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Study Guide Chapter 5 Financial
- Merchandising companies that sell to retailers are known as a. brokers. b. corporations. c. wholesalers. d. service firms.
- Gross profit equals the difference between a. net income and operating expenses. b. net sales revenues and cost of goods sold. c. net sales revenues and operating expenses. d. net sales revenues and cost of goods sold plus operating expenses.
59.Net income will result if gross profit exceeds a. cost of goods sold. b. operating expenses. c. purchases. d. cost of goods sold plus operating expenses.
62.Two categories of expenses in merchandising companies are a. cost of goods sold and financing expenses. b. operating expenses and financing expenses. c. cost of goods sold and operating expenses. d. sales and cost of goods sold.
63.The primary source of revenue for a wholesaler is a. investment income. b. service revenue. c. the sale of merchandise. d. the sale of plant assets the company owns.
- Under a perpetual inventory system a. accounting records continuously disclose the amount of inventory. b. increases in inventory resulting from purchases are debited to purchases. c. there is no need for a year-end physical count. d. the account purchase returns and allowances is credited when goods are returned to vendors.
- Which of the following expressions is incorrect? a. Gross profit - operating expenses = net income b. Sales - cost of goods sold - operating expenses = net income c. Net income + operating expenses = gross profit d. Operating expenses - cost of goods sold = gross profit
- The primary difference between a periodic and perpetual inventory system is that a periodic system a. keeps a record showing the inventory on hand at all time. b. provides better control over inventories. c. records the cost of the sale on the date the sale is made. d. determines the inventory on hand only at the end of the accounting period.
77.Inventory becomes part of cost of goods sold when a company a. pays for the inventory. b. purchases the inventory. c. sells the inventory. d. receives payment from the customer.
- The periodic inventory system is used most commonly by companies that sell a. low-priced, high-volume merchandise. b. high-priced, high-volume merchandise. c. high-priced, low-volume merchandise. d. high-priced, low and high-volume merchandise.
84.The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit a. Accounts Payable. b. Purchase Returns and Allowances. c. Sales Revenue. d. Inventory.
86.A company using a perpetual inventory system that returns goods previously purchased on credit would a. debit Accounts Payable and credit Inventory. b. debit Sales and credit Accounts Payable. c. debit Cash and credit Accounts Payable. d. debit Accounts Payable and credit Purchases.
- Conway Company purchased merchandise inventory with an invoice price of $8,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period? a. $8, b. $7, c. $7, d. $7,
91.In the credit terms of 1/10, n/30, the “1” represents the a. number of days in the discount period. b. full amount of the invoice. c. number of days when the entire amount is due. d. percent of the cash discount.
- A credit sale of $1,600 is made on April 25, terms 2/10, net/30, on which a return of $100 is granted on April 28. What amount is received as payment in full on May 4? a. $1, b. $1, c. $1, d $1,
98.A purchase invoice is a document that a. provides support for goods purchased for cash. b. provides evidence of incurred operating expenses. c. provides evidence of credit purchases. d. serves only as a customer receipt.
- When using a perpetual inventory system, why are discounts credited to Inventory? a. The discounts are debited to discount expense and thus the credit has to be made to merchandise inventory. b. The discounts reduce the cost of the inventory. c. The discounts are a reduction of business expenses. d. None of the answers is correct.
- Income from operations appears on a. both a multiple-step and a single-step income statement. b. neither a multiple-step nor a single-step income statement. c. a single-step income statement. d. a multiple-step income statement.
- Interest expense would be classified on a multiple-step income statement under the heading a. Other expenses and losses b. Other revenues and gains c. Selling expenses d. Cost of goods sold
- Financial information is presented below: Operating Expenses $ 45, Sales Revenue 150, Cost of Goods Sold 90, The gross profit rate would be a. .60. b.. c. .30. d. .40.
- Financial information is presented below: Operating Expenses $ 21, Sales Returns and Allowances 7, Sales Discounts 3, Sales Revenue 150, Cost of Goods Sold 105, The profit margin ratio would be a. .16. b. .14. c. .09. d. .10.
- The gross profit rate is computed by dividing gross profit by a. sales. b. cost of goods sold. c. net sales. d. operating expenses
Be. 207
Presented here are the components in Rowland Company’s income statement. Determine the missing amounts.
Cost of Gross Operating Net Sales Goods Sold _Profit Expenses Income $75,000 (a) $30,000 (b) $17, (c) $56,000 $54,000 $48,000 (d)
a. $ 45, b. $ 13, c. $110, d. $ 6,
Be. 208
On September 4, Roberta’s Knickknacks buys merchandise on account from Dolan Company. The selling price of the goods is $600 and the cost of goods is $400. Both companies use the perpetual inventory systems Journalize the transactions on the books of both companies.
Roberta’s Knickknacks records
Sept. 4 Inventory ............................................................................ 600 Accounts Payable ...................................................... 600
Dolan Company records
Sept. 4 Accounts Receivable .......................................................... 600 Sales ......................................................................... 600
Cost of Goods Sold ............................................................ 400 Inventory .................................................................... 400
Be. 209
Menke Company is a furniture retailer and uses the perpetual inventory system. On January 14, 2012, Menke purchased merchandise inventory at a cost of $30,000. Credit terms were 2/10, n/30. The inventory was sold on account for $40,000 on January 21, 2012. Credit terms were 1/10, n/30. The accounts payable was settled on January 23, 2012, and the accounts receivables were settled on January 30, 2012. Prepare journal entries to record each of these transactions.
Jan. 14 Inventory 30, Accounts Payable 30,
Jan. 21 Accounts Receivable 40, Sales Revenue 40,
Cost of Goods Sold 30, Inventory 30,
Jan. 23 Accounts Payable 30, Cash 29, Inventory 600
Jan. 30 Cash 39, Sales Discounts 400 Accounts Receivable 40,
(a) Black’s books
- June 4 Inventory ………………………………… 7, - Accounts Payable………………………………. 7,
- 12 Accounts Payable………………………………………… - Inventory………………………….
- 12 Accounts Payable………………………………………… 6, - Cash………………………………………………. 6,
- June 4 Accounts Receivable…………………………………….. 7, (b) Hayes’ books - Sales Revenue………………………………………………. 7, - 4 Cost of Goods Sold………………………………………. 4, - Inventory………………………….. 4,
- 12 Sales Returns and Allowance…………………………… - Accounts Receivable…………………………….
- 12 Inventory…………………………………… - Cost of Goods Sold………………………………
- 12 Cash……………………………………………………….. 6, - Accounts Receivable……………………………. 6,
