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Acct 2110 Chapter 4 MC

Which of the following statements is true?
a.The revenue activities of a service business involve providing services to customers.
b.The revenue activities of a merchandising business involve the building of a product.
c.The revenue activities of a service business involve the building of a product.
d.The revenue activities of a merchandising business involve providing services to customers.
A
Which of the following businesses is a merchandising business?
a.H&R Block
b.Becker Law Office
c.Little Tykes Daycare
d.Kohl’s
D
Gross profit is determined by subtracting the cost of merchandise sold from what?
a.The cost of merchandise purchased
b.Fees earned
c.Accounts receivable
d.Net sales
D
Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet?
a.As a revenue
b.As the cost of merchandise sold
c.It does not appear on the Balance Sheet
d.As a current asset
D
Generally, the revenue account for a merchandising business is entitled
a.Sales.
b.Net Sales.
c.Gross Sales.
d.Gross Profit.
A
Which of the following statements is TRUE?
a.Only cash sales are included in the Sales account.
b.Sales is the total amount charged customers, including cash sales and sales on account.
c.Both sales discounts and sales returns and allowances are added to Sales to arrive at Net Sales.
d.Sales is the revenue account typically used in service businesses.
B
The difference between sales and cost of merchandise sold for a merchandising business is
a.sales.
b.net sales.
c.gross sales.
d.gross profit.
D
What is subtracted from sales to arrive at net sales?
a.Sales returns and allowances
b.Sales discounts
c.Both sales discounts and sales returns and allowances
d.Neither sales discounts nor sales returns and allowances
C
East, Inc. had beginning inventory of $10,000, purchases of $25,000, and ending inventory of $5,000. What is East’s cost of merchandise sold?
a.$10,000
b.$25,000
c.$5,000
d.$30,000
D
Dig, Inc. had the following merchandise transactions in October:

Purchases $50,000
Purchase returns $ 4,000
Purchase discounts $ 1,000
Transportation in $ 2,000

What is the total cost of merchandise purchased for Dig, Inc.?

a.$50,000
b.$47,000
c.$52,000
d.$48,000

B
Which expenses are subtracted from gross profit to arrive at income from operations?
a.All expenses
b.Cost of merchandise sold
c.Operating expenses
d.Sales expenses
C
Which of the following is NOT an example of selling expenses?
a.Salespersons’ salaries
b.Office salaries
c.Depreciation of store equipment
d.Advertising
B
Which of the following accounts is a contra account to Sales?
a.Accounts Payable
b.Sales Returns and Allowances
c.Accounts Receivable
d.Interest Revenue
B
Which of the following is NOT an administrative expense?
a.Salespersons’ salaries
b.Office salaries
c.Depreciation of office equipment
d.Office supplies used
A
NBC Company had $32,000 in net sales, $15,000 in cost of merchandise sold, $18,000 in operating expenses, and $2,000 in other income. What is NBC Company’s gross profit?
a.$17,000
b.$3,000
c.$1,000
d.($1,000)
A
When the perpetual inventory system is used, the inventory sold is shown on the income statement as
a.cost of merchandise sold.
b.purchases.
c.purchases returns and allowances.
d.net purchases.
A
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
A
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.
A
Office salaries, depreciation of office equipment, and office supplies are examples of what type of expense?
a.Selling expense
b.Miscellaneous expense
c.Administrative expense
d.Other expense
C
The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a
a.multiple-step statement.
b.revenue statement.
c.Report-form statement.
d.Single-step statement.
D
Multiple-step income statements show:
a.gross profit but not income from operations.
b.neither gross profit nor income from operations.
c.both gross profit and income from operations.
d.income from operations but not gross profit.
C
Which of the following would be subtracted from gross profit to reach operating income?
a.Operating expenses
b.Other expenses
c.Income taxes
d.All of these
A
Inventory NOT sold at the end of the period is reported as
a.cost of goods sold.
b.old stock.
c.merchandise inventory.
d.net purchases.
C
Which of the following is NOT a subsection in a multiple-step income statement?
a.Purchase discounts
b.Gross profit
c.Operating income
d.Income before taxes
A
Which of the following are subtracted from sales to arrive at net sales?
a.Sales returns
b.Merchandise inventory
c.Accounts receivable
d.Cost of merchandise sold
A
Gross profit is equal to:
a.sales plus (sales discounts and sales returns and allowances) plus cost of merchandise sold.
b.sales plus sales returns and allowances less sales discounts less cost of merchandise sold.
c.sales plus sales discounts less sales returns and allowances less cost of merchandise sold.
d.sales less (sales discounts and sales returns and allowances) less cost of merchandise sold.
D
Deana, Inc.
Deana, Inc. purchased merchandise for $500,000, received credit for purchase returns of $25,000, took purchase discounts of $10,000, and paid transportation in of $20,000.

What is the total cost of merchandise purchased?

a.$520,000
b.$485,000
c.$445,000
d.$480,000

B
Deana, Inc. purchased merchandise for $500,000, received credit for purchase returns of $25,000, took purchase discounts of $10,000, and paid transportation in of $20,000.

If Deana, Inc. had $20,000 in beginning inventory, and sold goods costing $300,000, what is the ending inventory balance?

a.$165,000
b.$240,000
c.$200,000
d.$185,000

D
Which of the following is NOT considered when figuring net purchases?
a.Cost of goods sold
b.Purchase returns
c.Purchases discounts
d.Purchases
A
Which of the following accounts will NOT be found in the Cost of Merchandise Sold section on the income statement?
a.Purchases
b.Transportation In
c.Sales Returns and Allowances
d.Merchandise Inventory
C
Multiple-step income statements show
a.gross profit but not net income.
b.neither gross profit nor net income.
c.gross profit but not cost of merchandise sold.
d.gross profit, cost of merchandise sold, income from operations and net income.
D
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.
A
Where are selling and administrative expenses found on the multi-step income statement?
a.Before gross profit
b.After sales and before gross profit
c.After net income and before expenses
d.After gross profit
D
Gold Co. sold merchandise to Bronze Co. on account, $25,000, terms 2/15, net 45. The cost of the merchandise sold is $18,500. Gold Co. issued a credit memorandum for $2,500 for merchandise returned that originally cost $1,900. Bronze Co. paid the invoice within the discount period. What is amount of net sales from the transactions?
a.$22,500
b.$22,000
c.$5,450
d.$22,050
D
Expenses that CANNOT be traced directly to operations are identified as
a.other income.
b.operating expenses.
c.cost of goods sold.
d.other expenses.
D
What is one criticism of the single-step income statement?
a.It is too complex.
b.It has too many subsections.
c.Gross profit and income from operations are not available for analysis.
d.Income taxes are given too much weight.
C
Which financial statement reconciles net income with net cash flows from operating activities?
a.Balance sheet
b.Statement of retained earnings
c.Statement of cash flows
d.Income statement
C
If Martin, Inc. sold $550,000 worth of merchandise, had $50,000 returned, and then the balance paid during the 2% discount period, how much was Martin’s net sales?
a.$500,000
b.$550,000
c.$490,000
d.$510,000
C
The credit terms of a sale are normally indicated on a(n)
a.purchase order.
b.invoice.
c.bill of lading.
d.account receivable.
B
Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the transaction is recorded in the buyer’s accounts on November 18. The credit period begins with what date?
a.November 12
b.November 15
c.November 17
d.November 18
B
Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the transaction is recorded in the seller’s accounts on November 15. If the credit terms are 1/10, n/30, the credit period begins with what date?
a.November 12
b.November 15
c.November 17
d.November 22
B
A sales invoice included the following information: merchandise price, $4,500; 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.$3,861
b.$4,158
c.$4,161
d.$4,200
C
Sometimes a(n) __________ is offered to buyers as a means of encouraging them to pay before the end of the credit period.
a.accounts receivable
b.credit card
c.sales discount
d.cash sale
C
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.
A
If a $20,000 sale is made on January 1, with terms of 2/10, n/30, how much would the discount be if payment is made on January 9?
a.$0
b.$200
c.$1,000
d.$400
D
In credit terms of 1/10, n/30, the “1” 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.
D
Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a(n):
a.decrease in Bank Credit Card Sales, increase in Credit Card Expense, and increase in Sales.
b.increase in Cash and increase in Sales.
c.increase in Cash, decrease in Credit Card Expense, and increase in Sales.
d.decrease in Sales, increase in Credit Card Expense, and decrease in Cash.
B
In recording the cost of merchandise sold for cash using a perpetual inventory system, the effect on the accounts is
a.increase Cost of Merchandise Sold; increase Sales.
b.increase Cost of Merchandise Sold; decrease Merchandise Inventory.
c.increase Merchandise Inventory; decrease Cost of Merchandise Sold.
d.increase Accounts Receivable; decrease Merchandise Inventory.
B
When merchandise that was sold on account is returned, which accounts are affected?
a.Cash, accounts receivable, cost of goods sold, and sales returns
b.Sales returns, accounts receivable, merchandise inventory, and cost of goods sold
c.Sales returns, accounts receivable, purchases, and cost of goods sold
d.Sales returns, accounts receivable, purchases, and merchandise inventory
B
For the perpetual inventory system, which of the following effects does NOT occur upon the return from a customer of merchandise sold on account?
a.Increases Sales Returns and Allowances and decreases Accounts Receivable
b.Decreases Cost of Merchandise Sold and increases Merchandise Inventory
c.Increases Purchase Returns and Allowances and decreases Merchandise Inventory
d.All of these occur.
C
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 memorandum.
d.debit memorandum
C
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $20,000. 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
B
Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 with terms of 1/15, net 45. What is the amount of the discount, and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?
a.$180, September 30
b.$180, September 25
c.$90, September 30
d.$90, September 25
C
Based on the following information, what would be recorded as purchases discount if the invoice is paid within the discount period?
1.$5,000 of merchandise inventory was ordered on April 2, 2010.
2.$2,000 of this merchandise was received on April 5, 2010.
3.On April 6, 2010, an invoice dated April 4, 2010, with terms of 2/10, net 30 for $2,150 which included a $150 prepaid freight cost, was received.
4.On April 10, 2010, $500 of the merchandise was returned to the seller.

a.$100
b.$30
c.$43
d.$33

B
In credit terms of 1/10, n/30, the “10” 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.
A
When purchases of merchandise are made for cash, the transaction
a. Increases Cash; decreases Merchandise Inventory.
b.increases Merchandise Inventory; decreases Cash.
c.increases Merchandise Inventory; decreases Cash Discounts.
d.Increases Merchandise Inventory; decreases Purchases.
B
When merchandise is purchased to resell to customers, it is recorded in the account entitled
a.Supplies.
b.Cost of Goods Sold.
c.Merchandise Inventory.
d.Sales.
C
Using a perpetual inventory system, the purchase of $30,000 of merchandise on account would include a(n)
a.increase in Sales.
b.increase in Merchandise Inventory.
c.decrease in Merchandise Inventory.
d.decrease in Sales.
B
Using a perpetual inventory system, the return of merchandise purchased on account includes a(n)
a.increase in Sales.
b.increase in Merchandise Inventory.
c.decrease in Merchandise Inventory.
d.decrease in Sales.
C
The amount of the total cash paid to the seller for merchandise purchased would normally include
a.only the list price.
b.only the sales tax.
c.the list price plus the sales tax.
d.the list price less the sales tax.
C
A sales invoice included the following information: merchandise price, $5,000; terms 1/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?
a.$4,656
b.$4,400
c.$4,356
d.$4,950
C
A sales invoice included the following information: merchandise price, $6,000; terms 2/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?
a.$5,880
b.$5,292
c.$5,586
d.$5,592
B
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $17,500. The seller issued a credit memorandum for $4,000 prior to payment. What is the amount of the cash discount allowable?
a.$215
b.$175
c.$135
d.$140
C
If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as
a.FOB shipping point.
b.FOB destination.
c.FOB n/30.
d.FOB buyer.
A
If the seller is to pay the delivery expense of delivering merchandise, the delivery terms are stated as
a.FOB shipping point.
b.FOB destination.
c.FOB n/30.
d.FOB seller.
B
If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
a.n/30.
b.FOB shipping point.
c.FOB destination.
d.consigned.
B
If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
a.consigned.
b.n/30.
c.FOB shipping point.
d.FOB destination.
D
Merchandise with an invoice price of $6,000 is purchased subject to terms of 2/10, n/30, FOB destination. Transportation costs paid by the seller totaled $125.

What is the net cost of the merchandise?
a.$6,125
b.$6,005
c.$5,880
d.$5,755

C
Which term indicates that merchandise is free of transportation charges to the buyer?
a.FOB destination
b.Transportation out
c.FOB shipping point
d.Transportation in
A
Inventory shortage is recorded when
a.merchandise is returned by a buyer.
b.merchandise purchased from a seller is incomplete or short.
c.merchandise is returned to a seller.
d.there is a difference between a physical count of inventory and inventory records.
D
Cash paid to purchase long-term investments would be reported in the statement of cash flows in
a.the cash flows from operating activities section.
b.The cash flows from financing activities section.
c.the cash flows from investing activities section.
d.a separate schedule.
C
Which of the following should be shown on a statement of cash flows under the financing activity section?
a.The purchase of a long-term investment in the common stock of another company
b.The payment of cash to retire a long-term note
c.The proceeds from the sale of a building
d.The issuance of a long-term note to acquire land
B
Under the indirect method for preparing the statement of cash flows, increases in current liabilities are __________ net income in the cash flows from operating activities section.
a.subtracted from
b.added to
c.not used when calculating
d.cannot tell from the information given
B
Which of the following would NOT affect the operating activities section of the statement of cash flows, using the indirect method?
a.Decrease in merchandise inventory
b.Payment on a note payable
c.Decrease in unearned rent
d.Depreciation expense
B
Using the indirect method for preparing the statement of cash flows, what is the net cash flow from operating activities if net income is $39,000; depreciation expense is $9,000; and the decrease in accounts payable is $5,000.
a.$48,000
b.$53,000
c.$35,000
d.$43,000
D
Under the indirect method for preparing the statement of cash flows, decreases in current assets are __________ net income in the cash flows from operating activities section.
a.subtracted from
b.added to
c.not used in calculating
d.cannot tell from the information given
B
A payment of dividends decreases which section on the statement of cash flows?
a.Operating activities
b.Investing activities
c.Financing activities
d.None of these
C
ONI, Inc. purchased $60,000 of equipment for cash. How does this transaction impact the statement of cash flows?
a.Decreases operating activities by $60,000
b.Decreases equipment by $60,000
c.Decreases the investing activities section by $60,000
d.This transaction would not affect the statement of cash flows.
C
Investing activities include
a.collecting cash on loans made.
b.obtaining cash from creditors.
c.obtaining capital from owners.
d.repaying money previously borrowed.
A

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