Test bank Chapter 5 PDF

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Test bank Chapter 5...

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

SO

BT

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SO

BT

Item

SO

BT

Item

SO

BT

6 6 7 7 8 8 9 1 1

K K K K K K K K K

6 6 6 6 6 6 6 6 6 6 6 6 5 6 6 6 6 6 6 6 6 7 7 7 7

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

Item

SO

BT

True-False Statements 1. 2. 3. 4. 5. 6. 7. 8. 9.

1 1 1 2 2 2 2 3 3

C C K K K K K C C

10. 11. 12. 13. 14. 15. 16. 17. 18.

3 3 3 4 4 4 5 5 5

43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67.

1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

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

68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92.

2 2 2 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

C C K C K K K K K

19. 20. 21. 22. 23. 24. 25. 26. 27.

5 5 5 5 5 5 5 6 6

K K C C C K K AP K

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

sg

37. 38. sg 39. sg 40. sg 41. sg 42.

2 3 3 4 5 6

K K K C K K

a

7 7 7 7 8 8 8 8 8 8 9 9 1 2 2 2 3 4 4 5 6 7

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

sg

Multiple Choice Questions

sg st a

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

93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117.

3 3 3 3 3 3 3 3 3 3 4 4 4 4 5 5 5 5 5 5 5 5 5 6 6

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

118. 119. 120. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. a 142.

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.

143. 144. a 145. a 146. a 147. a 148. a 149. a 150. a 151. a 152. a 153. a 154. sg 155. sg 156. sg 157. st 158. sg 159. st 160. sg 161. st 162. sg 163. st 164. a

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Test Bank for Accounting Principles, Eighth Edition

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Brief Exercises 165. 166. 167.

1 2 2,3

AP AP AP

168. 169. 170.

3 3 4

AP AP AP

171. 172. 173.

177. 178. 179. 180.

1 2,3 2,3 2

C AP AP E

181. 182. 183. 184.

2,3 2 3 3

AP AP AP AP

185. 186. 187. 188.

197. 198.

1 1

K K

199. 200.

1 2

K K

5 6 7

AP AP AP

174. 175. a 176.

7 7 8

AP AP AP

189. 190. 191. 192.

5,6 5,6 7 7

AP AP AP AP

193. 194. a 195. a 196.

7 8 8 9

AP AP AP AP

2 3

K K

205. 206.

6 6

K K

Item

Type

Exercises 4 4 5,6 5,6

AP AP AP C

a

Completion Statements 201. 202.

2 2

K K

203. 204.

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item 1. 2. 3.

Type TF TF TF

Item 35. 36. 43.

Type TF TF MC

Item 44. 45. 46.

4. 5. 6. 7. 37. 53.

TF TF TF TF TF MC

54. 55. 56. 57. 58. 59.

MC MC MC MC MC MC

60. 61. 62. 63. 64. 65.

8. 9. 10. 11. 12. 38. 39.

TF TF TF TF TF TF TF

71. 72. 73. 74. 75. 76. 77.

MC MC MC MC MC MC MC

78. 79. 80. 81. 82. 83. 84.

13. 14.

TF TF

15. 40.

TF TF

102. 103.

Type

Item

Type

Item

Study Objective 1 MC 47. MC 50. MC 48. MC 51. MC 49. MC 52. Study Objective 2 MC 66. MC 157. MC 67. MC 158. MC 68. MC 166. MC 69. MC 167. MC 70. MC 178. MC 156. MC 179. Study Objective 3 MC 85. MC 92. MC 86. MC 93. MC 87. MC 94. MC 88. MC 95. MC 89. MC 96. MC 90. MC 97. MC 91. MC 98. Study Objective 4 MC 104. MC 106. MC 105. MC 160.

Type

Item

Type

MC MC MC

155. 165. 177.

MC BE Ex

197. 198. 199.

C C C

MC MC BE BE Ex Ex

180. 181. 182. 200. 201. 202.

Ex Ex Ex C C C

203.

C

MC MC MC MC MC MC MC

99. 100. 101. 102. 159. 167. 168.

MC MC MC MC MC BE BE

169. 178. 179. 181. 183. 184. 204.

BE Ex Ex Ex Ex Ex C

MC MC

161. 170.

MC BE

185. 186.

Ex Ex

Accounting for Merchandising Operations

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SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE 16. 17. 18. 19.

TF TF TF TF

20. 21. 22. 23.

TF TF TF TF

24. 25. 41. 107.

26. 27. 28. 29. 42.

TF TF TF TF TF

116. 117. 118. 119. 120.

MC MC MC MC MC

121. 122. 123. 124. 125.

30. 31. 139.

TF TF MC

140. 141. 142.

MC MC MC

143. 144. 145.

a a

a

32. 33. 34.

TF TF TF

a a

a

147. 148. 153.

MC MC MC

a a

a

Study Objective 5 TF 108. MC 112. TF 109. MC 113. TF 110. MC 114. MC 111. MC 115. Study Objective 6 MC 126. MC 132. MC 127. MC 133. MC 128. MC 134. MC 129. MC 135. MC 131. MC 136. Study Objective 7 MC 146. MC 174. MC 164. MC 175. MC 173. BE 191.

149. 150.

Study Objective a8 MC a151. MC a176. MC a152. MC a194.

154.

Study Objective a9 MC a196. Ex

Note: TF = True-False MC = Multiple Choice

BE = Brief Exercise Ex = Exercise

MC MC MC MC

130. 162. 171. 187.

MC MC BE Ex

188. 189. 190.

Ex Ex Ex

MC MC MC MC MC

137. 138. 163. 172. 187.

MC MC MC BE Ex

188. 189. 190. 205. 206.

Ex Ex Ex C C

BE BE Ex

192. 193.

Ex Ex

BE Ex

a

195.

Ex

C = Completion

The chapter also contains one set of ten Matching questions and six Short-Answer Essay questions.

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Test Bank for Accounting Principles, Eighth Edition

CHAPTER STUDY 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 Merchandise Inventory account for all purchases of merchandise, freight-in, and other costs, 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 for the selling price of the merchandise. At the same time, it debits Cost of Goods Sold and credits Merchandise 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 Merchandise 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. 6. Explain the computation and importance of gross profit. Merchandising companies compute gross profit by subtracting cost of goods sold from net sales. Gross profit represents the merchandising profit of a company. Managers and other interested parties closely watch the amount and trend of gross profit. 7. Determine cost of goods sold under a periodic inventory system. The steps in determining cost of goods sold are: (a) Record the purchases of merchandise, (b) Determine the cost of goods purchased, (c) Determine the cost of goods on hand at the beginning and end of the accounting period. a

8. 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

9. 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 merchandising company are Merchandise Inventory, Sales, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold.

Accounting for Merchandising Operations

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TRUE-FALSE STATEMENTS 1.

Retailers and wholesalers are both considered merchandisers.

2.

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

3.

Sales minus operating expenses equals gross profit.

4.

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

5.

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

6.

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

7.

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

8.

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

9.

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

10.

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

11.

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

12.

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

13.

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

14.

For a merchandising company, all accounts that affect the determination of income are closed to the Income Summary account.

15.

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

16.

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

17.

Selling expenses relate to general operating activities such as personnel management.

18.

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

19.

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

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Test Bank for Accounting Principles, Eighth Edition

20.

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

21.

Merchandise inventory is classified as a current asset in a classified balance sheet.

22.

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

23.

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

24.

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

25.

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

26.

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

27.

Gross profit represents the merchandising profit of a company.

28.

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

29.

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

30.

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

31.

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

a

32.

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

a

33.

Under a periodic inventory system, freight-in on merchandise purchases should be charged to the Inventory account.

a

34.

In a worksheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted trial balance (Dr.) and income statement (Dr.) columns.

Additional True-False Questions 35.

Merchandise inventory is reported as a long-term asset on the balance sheet.

36.

Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

37.

The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

38.

Sales should be recorded in accordance with the matching principle.

Accounting for Merchandising Operations

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39.

Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

40.

A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

41.

If a merchandising company sells land at more than its cost, the gain should be reported in the sales revenue section of the income statement.

42.

The major difference between the balance sheets of a service company and a merchandising company is inventory.

Answers to True-False Statements Item

1. 2. 3. 4. 5. 6.

Ans.

T F F T F T

Item

7. 8. 9. 10. 11. 12.

Ans.

T F F T F F

Item

13. 14. 15. 16. 17. 18.

Ans.

T T F F F T

Item

Ans.

19. 20. 21. 22. 23. 24.

T F T F F T

Item

25. 26. 27. 28. 29. 30.

Ans.

Item

T T T F F T

31. 32. a 33. a 34. 35. 36. a

Ans.

F T F T F T

MULTIPLE CHOICE QUESTIONS 43.

Income from operations is gross profit less a. administrative expenses. b. operating expenses. c. other expenses and losses. d. selling expenses.

44.

An enterprise which sells goods to customers is known as a a. proprietorship. b. corporation. c. retailer. d. service firm.

45.

Which of the following would not be considered a merchandising company? a. Retailer b. Wholesaler c. Service firm d. Dot Com firm

46.

A merchandising company that sells directly to consumers is a a. retailer. b. wholesaler. c. broker. d. service company.

Item

37. 38. 39. 40. 41. 42.

Ans.

F F T T F T

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Test Bank for Accounting Principles, Eighth Edition

47.

Two categories of expenses for 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.

48.

The primary source of revenue for a wholesaler is a. investment income. b. service fees. c. the sale of merchandise. d. the sale of fixed assets the company owns.

49.

Sales revenue less cost of goods sold is called a. gross profit. b. net profit. c. net income. d. marginal income.

50.

After gross profit is calculated, operating expenses are deducted to determine a. gross margin. b. net income. c. gross profit on sales. d. net margin.

51.

Cost of goods sold is determined only at the end of the accounting period in a. a perpetual inventory system. b. a periodic inventory system. c. both a perpetual and a periodic inventory system. d. neither a perpetual nor a periodic inventory system.

52.

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

53.

Detailed records of goods held for resale are not maintained under a a. perpetual inventory system. b. periodic inventory system. c. double entry accounting system. d. single entry accounting system.

54.

A perpetual inventory system would likely be used by a(n) a. automobile dealership. b. hardware store. c. drugstore. d. convenience store.

Accounting for Merchandising Operations

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55.

Which of the following is a true statement about inventory systems? a. Periodic inventory systems require more detailed inventory records. b. Perpetual inventory systems require more detailed inventory records. c. A periodic system requires cost of goods sold be determined after each sale. d. A perpetual system determines cost of goods sold only at the end of the accounting period.

56.

In a perpetual inventory system, cost of goods sold is recorded a. on a daily basis. b. on a monthly basis. c. on an annual basis. d. with each sale.

57.

If a company determines cost of goods sold each time a sale occurs, it a. must have a computer accounting system. b. uses a combination of the perpetual and periodic inventory systems. c. uses a periodic inventory system. d. uses a perpetual inventory system.

58.

Under a perpetual inventory syste...