Q: Which of the following best describes the calculation for gross profit?

$$\text{Gross Profit} = \text{Net Sales Revenue} - \text{Cost of Goods Sold}$$

Q: Which of the following is the correct formula for gross profit percentage?

$$\text{Gross Profit Percentage} = \frac{\text{Gross Profit}}{\text{Net Sales Revenue}}$$

Question 1

Which of the following best describes the main difference between a perpetual and a periodic inventory system?

Accepted Answer

A perpetual inventory system keeps a running computerized record of merchandise inventory, while a periodic system requires a physical count to determine inventory on hand.

Question 2

Smart Touch Learning purchases $$35,000 of inventory on account. Later, 7$$,000 of the inventory is returned due to damage. If the company pays the remaining balance within the discount period and receives a 3% discount, what is the amount paid?

Accepted Answer

$27,160

Question 3

Which of the following journal entries correctly records the payment of freight-in costs of $400 for inventory purchased under FOB shipping point terms?

Accepted Answer

Debit Merchandise Inventory $$400; Credit Cash 400$$

Question 4

A company sells merchandise for $$2,500 on account. The cost of the merchandise sold is 1$$,750. Which of the following entries is required under the perpetual inventory system?

Accepted Answer

Debit Accounts Receivable $$2,500; Credit Sales Revenue 2$$,500; Debit Cost of Goods Sold $$1,750; Credit Merchandise Inventory 1$$,750

Question 5

Which of the following best describes the calculation for gross profit?

Accepted Answer

$$	ext{Gross Profit} = 	ext{Net Sales Revenue} - 	ext{Cost of Goods Sold}$$

Question 6

A company purchases $$10,000 of inventory, returns 1$$,000, receives a $$200 discount for early payment, and pays 300 in $$freight-in. What is the net cost of inventory purchased?

Accepted Answer

$9,300

Question 7

Which of the following is NOT a step in closing the accounts of a merchandiser?

Accepted Answer

Make the Owner, Capital account equal zero via the Income Summary account.

Question 8

If a company uses a multi-step income statement, which of the following subtotals will NOT appear?

Accepted Answer

Total Assets

Question 9

Which of the following best describes the effect of a sales allowance granted to a customer?

Accepted Answer

It reduces the amount owed by the customer without the return of merchandise.

Question 10

A company’s Merchandise Inventory account shows an unadjusted balance of $$31,530. A physical count reveals only 30$$,000 on hand. What is the adjusting entry for inventory shrinkage?

Accepted Answer

Debit Cost of Goods Sold $$1,530; Credit Merchandise Inventory 1$$,530

Question 11

Which of the following is the correct formula for gross profit percentage?

Accepted Answer

$$	ext{Gross Profit Percentage} = \frac{	ext{Gross Profit}}{	ext{Net Sales Revenue}}$$

Question 12

Which of the following is considered a delivery expense to the seller?

Accepted Answer

Freight-Out

Question 13

A company sells goods for $7,500 on account with terms 2/10, n/30. The customer pays within the discount period. What amount does the company receive?

Accepted Answer

$7,350

Question 14

Which of the following is NOT an operating expense category on a multi-step income statement?

Accepted Answer

Cost of Goods Sold

Question 15

Which of the following transactions would require two journal entries under the perpetual inventory system?

Accepted Answer

Sale of merchandise inventory

Question 16

A company purchases $$697,710 of inventory, returns 150$$,000, takes a $$9,510 early payment discount, and pays 36$$,400 in freight-in. What is the net cost of inventory purchased?

Accepted Answer

$574,600

Question 17

Which of the following is true regarding the balance sheet of a merchandising company compared to a service company?

Accepted Answer

A merchandising company includes Merchandise Inventory as a current asset.

Question 18

Which of the following is an example of 'other income and expenses' on a multi-step income statement?

Accepted Answer

Interest Expense

Question 19

Under FOB destination terms, who owns the goods while in transit and who pays the freight?

Accepted Answer

The seller owns the goods and pays the freight.

Merchandising Operations: Financial Accounting Study Notes (Chapter 5)

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