Question 1

Faust Company uses the perpetual inventory method. Faust sold goods that cost $2,300 for $3,600. If the sale was made on account, the net effect of the sale will:

Accepted Answer

A)   increase total assets by $2,300.
B)   increase total equity by $3,600.
C)   increase total assets by $1,300.
D)   increase total assets by $3,600.E) None of the above
F) All of the above

Question 2

Indicate whether each of the following statements is true or false.
_____ a) A cash discount is extended to reward the buyer for purchasing large quantities of goods.
_____ b) A purchase discount refers to a cash discount as seen from the seller's viewpoint.
_____ c) A sales discount refers to a cash discount as seen from the buyer's view.
_____ d) In a perpetual inventory system, a sales discount is recorded as a reduction of sales revenue.
_____ e) In a perpetual inventory system, a purchase discount is recorded as a reduction of merchandise inventory.

Accepted Answer

a) This is false. Cash discounts are ext...

Question 3

Galaxy Company sold merchandise costing $1,700 for $2,600 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

Accepted Answer

A)   Total assets and total equity decrease by $900.
B)   Total assets decrease by $2,600 and total equity is decreased by $1,700.
C)   Total assets and total equity decrease by $2,600.
D)   Total assets and total equity increase by $900.E) All of the above
F) A) and B)

Question 4

Foote Company recorded a purchase discount of $200 on merchandise the company had purchased on account a few days ago. Foote uses the perpetual inventory system. Which of the following answers reflects the effects of this event on the financial statements?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) C) and D)
F) A) and C)

Question 5

Which of the following would be considered as primarily a merchandising business?

Accepted Answer

A)   West Consulting
B)   Martin's Supermarket
C)   Sandridge and Associates Law Offices
D)   KPM Accounting and Tax ServiceE) None of the above
F) A) and B)

Question 6

In a perpetual inventory system, a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

Accepted Answer

A) True 
 B)False

Question 7

With a perpetual inventory system, the cost of merchandise inventory is recognized at the time of purchase.

Accepted Answer

A) True 
 B)False

Question 8

The Wilson Company purchased $44,000 of merchandise from the Poole Wholesale Company. Wilson also paid $3,000 for freight costs to have the goods shipped to its location. Which of the following statements regarding the necessary entries for the transactions is true? Wilson uses the perpetual inventory system.

Accepted Answer

A)   Total increases to the inventory account would be $47,000.
B)   Total increases to the inventory account would be $44,000.
C)   Transportation-in would be increased by $3,000.
D)   Total increases to the inventory account would be $41,000.E) None of the above
F) B) and D)

Question 9

With a periodic inventory system, inventory purchases are recorded in the purchases account at the time of purchase.

Accepted Answer

A) True 
 B)False

Question 10

Net income percentage is equal to:

Accepted Answer

A)   Net Sales divided by Net Income
B)   Net Income divided by Net Sales
C)   Total Equity divided by Net Sales
D)   Net Income divided by Gross MarginE) All of the above
F) B) and C)

Question 11

Ballard Company uses the perpetual inventory system. The company purchased $16,000 of merchandise from Andes Company under the terms 2/10, net/30. Ballard paid for the merchandise within 10 days and also paid $500 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $30,000 cash. The amount of gross margin for this merchandise is:

Accepted Answer

A)   $14,000.
B)   $13,820.
C)   $16,000.
D)   $13,500.E) C) and D)
F) A) and B)

Question 12

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account. Due to an error, this sale was never recorded in the accounting records. What effects will the failure to make the necessary entries have on the company's accounting equation?

Accepted Answer

A)   Total assets and total equity will be overstated.
B)   Total assets will be overstated and total equity will be understated.
C)   Total assets and total equity will be understated.
D)   The accounting equation will not be affected.E) B) and C)
F) C) and D)

Question 13

Which of the following account titles is normally used in a periodic inventory system?

Accepted Answer

A)   Transportation-in
B)   Purchases
C)   Purchase Returns and Allowances
D)   All of these answer choices are normally used.E) B) and D)
F) All of the above

Question 14

Leonard Company paid freight costs to have goods shipped to one of its customers. What effect will these freight-out costs have on the company's financial statements?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) None of the above
F) All of the above

Question 15

A common size income statement is prepared by dividing all amounts on the statement by net income.

Accepted Answer

A) True 
 B)False

Question 16

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory, as well as returns of inventory to suppliers.

Accepted Answer

A) True 
 B)False

Question 17

How does the purchase of inventory on account under the perpetual inventory method affect the financial statements?

Accepted Answer

A)   Total assets increase
B)   Total liabilities increase
C)   Total assets are unaffected
D)   Total assets and total liabilities both increaseE) A) and B)
F) B) and C)

Question 18

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Accepted Answer

A) True 
 B)False

Question 19

Costs of selling inventory are product costs.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is considered a period cost?

Accepted Answer

A)   Transportation cost on goods received from suppliers.
B)   Advertising expense for the current month.
C)   Cost of merchandise purchased.
D)   None of these answer choices are considered a period cost.E) A) and B)
F) A) and C)

Exam 3: Accounting for Merchandising Businesses

With a perpetual inventory system, the cost of merchandise inventory is recognized at the time of purchase.

Correct Answer
verified

A common size income statement is prepared by dividing all amounts on the statement by net income.

Correct Answer
verified

Correct Answer
verified
a) This is false. Cash discounts are ext...
View Answer

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account. Due to an error, this sale was never recorded in the accounting records. What effects will the failure to make the necessary entries have on the company's accounting equation?

Correct Answer
verified

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory, as well as returns of inventory to suppliers.

Correct Answer
verified

Which of the following would be considered as primarily a merchandising business?

Correct Answer
verified

Leonard Company paid freight costs to have goods shipped to one of its customers. What effect will these freight-out costs have on the company's financial statements?

Correct Answer
verified

In a perpetual inventory system, a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

Correct Answer
verified

Net income percentage is equal to:

Correct Answer
verified

Foote Company recorded a purchase discount of $200 on merchandise the company had purchased on account a few days ago. Foote uses the perpetual inventory system. Which of the following answers reflects the effects of this event on the financial statements?

Correct Answer
verified

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Which of the following account titles is normally used in a periodic inventory system?

Correct Answer
verified

Faust Company uses the perpetual inventory method. Faust sold goods that cost $2,300 for $3,600. If the sale was made on account, the net effect of the sale will:

Correct Answer
verified

With a periodic inventory system, inventory purchases are recorded in the purchases account at the time of purchase.

Correct Answer
verified

Costs of selling inventory are product costs.

Correct Answer
verified

How does the purchase of inventory on account under the perpetual inventory method affect the financial statements?

Correct Answer
verified

Galaxy Company sold merchandise costing $1,700 for $2,600 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

Correct Answer
verified

Which of the following is considered a period cost?

Correct Answer
verified

Exam 3: Accounting for Merchandising Businesses

With a perpetual inventory system, the cost of merchandise inventory is recognized at the time of purchase.

Correct AnswerverifiedShow Answer

A common size income statement is prepared by dividing all amounts on the statement by net income.

Correct AnswerverifiedShow Answer

Correct Answerverifieda) This is false. Cash discounts are ext...View AnswerShow Answer

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account. Due to an error, this sale was never recorded in the accounting records. What effects will the failure to make the necessary entries have on the company's accounting equation?

Correct AnswerverifiedShow Answer

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory, as well as returns of inventory to suppliers.

Correct AnswerverifiedShow Answer

Which of the following would be considered as primarily a merchandising business?

Correct AnswerverifiedShow Answer

Leonard Company paid freight costs to have goods shipped to one of its customers. What effect will these freight-out costs have on the company's financial statements?

Correct AnswerverifiedShow Answer

In a perpetual inventory system, a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

Correct AnswerverifiedShow Answer

Net income percentage is equal to:

Correct AnswerverifiedShow Answer

Foote Company recorded a purchase discount of $200 on merchandise the company had purchased on account a few days ago. Foote uses the perpetual inventory system. Which of the following answers reflects the effects of this event on the financial statements?

Correct AnswerverifiedShow Answer

A company's amount of cost of goods sold reported on the income statement will be the same with a periodic inventory system as it would be with a perpetual system.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following account titles is normally used in a periodic inventory system?

Correct AnswerverifiedShow Answer

Faust Company uses the perpetual inventory method. Faust sold goods that cost $2,300 for $3,600. If the sale was made on account, the net effect of the sale will:

Correct AnswerverifiedShow Answer

With a periodic inventory system, inventory purchases are recorded in the purchases account at the time of purchase.

Correct AnswerverifiedShow Answer

Costs of selling inventory are product costs.

Correct AnswerverifiedShow Answer

How does the purchase of inventory on account under the perpetual inventory method affect the financial statements?

Correct AnswerverifiedShow Answer

Galaxy Company sold merchandise costing $1,700 for $2,600 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

Correct AnswerverifiedShow Answer

Which of the following is considered a period cost?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
a) This is false. Cash discounts are ext...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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