the value of this company’s inventory at the lower of cost or market. Answer $2,550. $2,600. $2,700. $3,000. $3,200. 2 points Question 23 The consistency concept: Answer Requires a company to consistently apply the same accounting method of inventory valuation, an exception being when a change from one method to another will improve its financial reporting. Requires a company to use one method of inventory valuation exclusively. Requires that all companies in the same industry use the same accounting methods of inventory valuation. Is also called the full disclosure principle. Is also called the matching principle. 2 points Question 24 A company had inventory of 10 units at a cost of $20 each on November 1. On November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at $25 each. On November 8, it sold 22 units for $54 each. Using the FIFO perpetual inventory method, what was the cost of the 22 units sold? Answer $470. $490. $450. $570. $520. 2 points Question 25 Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used? Answer FIFO and LIFO LIFO and weighted-average cost Specific identification and FIFO FIFO and weighted-average cost LIFO and specific identification 2 points Question 26 Toys “R” Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals: Answer 0.21. 4.51 4.79. 76.1 days. 80.9 days. 2 points Question 27 Regardless of the inventory costing system used, cost of goods available for sale must be allocated between Answer beginning inventory and net purchases during the period. ending inventory and beginning inventory. net purchases during the period and ending inventory. ending inventory and cost of goods sold. beginning inventory and cost of goods sold. 2 points Question 28 In applying the lower of cost or market method to inventory valuation, market is defined as: Answer Historical cost. Current replacement cost. Current sales price. FIFO. LIFO. 2 points Question 29 Given the following information, determine the cost of the inventory at June 30 using the LIFO perpetual inventory method. The cost of the ending inventory is Answer $200. $220. $380. $275. $300. 2 points Question 30 The inventory turnover ratio is calculated as: Answer Cost of goods sold divided by average merchandise inventory. Sales divided by cost of goods sold. Ending inventory divided by cost of goods sold. Cost of goods sold divided by ending inventory. Cost of goods sold divided by ending inventory times 365. 2 points Question 31 The full disclosure principle: Answer Requires that when a change in inventory valuation method is made, the notes to the statements report the type of change, its justification and its effect on net income. Requires that companies use the same accounting method for inventory valuation period after period. Is not subject to the materiality principle. Is only applied to retailers. Is also called the consistency principle. 2 points Question 32 Generally accepted accounting principles require that the inventory of a company be reported at: Answer Market value. Historical cost. Lower of cost or market. Replacement cost. Retail value. 2 points Question 33 An overstatement of ending inventory will cause Answer An overstatement of assets and equity on the balance sheet. An understatement of assets and equity on the balance sheet. An overstatement of assets and an understatement of equity on the balance sheet. An understatement of assets and an overstatement of equity on the balance sheet. No effect on the balance sheet. 2 points Question 34 Physical counts of inventory: Answer Are not necessary under the perpetual system. Are necessary to measure and adjust for inventory shrinkage. Must be taken at least once a month. Requires the use of hand-held portable computers. Are not necessary under the cost-to benefit constraint. 2 points Question 35 Goods on consignment: Answer Are goods shipped by the owner to the consignee who sells the goods for the owner. Are reported in the consignee’s books as inventory. Are goods shipped to the consignor who sells the goods for the owner. Are not reported in the consignor’s inventory since they do not have possession of the inventory. Are always paid for by the consignee when they take possession. 2 points Question 36 A 10-column spreadsheet used to draft a company’s unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements, and which is an optional tool in the accounting process is a(n) : Answer Adjusted trial balance. Work sheet. Post-closing trial balance. Unadjusted trial balance. General ledger. 2 points Question 37 A company’s ledger accounts and their end-of-period balances before closing entries are posted are shown below. What amount will be posted to Tricia DeBarre, Capital in the process of closing the Income Summary account? (Assume all accounts have normal balances.) Answer $16,780 debit. $ 7,180 credit. $16,780 credit. $18,280 credit. $23,780 credit. 2 points Question 38 When closing entries are made: Answer All ledger accounts are closed to start the new accounting period. All temporary accounts are closed but not the permanent accounts. All real accounts are closed but not the nominal accounts. All permanent accounts are closed but not the nominal accounts. All balance sheet accounts are closed. 2 points Question 39 Closing entries are required: Answer if management has decided to cease operating the business. only if the company adheres to the accrual method of accounting. if a company’s bookkeeper forgets to prepare reversing entries. if the temporary accounts are to reflect correct amounts for each accounting period. in order to satisfy the Internal Revenue Service. 2 points Question 40 The current ratio: Answer Is calculated by dividing current assets by current liabilities. Helps to assess a company’s ability to pay its debts in the near future. Can reveal problems in a company if it is less than 1. Can affect a creditor’s decision about whether to lend money to a company. All of these. 2 points Question 41 Which of the following is the usual final step in the accounting cycle? Answer Journalizing transactions. Preparing an adjusted trial balance. Preparing a post-closing trial balance. Preparing the financial statements. Preparing a work sheet. 2 points Question 42 Statements that show the effects of proposed transactions as if the transactions had already occurred are called: Answer Pro forma statements. Professional statements. Simplified statements. Temporary statements. Interim statements. 2 points Question 43 The current ratio: Answer Is used to measure a company’s profitability. Is used to measure the relation between assets and long-term debt. Measures the effect of operating income on profit. Is used to help evaluate a company’s ability to pay its debts in the near future. Is calculated by dividing current assets by equity. 2 points Question 44 Two common subgroups for liabilities on a classified balance sheet are: Answer current liabilities and intangible liabilities. present liabilities and operating liabilities. general liabilities and specific liabilities. intangible liabilities and long-term liabilities. current liabilities and long-term liabilities. 2 points Question 45 A post-closing trial balance reports: Answer All ledger accounts with balances, none of which can be temporary accounts. All ledger accounts with balances, none of which can be permanent accounts. All ledger accounts with balances, which include some temporary and some permanent accounts. Only revenue and expense accounts. Only asset accounts. 2 points Question 46 The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the owner’s capital account is the: Answer Income Summary account. Closing account. Balance column account. Contra account. Nominal account. 2 points Question 47 The recurring steps performed each reporting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the: Answer Accounting period. Operating cycle. Accounting cycle. Closing cycle. Natural business year. 2 points Question 48 The following information is available for the Travis Travel Agency. After these closing entries what will be the balance in the Jay Travis, Capital account? Answer $ 65,000. $ 80,000. $130,000. $145,000. $280,000. 2 points Question 49 Closing the temporary accounts at the end of each accounting period: Answer Serves to transfer the effects of these accounts to the owner’s capital account on the balance sheet. Prepares the withdrawals account for use in the next period. Gives the revenue and expense accounts zero balances. Causes owner’s capital to reflect increases from revenues and decreases from expenses and withdrawals. All of these. 2 points Question 50 Another name for temporary accounts is: Answer Real accounts. Contra accounts. Accrued accounts. Balance column accounts. Nominal accounts.