MULTIPLE CHOICE

1. Which one of the following is not a difference between a retail business and a service
business?
a. in what is sold
b. greater number of new accounts
c. specialized journals
d. changes in financial statements
2. Net income plus operating expenses is equal to
a. cost of goods sold
b. cost of goods available for sale
c. net sales
d. gross profit
3. Generally, the revenue account for a merchandising business is entitled
a. Sales
b. Net Sales
c. Gross Sales
d. Gross Profit
4. 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
5. Using a perpetual inventory system, the entry to record the purchase of $30,000 of
merchandise on account would include a
a. debit to Sales
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. credit to Sales
6. Using a perpetual inventory system, the entry to record the return of merchandise purchased
on account includes a
a. debit to Cost of Goods Sold
b. credit to Accounts Payable
c. credit to Merchandise Inventory
d. credit to Sales
7. In recording the cost of merchandise sold for cash, based on data available from perpetual
inventory records, the journal entry is
a. debit Cost of Merchandise Sold; credit Sales
b. debit Cost of Merchandise Sold; credit Merchandise Inventory
c. debit Merchandise Inventory; credit Cost of Merchandise Sold
d. debit Accounts Receivable; credit Merchandise Inventory
8. When a buyer returns merchandise purchased for cash, the buyer may record the transaction
using the following entry
a. debit Merchandise Inventory; credit Cash
b. debit Cash; credit Merchandise Inventory
c. debit Cash; credit Sales Returns and Allowances
d. debit Sales Returns and Allowances; credit Cash
9. Which of the following accounts has a normal debit balance?
a. Accounts Payable
b. Sales Returns and Allowances
c. Sales
d. Interest Revenue
10. When comparing a retail business to a service business, the financial statement that changes
the least is the
a. Balance Sheet
b. Income Statement
c. Statement of Owner's Equity
d. Statement of Cash Flow
11. Which account is not classified as a selling expense?
a. Sales Salaries
b. Transportation-Out
c. Sales Discounts
d. Advertising Expense
12. 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
13. The inventory system employing accounting records that continuously disclose the amount
of inventory is called
a. retail
b. periodic
c. physical
d. perpetual
14. If the buyer is to pay the transportation costs of delivering merchandise, delivery terms are
stated as
a. FOB shipping point
b. FOB destination
c. FOB n/30
d. FOB buyer
15. Expenses that are incurred directly or entirely in connection with the sale of merchandise are
classified as
a. selling expenses
b. general expenses
c. other expenses
d. administrative expenses

ANALYSIS AND COMPUTATION

1. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a
customer for $15,000. The seller paid transportation costs of $1,000 and issued a credit
memorandum for $5,000 prior to payment. What is the amount of the cash discount
allowable?
a. $160
b. $150
c. $140
d. $100

2. A retailer purchases merchandise with a catalog list price of $10,000. The retailer receives a
25% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to
the Merchandise Inventory account?
a. $7,500
b. $10,000
c. $9,800
d. $7,350

3. A sales invoice included the following information: merchandise price, $4,000;

transportation, $300; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for
merchandise returned of $600 is granted prior to payment, that the transportation is prepaid
by the seller, and that the invoice is paid within the discount period, what is the amount of
cash received by the seller?
a. $3,366
b. $3,400
c. $3,666
d. $3,950
4. Merchandise with an invoice price of $4000 is purchased on June 2 subject to terms of 2/10,
n/30, FOB destination. Transportation costs paid by the seller totaled $150. What is the
cost of the merchandise if paid on June 12, assuming the discount is taken?
a. $4,150
b. $4,070
c. $4,067
d. $3,920
ANSWER KEY
TEST 1.

1. C
2. D
3. A
4. A
5. B
6. C
7. B
8. B
9. B
10. C
11. C
12. A
13. D
14. A
15. A
TEST 2.
1. D
2. A
3. C
4. D