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ACCT 2810 – Chapter 4

Which of the following businesses is a merchandising business?
Kohl’s
Gross profit is determined by subtracting the cost of merchandise sold from what?*
Net sales
Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet?*
As a current asset
Generally, the revenue account for a merchandising business is entitled*
Sales.
The difference between sales and cost of merchandise sold for a merchan- dising business is *
gross profit.
What is subtracted from sales to arrive at net sales?*
Both sales discounts and sales returns and allowances
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?*
$30,000
Which expenses are subtracted from gross profit to arrive at income from operations?*
Operating expenses
Which of the following is NOT an example of selling expenses?*
Office staff salaries
Which of the following is NOT an administrative expense?*
Salespersons’ salaries
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?*
$17,000
For a merchandising firm, the inventory sold is shown on the income statement as?*
cost of merchandise sold.
Inventory NOT sold at the end of the period is reported as*
merchandise inventory.
Which of the following are subtracted from sales to arrive at net sales?*
Sales returns
Gross profit is equal to:*
sales less (sales discounts and sales returns and allowances) less cost of merchan- dise sold.
The arrangements between buyer and seller as to when payments for merchandise are to be made are called*
credit terms.
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?*
$400
In credit terms of 1/10, n/30, the “1” represents the
percent of the cash discount.
Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a(n):*
increase in Cash, increase in Credit Card Expense, and increase in Sales
In recording the cost of merchandise sold for cash using a perpetual inventory system, the effect on the accounts is*
increase Cost of Merchandise Sold; decrease Merchandise Inventory.
When merchandise that was sold on account is returned, which accounts are affected?*
Sales returns, accounts receivable, merchandise inventory, and cost of goods sold
If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a
credit memorandum.
Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $20,000. The seller issued a credit memorandum for $5,000 prior to payment. What is the amount of the cash discount allowable?*
$150
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.*

$30
In credit terms of 1/10, n/30, the “10” represents the
number of days in the discount period.
Under the perpetual inventory system, a retailer’s purchase of merchandise inventory:*
increases Merchandise Inventory; decreases Cash.
The amount of the total cash paid to the seller for merchandise purchased would normally include:*
the list price plus the sales tax.
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?*
$4,356
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?*
$5,292
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?*
$135
If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as*
FOB shipping point.
If the seller is to pay the delivery expense of delivering merchandise, the delivery terms are stated as*
FOB destination.
If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are*
FOB shipping point.
If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are*
FOB destination.
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?*
$5,880
Which term indicates that merchandise is free of transportation charges to the buyer?
FOB destination
Inventory shortage is recorded when:*
there is a difference between a physical count of inventory and inventory records.

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