Q: Which of the following is the correct formula for calculating the net cost of inventory purchased under the periodic system?

$$\text{Purchases} - \text{Purchase Returns and Allowances} - \text{Purchase Discounts} + \text{Freight In}$$

Question 1

Which of the following best describes the primary difference between a service company and a merchandising company as shown on their income statements?

Accepted Answer

A merchandising company reports net sales revenue and cost of goods sold, while a service company does not.

Question 2

A company purchased $$5,000 of inventory on account and paid 400 in $$freight charges. If the company paid within the 3% discount period, what is the total cash paid?

Accepted Answer

$5,250

Question 3

Which journal entry correctly records the purchase of inventory for cash?

Accepted Answer

Debit Merchandise Inventory, Credit Cash

Question 4

A company sold merchandise for $$7,500 on account. The cost of goods sold was 5$$,250. Which of the following is the correct journal entry to record the sale?

Accepted Answer

Debit Accounts Receivable $$7,500; Credit Sales Revenue 7$$,500; Debit Cost of Goods Sold $$5,250; Credit Merchandise Inventory 5$$,250

Question 5

If a company uses the perpetual inventory system, which account is directly affected when inventory is sold to a customer?

Accepted Answer

Cost of Goods Sold

Question 6

A company’s net sales revenue is $$920,000 and its cost of goods sold is 540$$,000. What is the gross profit?

Accepted Answer

$380,000

Question 7

Which of the following is the correct formula for calculating the net cost of inventory purchased under the periodic system?

Accepted Answer

$$	ext{Purchases} - 	ext{Purchase Returns and Allowances} - 	ext{Purchase Discounts} + 	ext{Freight In}$$

Question 8

Under FOB shipping point, who is responsible for paying the freight charges and when does ownership of the goods transfer?

Accepted Answer

Buyer pays; ownership transfers at shipping point

Question 9

A company returned $7,000 of inventory to its supplier. Which journal entry is correct under the perpetual inventory system?

Accepted Answer

Debit Accounts Payable $$7,000; Credit Merchandise Inventory 7$$,000

Question 10

Which of the following is NOT included in the calculation of net sales revenue?

Accepted Answer

Cost of goods sold

Question 11

A company’s beginning inventory is $$10,000, purchases are 50$$,000, purchase returns and allowances are $$2,000, purchase discounts are 1$$,000, and freight in is $3,000. What is the cost of goods available for sale?

Accepted Answer

$$10,000 + (50$$,000 - $$2,000 - 1$$,000 + $$3,000) = 60$$,000

Question 12

Which of the following best describes the effect of a sales return on the accounting equation?

Accepted Answer

Assets decrease, equity decreases

Question 13

A company collected $$7,350 from a customer who was originally billed 7$$,500, and the customer paid within the 2% discount period. What is the correct journal entry for the collection?

Accepted Answer

Debit Cash $$7,350; Debit Sales Discount 150$$; Credit Accounts Receivable $7,500

Question 14

Which of the following is a temporary account that is closed at the end of the accounting period?

Accepted Answer

Sales Revenue

Question 15

A company using the periodic inventory system has beginning inventory of $$8,000, purchases of 30$$,000, purchase returns of $$2,000, purchase discounts of 1$$,000, freight in of $$500, and ending inventory of 6$$,000. What is the cost of goods sold?

Accepted Answer

$$8,000 + 30$$,000 - $$2,000 - 1$$,000 + $$500 - 6$$,000 = $29,500

Question 16

Which of the following is true regarding the difference between the perpetual and periodic inventory systems?

Accepted Answer

The periodic system requires a physical count to determine cost of goods sold.

Question 17

A company’s income statement shows net sales revenue of $$975,000, sales returns and allowances of 36$$,700, and sales discounts of $18,300. What is the gross sales revenue?

Accepted Answer

$$975,000 + 36$$,700 + $$18,300 = 1$$,030,000

Question 18

Which of the following is the correct closing entry for the Sales Revenue account at the end of the period?

Accepted Answer

Debit Sales Revenue; Credit Income Summary

Question 19

Inventory shrinkage is most likely to be discovered by:

Accepted Answer

Performing a physical count of inventory

CH 5 Merchandising Operations and Inventory in Financial Accounting

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