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Financial Accounting – PMBA I Quiz # 6 Accounting for Merchandising Businesses

1. Merchandise inventory is classified on the balance sheet as a

a. current liability
b. current asset
c. long-term asset
d. long-term liability

2. Which of the following is not a difference between a retail business and a service business?
a. in what is sold
b. the inclusion of gross profit on the income statement
c. accounting equation
d. merchandise inventory included on the balance sheet

3.What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
a. gross profit
b. income from operations
c. net income
d. gross sales

4. The inventory system employing accounting records that continuously disclose the amount of inventory is called
a. retail
b. periodic
c. physical
d. perpetual

5. Calculate income from operations for Jonas Company based on the following data:

Sales $764,000
Operating expenses 52,500
Cost of merchandise 538,000
sold

a. $485,500
b. $711,500
c. $173,500
d. $226,000

6. Gross profit is equal to

a. sales plus cost of merchandise sold
b. sales plus selling expenses
c. sales less selling expenses
d. sales less cost of merchandise sold

7. When comparing a retail business to a service business, the financial statement that changes the most is the
a. balance sheet
b. income statement
c. statement of owner's equity
d. statement of cash flows
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8. Calculate the gross profit for Jefferson Company based on the following:

Sales $764,000
Selling Expenses 42,500
Cost of Merchandise 538,000
Sold

a. $495,500
b. $183,500
c. $721,500
d. $226,000

9. The primary difference between a periodic and perpetual inventory system is that a
a. periodic system determines the inventory on hand only at the end of the accounting period
b. periodic system keeps a record showing the inventory on hand at all times
c. periodic system provides an easy means to determine inventory shrinkage
d. periodic system records the cost of the sale on the date the sale is made

10. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
a. debit to Sales
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. credit to Accounts Receivable

11. Which of the following accounts has a normal debit balance?

a. Accounts Payable
b. Merchandise Inventory
c. Sales
d. Interest Revenue

12. Merchandise is ordered on November 10; the merchandise is shipped by the seller and the invoice is prepared,
dated, and mailed by the seller on November 13; the merchandise is received by the buyer on November 18; the
entry is made in the buyer's accounts on November 20. The credit period begins with what date?
a. November 10
b. November 13
c. November 18
d. November 20

13. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on
account includes a
a. credit to Customer Refunds Payable
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. debit to Cash

14. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by
issuing a
a. sales invoice
b. purchase invoice
c. credit memo
d. debit memo
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15. The arrangements between buyer and seller as to when payments for merchandise are to be made are called
a. credit terms
b. net cash
c. cash on demand
d. gross cash

16. In credit terms of 3/15, n/45, the "3" represents the

a. number of days in the discount period
b. full amount of the invoice
c. number of days when the entire amount is due
d. percent of the cash discount

17. Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record
the sale would include a (with discount taken):
a. debit to Cash for $5,000
b. debit to Sales Discounts for $100
c. credit to Sales for $4,900
d. debit to Accounts Receivable for $4,880

18. Which of the following accounts has a normal credit balance?

a. Accounts Receivable
b. Sales
c. Merchandise Inventory
d. Delivery Expense

19. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
a. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
b. debit to Cash and a credit to Sales
c. debit to Cash, credit to Credit Card Expense, and a credit to Sales
d. debit to Sales, debit to Credit Card Expense, and a credit to Cash

20. When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a
a. debit to Merchandise Inventory; a credit to Cash
b. debit to Cash; a credit to Merchandise Inventory
c. debit to Cash; a credit to Sales
d. debit to Sales; a credit to Accounts Payable

21. When merchandise purchased on account is returned under the perpetual inventory system, the buyer would
debit a. Merchandise Inventory
b. Purchases Returns and Allowances
c. Accounts Payable
d. Accounts Receivable

22. When purchases of merchandise are made on account with a perpetual inventory system, the transaction is
recorded with which entry?
a. debit Accounts Payable; credit Merchandise Inventory
b. debit Merchandise Inventory; credit Accounts Payable
c. debit Merchandise Inventory; credit Cash Discounts
d. debit Merchandise Inventory; credit Purchases
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23. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account
would include a
a. debit to Accounts Payable
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. credit to Sales

24. Using a perpetual inventory system, the entry to record the return of merchandise purchased on account
includes a a. debit to Cost of Merchandise Sold
b. credit to Accounts Payable
c. credit to Merchandise Inventory
d. credit to Sales

25. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
a. FOB shipping point
b. FOB destination
c. FOB n/30
d. FOB buyer

26. If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
a. FOB shipping point
b. FOB destination
c. FOB n/30
d. FOB seller

27.When goods are shipped FOB destination and the seller pays the freight charges, the buyer
a. journalizes a reduction for the cost of the merchandise
b. journalizes a reimbursement to the seller
c. does not take a discount
d. makes no journal entry for the freight

28. To encourage a buyer to pay before the end of the credit period, the seller may offer a
a. purchases discount
b. sales discount
c. trade discount
d. payment discount

29.Which of the following accounts will only be found in the chart of accounts of a merchandising company?
a. Sales
b. Accounts Receivable
c. Merchandise Inventory
d. Accounts Payable

30. Under a perpetual inventory system

a. accounting records continuously disclose the amount of inventory
b. increases in inventory resulting from purchases are debited to Purchases
c. there is no need for a year-end physical count
d. the purchase returns and allowances account is credited when goods are returned to vendors