Question 1

Which of the following businesses is likely to have the shortest operating cycle?

Accepted Answer

A)   A food store.
B)   A department store.
C)   An art store.
D)   A car store.E) A) and D)
F) All of the above

Question 2

Gross profit is the difference between:

Accepted Answer

A)   Net sales and the cost of goods sold.
B)   The cost of goods purchased and the cost of goods sold.
C)   Net sales and profit for the period.
D)   Net sales and all expenses.E) B) and D)
F) A) and D)

Question 3

World of Sound is a small retail business that specializes in the sale of top-of-the-line sound systems. This year, the store has begun to carry the Surround Sound manufactured by Carp Co. Thus far, World of Sound has recorded the following transactions involving the Surround Sound
5 May Purchased 18 units at a unit cost of $2,400
18 May Purchased 15 additional units at $2,550 each
12 June Sold 19 units to the Davies Theater

-If World of Sound uses a perpetual inventory system, the journal entry to record the purchase on 18th May would include which of the following?

Accepted Answer

A)   A debit to the Purchases account for $38,250.
B)   A debit to the Cost of Goods Sold for $38,250.
C)   A credit to Inventory for $38,250.
D)   A debit to Inventory for $38,250.E) All of the above
F) None of the above

Question 4

Which of the following should not be classified as inventory in the statement of financial position of a large automobile dealership?

Accepted Answer

A)   Pickup trucks offered for sale.
B)   Used cars taken in trade and offered for sale on the company's used-car lot.
C)   Spark plugs, oil filters, and other parts which are intended for use by the service department in repairing and servicing customers' cars.
D)   "Company cars" provided to specific company executives for their personal use.E) None of the above
F) A) and B)

Question 5

Bremmer uses a periodic inventory system and the following information is available:
   Sales $230,400 Inventory - Beginning 21,200 Inventory - Ending 19,800 Purchases 132,200\begin{array} { | l | l | } \hline 	ext { Sales } & \$ 230,400 \\hline 	ext { Inventory - Beginning } & 21,200 \\hline 	ext { Inventory - Ending } & 19,800 \\hline 	ext { Purchases } & 132,200 \\hline\end{array} Sales  Inventory - Beginning  Inventory - Ending  Purchases ​$230,40021,20019,800132,200​​

-What is the gross profit?

Accepted Answer

A)   $96,800.
B)   $133,600.
C)   $132,200.
D)   $230,400. E) All of the above
F) A) and B)

Question 6

The following information is available:   Sales $2,850 Inventory-year-end $1,500 Purchases $1,950 Cost of Goods Sold $2,400\begin{array} { | l | l | } \hline 	ext { Sales } & \$ 2,850 \\hline 	ext { Inventory-year-end } & \$ 1,500 \\hline 	ext { Purchases } & \$ 1,950 \\hline 	ext { Cost of Goods Sold } & \$ 2,400 \\hline\end{array} Sales  Inventory-year-end  Purchases  Cost of Goods Sold ​$2,850$1,500$1,950$2,400​​  Calculate the gross profit:

Accepted Answer

A)   $0.
B)   $1,500.
C)   $450.
D)   $900 E) A) and C)
F) None of the above

Question 7

If ending inventory and cost of goods sold are added together, they should equal gross profit.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following companies would be more likely to use a periodic inventory system?

Accepted Answer

A)   IBM
B)   Bank of China
C)   Marks & Spencer
D)   A newspaper standE) C) and D)
F) None of the above

Question 9

In a periodic inventory system, the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Accepted Answer

A) True 
 B)False

Question 10

In a periodic inventory system, the ending inventory can be determined from the accounting records, and a physical count of the goods on hand will confirm the amount.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following companies would be more likely to use a perpetual inventory system?

Accepted Answer

A)   Corner deli.
B)   Marks and Spencer.
C)   James Dean, CPA.
D)   A manufacturer of custom sailboats.E) A) and B)
F) None of the above

Question 12

The cost of delivering goods to the customer is:

Accepted Answer

A)   Part of cost of goods sold.
B)   Used in the calculation of net sales.
C)   An operating expense.
D)   A reduction of gross profit.E) C) and D)
F) A) and D)

Question 13

Periodic inventory system
Armstrong Creation uses a periodic inventory system. During the current year, the company purchased goods at a cost of $245,000. You are to compute the cost of goods sold under each of the following alternative assumptions: $$\begin{array} { | l | l | l | } 
\hline & & \text { Cost of Goods Sold } \
\hline \text { A } & \text { No beginning inventory; ending inventory } \$ 18,000 \ldots \ldots \ldots \ldots \ldots \ldots & \$ \
\hline \text { B } & \text { Beginning inventory } \$ 15,000 \text {; no ending inventory } \ldots \ldots \ldots \ldots \ldots \ldots & \$\ 
\hline \text { C } & \text { Beginning inventory } \$ 12,000 \text {; ending inventory, } \$ 9,000 \ldots \ldots \ldots & \$ \
\hline \text { D } & \text { Beginning inventory } \$ 11,000 \text {; ending inventory } \$ 17,000 \ldots \ldots \ldots \ldots & \$ \
\hline & & \$ \
\hline
\end{array}$$

Accepted Answer

None...

Question 14

In a perpetual inventory system, the entry to record the cost of goods sold always includes an entry of equal amount to the:

Accepted Answer

A)   Inventory account.
B)   Sales account.
C)   Purchases account.
D)   None of the above.E) All of the above
F) C) and D)

Question 15

Note to instructor: The following exercise requires students to use gross profit rates in a manner not specifically illustrated in the chapter. We view this as an exercise in critical thinking and, as such, it is more challenging than the typical exercise. Part d requires an expository answer. Some instructors may choose to omit part d.
Gross profit rates a practical application
Your store sells computers and software. The average computer sells for $13,500, but the customer buying a computer also buys an average of $7,500 in software. You earn only 10% gross profit rate on sales of computers, but you make a 40% gross profit rate on software. You currently are selling 150 computers per month.
(a) What is the total amount of your monthly gross profit? $________________
(b) To increase sales, you are thinking about selling computers at cost ($12,150.) This would be the "cheapest price in town," and should attract more customers. You expect each customer who buys a computer to also buy $7,500 worth of software. Under these assumptions, how many computers must you sell each month in order to earn the same amount of gross profit as you are earning now?
(c) Assume that as a result of reducing the sales price of computers to cost ($12,150), you are able to sell 250 computers each month, and that each customer now buys $8,500 worth of software. What will be the total amount of your monthly gross profit?
(d) Assume that you achieve the results specified in part c (250 sales transactions per month, including an average of $8,500 in software). Would you consider the policy of selling computers at cost successful or unsuccessful? Explain specifically why this strategy is working out favorably or unfavorably.

Accepted Answer

(a) Monthly gross profit = ($13,500 x 10...

Question 16

In a periodic inventory system the Cost of Goods Sold account may be created during the closing process by debiting Cost of Goods Sold and crediting the Beginning Inventory and the Purchases account.

Accepted Answer

A) True 
 B)False

Question 17

Prior to taking a physical inventory at year-end, the perpetual inventory records of Athena Designs showed an inventory of $26,000, sales of $358,000, and a cost of goods sold of $215,000. The year-end physical inventory indicated goods on hand costing $24,000. The company's gross profit for the year was:

Accepted Answer

A)   $334,000.
B)   $145,000.
C)   $141,000.
D)   Some other amount.E) B) and C)
F) C) and D)

Question 18

Hicksville's Department Store uses a perpetual inventory system. At year-end, the balance in the Inventory controlling account is $1,200,000. Assuming that the inventory records have been maintained properly, a year-end physical inventory:

Accepted Answer

A)   Is unnecessary.
B)   Is needed to establish the ending inventory, as the $1,200,000 balance in the Inventory controlling account represents the beginning inventory.
C)   Probably will indicate more than $1,200,000 in goods on hand.
D)   Probably will indicate less than $1,200,000 in goods on hand.E) None of the above
F) A) and D)

Question 19

Sales revenue is recognized in the period in which:

Accepted Answer

A)   Goods are delivered to the customer.
B)   The customer orders the goods.
C)   Cash payment is received by the seller.
D)   Purchases are made to replace the goods sold.E) A) and D)
F) A) and C)

Question 20

The Cost of Goods Sold account is closed by

Accepted Answer

A)   Debiting Cost of Goods Sold and crediting Income Summary
B)   Debiting Cost of Goods Sold and crediting Retained Earnings
C)   Debiting Income Summary and crediting Cost of Goods Sold
D)   Debiting Retained Earnings and crediting Cost of Goods SoldE) C) and D)
F) B) and D)

Exam 6: Merchandising Activities

Which of the following companies would be more likely to use a perpetual inventory system?

Correct Answer
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Correct Answer
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(a) Monthly gross profit = ($13,500 x 10...
View Answer

Gross profit is the difference between:

Correct Answer
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Correct Answer
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Sales revenue is recognized in the period in which:

Correct Answer
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Which of the following companies would be more likely to use a periodic inventory system?

Correct Answer
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Which of the following should not be classified as inventory in the statement of financial position of a large automobile dealership?

Correct Answer
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In a periodic inventory system, the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Correct Answer
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Which of the following businesses is likely to have the shortest operating cycle?

Correct Answer
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The cost of delivering goods to the customer is:

Correct Answer
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If ending inventory and cost of goods sold are added together, they should equal gross profit.

Correct Answer
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The following information is available: $\begin{array} { | l | l | } \hline \text { Sales } & \$ 2,850 \\\hline \text { Inventory-year-end } & \$ 1,500 \\\hline \text { Purchases } & \$ 1,950 \\\hline \text { Cost of Goods Sold } & \$ 2,400 \\\hline\end{array}$ Calculate the gross profit:

Correct Answer
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Correct Answer
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Hicksville's Department Store uses a perpetual inventory system. At year-end, the balance in the Inventory controlling account is $1,200,000. Assuming that the inventory records have been maintained properly, a year-end physical inventory:

Correct Answer
verified

The Cost of Goods Sold account is closed by

Correct Answer
verified

Correct Answer
verified

In a periodic inventory system, the ending inventory can be determined from the accounting records, and a physical count of the goods on hand will confirm the amount.

Correct Answer
verified

In a periodic inventory system the Cost of Goods Sold account may be created during the closing process by debiting Cost of Goods Sold and crediting the Beginning Inventory and the Purchases account.

Correct Answer
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Correct Answer
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None...
View Answer

In a perpetual inventory system, the entry to record the cost of goods sold always includes an entry of equal amount to the:

Correct Answer
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Exam 6: Merchandising Activities

Which of the following companies would be more likely to use a perpetual inventory system?

Correct AnswerverifiedShow Answer

Correct Answerverified(a) Monthly gross profit = ($13,500 x 10...View AnswerShow Answer

Gross profit is the difference between:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Sales revenue is recognized in the period in which:

Correct AnswerverifiedShow Answer

Which of the following companies would be more likely to use a periodic inventory system?

Correct AnswerverifiedShow Answer

Which of the following should not be classified as inventory in the statement of financial position of a large automobile dealership?

Correct AnswerverifiedShow Answer

In a periodic inventory system, the Inventory and Cost of Goods Sold accounts are kept up-to-date throughout the accounting period.

Correct AnswerverifiedShow Answer

Which of the following businesses is likely to have the shortest operating cycle?

Correct AnswerverifiedShow Answer

The cost of delivering goods to the customer is:

Correct AnswerverifiedShow Answer

If ending inventory and cost of goods sold are added together, they should equal gross profit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Hicksville's Department Store uses a perpetual inventory system. At year-end, the balance in the Inventory controlling account is $1,200,000. Assuming that the inventory records have been maintained properly, a year-end physical inventory:

Correct AnswerverifiedShow Answer

The Cost of Goods Sold account is closed by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a periodic inventory system, the ending inventory can be determined from the accounting records, and a physical count of the goods on hand will confirm the amount.

Correct AnswerverifiedShow Answer

In a periodic inventory system the Cost of Goods Sold account may be created during the closing process by debiting Cost of Goods Sold and crediting the Beginning Inventory and the Purchases account.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNone...View AnswerShow Answer

In a perpetual inventory system, the entry to record the cost of goods sold always includes an entry of equal amount to the:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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(a) Monthly gross profit = ($13,500 x 10...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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None...
View Answer

Correct Answer
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