RECAP OF MERCHANDISERS OPERATIONS & ACTIVITIES: TRUE/FALSE -Cost of Goods Sold i
ID: 2463240 • Letter: R
Question
RECAP OF MERCHANDISERS OPERATIONS & ACTIVITIES:
TRUE/FALSE
-Cost of Goods Sold is included in a merchandiser’s income statement but excluded from a service company income statement.
-Under the periodic inventory system, the only way to determine the cost of goods sold is to take a physical count of the merchandise on hand.
-Most businesses use the period inventory system because it offers management more control over inventory.
-A sales return requires two entries to be journalized if the seller uses a perpetual inventory system.
-Sales returns and allowances is an expense account.
-An inventory count (physical year end inventory) is not performed if the perpetual inventory system is used.
Multiple choice:
1.What do credit terms 1/10,n/30 indicate?
A 10% discount is available if payment is made within 30 days
A 1% discount is available if payment is made within 10 days
A 1% discount is available if payment is made within 30 days
A 30% discount is available if payment is made within 10 days
2.Which of the following is necessary to record the purchase of merchandise on account under a perpetual inventory system?
A credit to cash
A debit to accounts payable
A credit to Inventory
A debit to Inventory
3.Which of the following accounts has a normal debit balance?
Sales revenue
Sales returns and allowances
Net sales revenue
Gross profit
4.Select whether the following accounts are:
Closed out with a debit to the account
Closed out with a credit to the account
Not closed out at all
a.Sales revenue
b.Sales returns and allowances
c.Salary expense
d.Inventory
e.Depreciation expense
f.Accumulated depreciation
g.Accounts receivable
h.Interest revenue
i.Interest expense
j.Cost of goods sold
MERCANDISERS INVENTORY RECAP QUESTIONS
TRUE/FALSE
-Under FIFO, the ending inventory cost comes from the oldest purchases
-FIFO is the opposite of LIFO
-The LIFO method can result in misleading inventory costs on the balance sheet because the oldest prices are left in ending inventory.
-When inventory costs are rising, LIFO will result in the lowest gross profit
-When using a perpetual inventory system, a business will debit Inventory and credit Cost of Goods Sold each time a sale is recorded
- If a company had 10 units of beginning inventory with a unit cost of $10 and a subsequent purchase of 15 units with a unit cost of $12, the average cost of one unit sold would be $11.
Multiple choice:
1.Which of the following are required to record the sale of merchandise on credit under a perpetual inventory system?
Debit accounts receivable, credit sales revenue
Debit cost of goods sold, credit cash
Debit cost of goods sold, credit inventory
Both a & c are necessary entries
2.What is the effect of using FIFO during a period of rising prices under a perpetual inventory system?
Less net income than LIFO
Less operating expenses than LIFO
Higher gross profit than LIFO
Higher cost of goods sold than average costing
3.Which of the following is NOT a reason for choosing the LIFO method?
LIFo reports the most up to date inventory values on the balance sheet
LIFO uses more current costs in calculating cost of goods sold
LIFO allows owners and managers to manage reported income
LIFO generally results in lower income taxes paid
4.Which of the following statements is true about a company making an accounting change in its financial statements?
It is generally entitled to make one accounting change per year
It must report the change in accounting method
Companies can never make accounting changes because of the consistency principle
It must petition the FASB for permission to make the change.
5.When is an item considered material?
When it facilitates comparison with the financial statements of another company in the same industry
When its inclusion in the financial statements would cause a statement user to change a decision
When its dollar value is greater than 10% of net income
When it is accounted for using a treatment that is not normally allowed by GAAP.
Explanation / Answer
Answer 1. a. True Cost of Goods Sold = Opening inventory + Purchases - Closing inventory In service company, there is no goods or inventory involved in the business, so there uis no question of Cost of Goods Sold in their Income Statement. In service industry, ther provides services to the clients, like, CA Firm, Cleaning industry etc., b. True In periodic inventory system only updates the ending balance of inventory balance when you physically count the inventory in hand. All purchases made between physical inventory counts are recorded in a purchases account. When a physical inventory count is done, you then shift the balance in the purchases account into the inventory account, which in turn is adjusted to match the cost of the ending inventory. After that, cost of goods sold is calculated. c. False Most business uses the periodic inventory system, since it is easy to use. Periodic Inventory system, offers less control over the inventory than the perpectual inventory system. d. True The Journal entries to be passed for sales return are: 1. Sales Return Dr. To Accounts Receivables 2. Inventory Dr. To Cost of Goods Sold e. False Sales return and Allowances - is a contra revenue account that reports 1) merchandise returned by a customer, and 2) the allowances granted to a customer because the seller shipped improper or defective merchandise. This of course will reduce the seller's accounts receivable and is subtracted from sales (along with sales discounts) to arrive at net sales. f. False. Companies that use a perpetual system employ cycle counting to maintain the accuracy of inventory records. Cycle counting counts a portion of the company’s inventory every day and compares the quantity against inventory records. Cycle counters investigate discrepancies in inventory records to determine the cause of incorrect quantities. As per Chegg Guidelines, You can ask one question at one time and having four subparts. For other questions please ask it again.
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