Question 1

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

Accepted Answer

A perpetual inventory system continuously updates inventory records for each purchase and sale, while a periodic system updates inventory only at the end of the period.

Question 2

Smart Touch Learning purchased inventory for $35,000 on account with terms 3/15, n/30. If they pay within the discount period, what is the journal entry for the payment?

Accepted Answer

Debit Accounts Payable $$35,000; Credit Cash 33$$,950; Credit Merchandise Inventory $1,050

Question 3

A retailer purchases goods with shipping terms FOB shipping point. Who pays the freight, and how is it recorded?

Accepted Answer

The buyer pays the freight; it is added to the cost of inventory.

Question 4

Which formula correctly calculates the net cost of inventory purchased?

Accepted Answer

$$Net\ Cost\ of\ Inventory\ Purchased = Purchase\ cost\ of\ inventory - Purchase\ returns\ and\ allowances - Purchase\ discounts + Freight\ in$$

Question 5

A company sells merchandise for $$5,000 on account. The cost of the merchandise is 3$$,500. What are the correct journal entries under a perpetual inventory system?

Accepted Answer

Debit Accounts Receivable $$5,000; Credit Sales Revenue 5$$,000; Debit Cost of Goods Sold $$3,500; Credit Merchandise Inventory 3$$,500

Question 6

If a customer returns goods sold for $$1,500 (cost 1$$,050), what is the correct entry to record the return under a perpetual inventory system?

Accepted Answer

Debit Sales Returns and Allowances $$1,500; Credit Accounts Receivable 1$$,500; Debit Merchandise Inventory $$1,050; Credit Cost of Goods Sold 1$$,050

Question 7

Which of the following is a contra account to Sales Revenue?

Accepted Answer

Sales Returns and Allowances

Question 8

A company’s income statement shows: Sales Revenue $$297,500, Sales Returns and Allowances 11$$,200, Sales Discounts $5,600. What is Net Sales Revenue?

Accepted Answer

$$280,700$$

Question 9

Given Net Sales Revenue of $$280,700 and Cost of Goods Sold of 199$$,500, what is the Gross Profit?

Accepted Answer

$$Gross\ Profit = Net\ Sales\ Revenue - Cost\ of\ Goods\ Sold = 280,700 - 199,500 = 81,200$$

Question 10

How is the gross profit percentage calculated?

Accepted Answer

$$Gross\ profit\ percentage = Gross\ profit / Net\ sales\ revenue$$

Question 11

Which of the following is true about closing entries for a merchandiser?

Accepted Answer

Expenses and contra revenue accounts are closed via the Income Summary.

Question 12

Which of the following is NOT included in the calculation of Net Sales Revenue?

Accepted Answer

Cost of Goods Sold

Question 13

A company using a periodic inventory system purchases $$10,000 of inventory, returns 1$$,000, and receives a $200 discount. What are Net Purchases?

Accepted Answer

$$Net\ Purchases = Purchases - Purchase\ Returns\ and\ Allowances - Purchase\ Discounts = 10,000 - 1,000 - 200 = 8,800$$

Question 14

Which of the following is true about inventory shrinkage?

Accepted Answer

It is the loss of inventory due to theft, damage, or errors.

Question 15

Which of the following is classified as a selling expense on a multi-step income statement?

Accepted Answer

Delivery Expense (Freight Out)

Question 16

A company grants a $100 sales allowance for goods damaged in transit. What is the correct journal entry?

Accepted Answer

Debit Sales Returns and Allowances $$100; Credit Accounts Receivable 100$$

Question 17

Which of the following statements about the multi-step income statement is correct?

Accepted Answer

It separates operating expenses into selling and administrative expenses.

Question 18

Which of the following is true regarding the closing process for a periodic inventory system?

Accepted Answer

Temporary accounts such as Purchases, Purchase Returns and Allowances, Purchase Discounts, and Freight In are closed via the Income Summary.

Question 19

A company’s gross profit percentage is calculated as 29%. What does this indicate?

Accepted Answer

The company earns $$0.29 in gross profit for every 1 of $$net sales revenue.

Chapter 5: Merchandising Operations – Financial Accounting Study Notes

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