Financial Accounting and Reporting Part 2

Midterm Examination
February 13, 2020

Name: _____________________________________ Score: _______________________

Instruction: Shade the letter of the best answer to the following multiple choice problems
in the answer sheet provided. NO ERASURES, NO SOLUTION, NO POINT. Use any pencil.

Theories – Item 1 to 20 (1 points each); Problems – Item 21 to 30 (2 points each)

1. Gross profit will result if:
A. Sales revenue are greater than cost of goods sold.
B. Operating expenses are greater than cost of goods sold.
C. Operating expenses are less than net income.
D. Sales revenue are greater than operating expenses

2. Under a perpetual inventory system, when goods are purchased for resale by a
company:
A. Purchases on account are debited to Merchandise Inventory.
B. Purchases on account are debited to Purchases
C. Purchase returns are debited to Purchase Returns and Allowances
D. Freight costs are debited to Freight-out

3. The sales accounts that normally have a debit balance are:

A. Sales Returns and Allowances.
B. Neither Sales Discounts nor Sales Returns and Allowances.
C. Both Sales Discounts and Sales Returns and Allowances.
D. Sales Discounts.

4. Which of the following accounts will normally appear in the ledger of a merchandising
company that uses a perpetual inventory system?
A. Freight-in
B. Purchases
C. Purchase Discounts
D. Cost of Goods Sold

5. To record the sale of goods for cash in a perpetual inventory system:
A. Two journal entries are necessary: one to record the receipt of cash and sales revenue,
and one to record the cost of goods and reduction of inventory.
B. Only one journal entry is necessary to record the reciept of cash and the sales revenue.
C. Two journal entries are necessary: one to record the receipt of cash and reduction of
inventory, and one to record the cost of goods sold and sales revenue.
D. Only one journal entry is necessary to record cost of goods sold and reduction of
inventory.

6. When goods are purchased for resale by a company using a periodic inventory system:
A. Purchases on account are debited to Purchases.
B. Freight costs are debited to Purchases.
C. Purchase returns are debited to Purchase Returns and Allowances.
D. Purchases on account are debited to Merchandise Inventory.

7. In a perpetual inventory system, a company determines the cost of goods sold each
time a sale occurs.
A. True
B. False

8. In a periodic inventory system, companies keep detailed inventory records of the goods
on hand throughout the period.
A. True
B. False
9. FOB destination means that the seller places the goods free on board the common
carrier and the buyer pays the freight costs.
A. True
B. False

10. Sales Returns and Allowances is a contra revenue account to Sales and has a normal
debit balance.
A. True
B. False

11. In a perpetual inventory system, a return of defective merchandise by a purchaser is

recorded by crediting:
A. Merchandise Inventory
B. Purchases
C. Purchase Discounts
D. Purchase Returns and Allowances
 
12. Which of the following is not part of the journal entries made when merchandise is sold
on credit?
A. Debit the Accounts Receivable account
B. Credit the Cost of Goods Sold account
C. Credit the Sales account
D. Credit the Merchandise Inventory account

13. FOB shipping point means that the:

A. Goods are placed free on board to the buyer's place of business.
B. Buyer pays the freight.
C. Seller pays the freight.
D. Common carrier pays the freight.

14. Which of the following is shown for both merchandising and service companies?
A. Operating expenses
B. Sales returns and allowances
C. Gross profit
D. Cost of goods sold

15. Cost of goods available for sale consists of two elements: beginning inventory and:
A. Ending inventory
B. Cost of goods purchased
C. Cost of goods sold
D. All of the above

16. When the terms of sale are FOB shipping point, ownership of the goods remains with
the seller until the goods reach the buyer.
A. True
B. False

17. All of the following would be classified as inventory except:

A. Raw materials
B. Supplies
C. Merchandise inventory
D. Work in process

18. The transportation-out account is used by sellers in accounting for transactions with
buyers
A. True
B. False
19. Net income or net loss may appear on the income statement of both service business
and a merchandising business
A.
B. True
C. False
20. A buyer who acquires merchandise under the credit terms of 1/10, n/30 has 30 days
after the invoice date to take advantage of the cash discount.
A.
B. True
C. False

21. A credit sale of P750 is made on June 13, term 2/10, net/30. A return of P50 is
granted on June 16. The amount received as payment in full on June 23 is:

A. P700 B. P650 C. P686 D. P685

22. If sales revenues are P400,000, cost of goods sold is P310,000, and operating
expenses are P60,000 the gross profit is:

A. P90,000 B. P340,000 C. P400,000 D. P30,000

23. If beginning inventory is P60,000, cost of goods purchased is P380,000, and ending
inventory is P50,000, cost of goods sold is:

A. P420,000 C. P370,000
B. P390,000 D. P330,000

24. On June 1, 2019, MRS Co. sold merchandise with a P120,000 list price.
Trade discount=30% credit terms: 2/10,n/30 date paid: June 8
determine the following:
the amount recorded as sale.

A.
B. 36,000 E. 120,000
C. 82,320
D. 84,000

25. Using number 24, the amount of cash recieved from the buyer?
A.
B. 1,680 E. 84,000
C. 36,000
D. 82,320

26. On March 25, Arman Company located in Manila purchased merchandise worth
P99,000 from Teo Company located in Bacolod. Freight or transportation costs amounted
to P800. Terms 2/10, n/30, FOB Shipping point, Freight prepaid. If the vendor is paid on
April 5, the journal entry to record the payment would be (both companies are using
perpetual inventory system)

  a. Accounts Payable, dr 99,000; Cash, cr., 99,800

  b. Accounts Payable, dr., 99,800; Cash, cr., 99,800

Accounts Payable, dr., 99,000; Purchase Discounts, cr.,1,980; Cash,

  c.
cr.97,020

  d. Accounts Payable, dr.,99,800; Purchase Discounts, cr.,1,980; Cash,

 cr.97,820

27. On March 25, Arman Company located in Manila purchased merchandise worth
P99,000 from Teo Company located in Bacolod. Freight or transportation costs amounted
to P800. Terms 2/15, n/30, FOB Destination, Freight prepaid. If the vendor is paid on April
5, the journal entry to record the payment would be (both companies are using periodic
inventory system)

  a. Accounts Payable, dr 99,000; Cash, cr., 99,800

  b. Accounts Payable, dr., 99,800; Cash, cr., 99,800

Accounts Payable, dr., 99,000; Purchase Discounts, cr.,1,980; Cash,

  c.
cr.97,020

Accounts Payable, dr.,99,800; Purchase Discounts, cr.,1,980; Cash,

  d.
cr.97,820

28. An item of merchandise was sold for P800 cash by a business using the perpetual
inventory system. The product sold cost the business P600. After the sale entry has been
recorded, a second entry will

  a. None

  b. debit Sales and credit Merchandise Inventory for P600

  c. debit Cost of Goods Sold and credit Merchandise Inventory P600

  d. debit Merchandise Inventory and credit Cost of Goods Sold P600

29. An item of merchandise was sold for P800 cash by a business using the periodic
inventory system. The product sold cost the business P600. After the sale entry has been
recorded, a second entry will

  a. None

  b. debit Sales and credit Merchandise Inventory for P600

  c. debit Cost of Goods Sold and credit Merchandise Inventory P600

  d. debit Merchandise Inventory and credit Cost of Goods Sold P600

30. A sales invoice included the following information: merchandise price , P5,000;
transportation , P300; Invoice date: January 3, 2020,terms 1/10,n/eom, FOB shipping
point. The buyer did not make payment as of today February 13, 2020. Determine the
number of days each account is past due as of February 13, 2020.

A.
B. 10 days E. 13 days
C. 11 days
D. 12 days