chapter 5 practice questions accounting for merchandising operations PDF

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Summary

dentify the differences between service and merchandising companies. Because of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual and a periodic inventory system.
2. Expl...

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CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Item

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74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101.

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37. 38. sg 39. sg 40. sg 41. sg 42. sg 43. sg 44. sg 45.

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AP AP AP C K K K AP AP K C C K K C K K AP K K K K K AP K K K

True-False Statements 19. 20. 21. 22. 23. 24. 25. 26. 27.

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28. 29. 30. 31. a 32. a 33. a 34. a 35. a 36.

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Multiple Choice Questions

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130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. 155. a 156. a 157.

This question also appears in the Study Guide. This question also appears in a self-test at the student companion website. This question covers a topic in an appendix to the chapter.

158. 159. 160. 161. a 162. a 163. a 164. a 165. a 166. a 167. a 168. a 169. a 170. a 171. a 172. a 173. a 174. sg 175. sg 176. sg 177. st 178. sg 179. st 180. sg 181. st 182. sg 183. a,st 184

5-2

Test Bank for Financial and Managerial Accounting

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY

Brief Exercises 185. 186. 187.

1 2 2,3

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3 3 4

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5,6 5,6 5,6 5,6 7

AP C AP AP AP

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1 1

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Exercises 197. 198. 199. 200. 201.

1 2,3 2,3 2 2,3

C AP AP E AP

202. 203. 204. 205. 206.

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AN AP AP AP AP

207. 208. 209. 210. 211.

4 4 5 5,6 5,6

AP AP AN AP AP

a

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Challenge Exercises 222.

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Completion Statements 225. 226.

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238. 239.

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229. 2 K 231. 230. 3 K 232. Matching Statements Short-Answer Essay 240. 241.

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242. 243.

Matching: Q235, IFRS: Q244-258

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item

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Learning Objective 1 1. 2. 3. 38.

TF TF TF TF

39. 46. 47. 48.

TF MC MC MC

49. 50. 51. 52.

MC 53. MC 165. MC 54. MC 185. MC 55. MC 197. MC 56. MC 225. Learning Objective 2

MC BE Ex C

226. 227. 235. 237.

C C MA SA

240. 242. 243.

SA SA SA

4. 5. 6. 7. 40. 57.

TF TF TF TF TF MC

58. 59. 60. 61. 62. 65.

MC MC MC MC MC MC

66. 67. 68. 69. 70. 71.

MC 72. MC 78. MC 73. MC 79. MC 74. MC 80. MC 75. MC 156. MC 76. MC 157. MC 77. MC 158. Learning Objective 3

MC MC MC MC MC MC

186. 187. 198. 199. 200. 201.

BE BE Ex Ex Ex Ex

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Ex Ex C C

8. 9. 10. 11. 12. 41. 42. 63.

TF TF TF TF TF TF TF MC

64. 81. 82. 83. 84. 85. 86. 87.

MC MC MC MC MC MC MC MC

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MC MC MC MC MC MC MC MC

MC MC MC MC MC MC MC MC

112. 113. 114. 179. 187. 188. 189. 198.

MC MC MC MC BE BE BE Ex

199. 201. 204. 205. 230. 231. 232. 238.

Ex Ex Ex Ex C C C SA

96. 97. 98. 99. 100. 101. 102. 103.

MC MC MC MC MC MC MC MC

104. 105. 106. 107. 108. 109. 110. 111.

FOR INSTRUCTOR USE ONLY

Accounting for Merchandising Operations

5-3

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Learning Objective 4 13. 14. 15.

TF TF TF

43. 115. 116.

TF MC MC

117. 118. 119.

MC MC MC

180. 190. 206.

MC BE Ex

207. 208. 222.

Ex Ex CE

Learning Objective 5 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.

TF TF TF TF TF TF TF TF TF TF

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30. TF 31. TF a 32. TF a 33. TF a 156. MC a

26. 27. 28. 29. 44. 45. 120. 121. 122. 123.

TF TF TF TF TF TF MC MC MC MC

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MC MC MC MC MC

a a

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162. 163. a 164. a 165. a 166. a

MC 134. MC 144. MC 135. MC 145. MC 136. MC 146. MC 137. MC 147. MC 138. MC 148. MC 139. MC 149. MC 140. MC 150. MC 141. MC 151. MC 142. MC 152. MC 143. MC 153. Learning Objective a6 MC MC MC MC MC

a

167. 168. a 169. a 170. a 171. a

MC MC MC MC MC

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172. 184. a 193. a 194. a 195. a

MC MC MC MC MC MC MC MC MC MC MC MC BE BE BE

154. 155. 181. 182. 183. 191. 192. 210. 211. 212. a

MC MC MC MC MC BE BE Ex Ex Ex

196. 216. a 217. a 218. a 219.

BE Ex Ex Ex Ex

189. 220.

MC Ex

a

213. 214. 215. 223. 224. 233. 234. 239. 241.

a

221.

Learning Objective a7 a

34. 35. a 36. a 37. a

TF TF TF TF

a a

173. 174. 185. 186.

MC MC MC MC

187. 178. 179. 180.

Note: TF = True-False MC = Multiple Choice MA = Matching

MC MC MC MC

181. 182. 183. 184.

MC MC MC MC

185. 186. 187. 188.

MC MC MC MC

BE = Brief Exercise Ex = Exercise CE = Challenge Exercise

Matching Question: 235 IFRS Questions: 244-258

FOR INSTRUCTOR USE ONLY

a

C = Completion SA = Short-Answer

Ex Ex Ex CE CE C C SA SA

Ex

5-4

Test Bank for Financial and Managerial Accounting

CHAPTER LEARNING OBJECTIVES 1. Identify the differences between service and merchandising companies. Because of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual and a periodic inventory system. 2. Explain the recording of purchases under a perpetual inventory system. The company debits the Inventory account for all purchases of merchandise and freight-in, and credits it for purchase discounts and purchase returns and allowances. 3. Explain the recording of sales revenues under a perpetual inventory system. When a merchandising company sells inventory, it debits Accounts Receivable (or Cash) and credits Sales Revenue for the selling price of the merchandise. At the same time, it debits Cost of Goods Sold and credits Inventory for the cost of the inventory items sold. 4. Explain the steps in the accounting cycle for a merchandising company. Each of the required steps in the accounting cycle for a service company applies to a merchandising company. A worksheet is again an optional step. Under a perpetual inventory system, the company must adjust the Inventory account to agree with the physical count. 5. Distinguish between a multiple-step and a single-step income statement. A multiple-step income statement shows numerous steps in determining net income, including nonoperating activities sections. A single-step income statement classifies all data under two categories, revenues or expenses, and determines net income in one step. a

6. Explain the recording of purchases and sales of inventory under a periodic inventory system. In recording purchases under a periodic system, companies must make entries for (a) cash and credit purchases, (b) purchase returns and allowances, (c) purchase discounts, and (d) freight costs. In recording sales, companies must make entries for (a) cash and credit sales, (b) sales returns and allowances, and (c) sales discounts.

a

7. Prepare a worksheet for a merchandising company. The steps in preparing a worksheet for a merchandising company are the same as for a service company. The unique accounts for a merchandiser are Inventory, Sales Revenue, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold.

FOR INSTRUCTOR USE ONLY

Accounting for Merchandising Operations

5-5

TRUE-FALSE STATEMENTS 1.

Retailers and wholesalers are both considered merchandisers.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

2.

The steps in the accounting cycle are different for a merchandising company than for a service company.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

3.

Sales minus operating expenses equals gross profit.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

4.

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

5.

A periodic inventory system requires a detailed inventory record of inventory items.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

6.

Freight terms of FOB Destination means that the seller pays the freight costs.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

7.

Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

8.

Sales revenues are earned during the period cash is collected from the buyer.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

9.

The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

10.

The revenue recognition principle applies to merchandisers by recognizing sales revenues when they are earned.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

11.

Sales Allowances and Sales Discounts are both designed to encourage customers to pay their accounts promptly.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

12.

To grant a customer a sales return, the seller credits Sales Returns and Allowances.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

13.

A company's unadjusted balance in Inventory will usually not agree with the actual amount of inventory on hand at year-end.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

FOR INSTRUCTOR USE ONLY

5-6 14.

Test Bank for Financial and Managerial Accounting For a merchandising company, all accounts that affect the determination of income are closed to the Income Summary account.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

15.

A merchandising company has different types of adjusting entries than a service company.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

16.

Nonoperating activities exclude revenues and expenses that result from secondary or auxiliary operations.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

17.

Operating expenses are different for merchandising and service enterprises.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

18.

Net sales appears on both the multiple-step and single-step forms of an income statement.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

19.

A multiple-step income statement provides users with more information about a company’s income performance.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

20.

The multiple-step form of income statement is easier to read than the single-step form.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

21.

Inventory is classified as a current asset in a classified balance sheet.

Ans: T, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

22.

Gain on sale of equipment and interest expense are reported under other revenues and gains in a multiple-step income statement.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

23.

The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

24.

In a multiple-step income statement, income from operations excludes other revenues and gains and other expenses and losses.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

25.

A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

26.

If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%.

Ans: T, LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

27.

Gross profit represents the merchandising profit of a company.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

FOR INSTRUCTOR USE ONLY

Accounting for Merchandising Operations 28.

5-7

Gross profit is a measure of the overall profitability of a company.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

29.

Gross profit rate is computed by dividing cost of goods sold by net sales.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics a

30.

Purchase Returns and Allowances and Purchase Discounts are subtracted from Purchases to determine net purchases.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a

31.

Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting a

32.

Under a periodic inventory system, the acquisition of inventory is charged to the Purchases account.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: No...