financial accounting, 1e - cleanfields.comcleanfields.com/downloads/sam1000/financial accounting 1e...

Financial Accounting, 1e Chapter 4: Accounting for a Merchandising Business

Test Item File 4.1-1 Wholesalers purchase large quantities of product from manufacturers and then sell the product to retailers.

Answer: True LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Reflective Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research

4.1-2 Retailers may buy goods from the manufacturer and then sell the goods to consumers.


4.1-3 A retailer sells goods to a wholesaler.

Answer: False LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Reflective Thinking AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research

4.1-4 Goods that a retailer sells to consumers are classified as inventory.


Copyright 2010 Pearson Education Inc. Publishing as Prentice Hall.

4.1-5 The predominate types of businesses in the United States are: A. merchandising businesses. B. manufacturing businesses. C. service businesses. D. wholesale businesses.

Answer: C LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research

4.1-6 Inventory for a merchandising business is classified as a(n): A. liability. B. revenue. C. part of stockholder’s equity. D. asset.

Answer: D LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research

4.1-7 The general public is referred to as: A. final consumers. B. service customers. C. retail customers. D. manufacturing customers.

Answer: A LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research


4.1-8 Which of the following would NOT be classified as a retailer? A. Amazon.com B. H & R Block C. Wal-Mart D. Target

Answer: B LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research

4.1-9 Which of the following would NOT be classified as a service business? A. Karl’s Lawn Mowing B. Ty’s Tax Preparation C. Paula’s Pet Walking D. Sheila’s Fashion Boutique Answer: D

LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research

4.1-10 Amazon.com, JCPenney.com, and Wal-Mart.com are examples of Internet: A. service businesses. B. manufacturing businesses. C. retail businesses. D. wholesalers.

Answer: C LO: 4-1 Difficulty: 1 EOC: End-of chapter Vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Research


4.2-1 Most businesses today use the periodic inventory method.

Answer: False LO: 4-2 Difficulty: 1 EOC: S4-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.2-2 Because of innovative and computerized methods of tracking inventory, most businesses today use the perpetual inventory method.

Answer: True LO: 4-2 Difficulty: 1 EOC: S4-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.2-3 In the perpetual inventory system, inventory is constantly updated through the inventory tracking system.


4.2-4 Under the perpetual inventory system, the need for a physical count of inventory is eliminated.


4.2-5 When the perpetual records do not equal the physical count of the inventory, the general ledger is updated with the differences.



4.2-6 The account in which inventory differences are shown is: A. Sales. B. Cost of Goods Sold. C. Inventory Expense. D. Revenue.

Answer: B LO: 4-2 Difficulty: 1 EOC: S4-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.2-7 A useful tool that updates inventory is the: A. cash register. B. bar code scanner. C. price tag on the merchandise. D. UPC number.


4.2-8 Physical inventory counts must be done: A. when using the periodic method of inventory. B. when using bar code scan technology. C. when using the perpetual method of inventory. D. regardless of method inventory.

Answer: D LO: 4-2 Difficulty: 1 EOC: S4-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.2-9 The Cost of Goods Sold account appears on the: A. balance sheet. B. statement of retained earnings. C. income statement. D. post-closing trial balance.

Answer: C LO: 4-2 Difficulty: 1 EOC: S4-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.2-10 The Inventory account appears on the: A. balance sheet. B. statement of retained earnings. C. income statement. D. list of liabilities.

Answer: A LO: 4-2 Difficulty: 1 EOC: S4-1 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.2-11 Under the periodic inventory method, the amount of inventory is: A. constantly updated. B. only known when a physical count is taken. C. adjusted after each sale. D. adjusted after each purchase.



4.2-12 The major difference in the statement of retained earnings between a service business and a merchandising business is: A. that the retained earnings statement of a service business includes Dividends. B. that the retained earnings statement of a merchandising business includes Dividends.

C. that the retained earnings statement of a merchandising business shows the Cost of Goods Sold.

D. nothing. There are no differences between the two.


4.3-1 A debit memorandum is a document that supports the return of goods to a customer.

Answer: False LO: 4-3 Difficulty: 1 EOC: End-of-chapter vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-2 The purchase of inventory affects both an asset and the stockholder’s equity account.


4.3-3 An invoice with the credit terms 3/10, n/30 means that the customer has 3 days to take a 10% discount off of the invoice total.



4.3-4 If an invoice shows a total of $4,000 with terms 2/10, n/30, the customer may pay $3,920 within 10 days to satisfy the bill.

Answer: True Calculation: $4,000 x .02 = $80; $4,000 - $80 - $3,920 LO: 4-3 Difficulty: 1 EOC: S4-3 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-5 Purchase returns reduce the amount of available inventory.

Answer: True LO: 4-3 Difficulty: 1 EOC: End-of-chapter vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-6 The name of the supplier (vendor) is listed in the: A. accounts payable subsidiary ledger. B. accounts payable total. C. liabilities ledger. D. inventory ledger.

Answer: A LO: 4-3 Difficulty: 1 EOC: End-of-chapter vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-7 If damaged goods are received by the merchandiser and are kept with a reduction in price, the account to be credited for the reduction in price under a perpetual inventory system is: A. inventory. B. accounts payable. C. discount. D. cash.



4.3-8 A company pays an invoice early and takes 4% off of the original invoice price. The account to be credited for this amount under a perpetual inventory system is: A. inventory. B. accounts payable. C. discount. D. cash.


4.3-9 Alpha Company received an invoice from Beta Company for $5,550 with terms of 3/10, n/45 on March 8. If Alpha pays the bill on March 15, they will credit inventory under a perpetual inventory system for: A. $ 0. B. $ 555.00 C. $ 166.50 D. $5550.00

Answer: C Calculation: $5,550 * 3% = $166.50 LO: 4-3 Difficulty: 1 EOC: S4-5 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-10 Meranda Corporation purchases $3,500 of inventory on account from Ashley Corporation. The journal entry to record this purchase for Meranda under a perpetual inventory system is: A. debit Inventory; credit cash. B. debit Accounts Payable-Ashley; credit Inventory. C. debit Inventory; credit Accounts Payable-Meranda. D. debit Inventory; credit Accounts Payable-Ashley.



4.3-11 ABC Corporation pays an invoice for $350 in time to take a 3% discount. The journal entry to record the payment of this invoice is: A. debit Accounts Payable $350; credit Cash $350. B. debit Accounts Payable $340; credit Cash $340. C. debit Accounts Payable $340, debit Inventory $10; credit Cash for $350. D. debit Accounts Payable $350; credit Inventory $10.50, credit Cash for $339.50.

Answer: D Calculation: $350 x .03 = $10.50; Accounts Payable $10.50 + $339.50 = $350; Cash is $350 - $10.50 = $339.50 LO: 4-3 Difficulty: 2 EOC: S4-5 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-12 ABC Corporation has received an invoice for $4500 with terms of 3/15, n/50. If ABC pays the invoice on the seventeenth day, the Cash account will be: A. credited for $4,500. B. credited for $4,365. C. debited for $4,365. D. credited for $ 135.


4.3-13 If an invoice reads n/15, it means that: A. the company has 15 days to pay the bill in full. B. the company has 15 days to take the discount. C. the company takes 15% off of the total of the invoice. D. the company pays 85% of the invoice.



4.3-14 If an invoice states 5/15, n/60, the 15 refers to: A. the percent that can be taken for the discount. B. the days in the discount period. C. the days in which to pay the bill in full. D. the percent of the bill that has to be paid in the discount period.


4.3-15 The amount of an invoice is $1000, with terms 2/10, n30. The amount to be paid within the discount period is: A. $1,000 B. $ 980 C. $ 900 D. $ 700

Answer: B Calculation: Discount = $1,000*2% = $20 LO: 4-3 Difficulty: 2 EOC: S4-7 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-16 Which of the following credit terms allows a discount of 3% if payment is made within 15 days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from the date of the invoice? A. 3/15, EOM B. 3/EOM, n/30 C. 3/15, n/30 D. 15/3, n/30



4.3-17 An invoice of $237.50 is dated April 2, terms 2/10, n/30. If the invoice is paid on April 9, the amount to be paid is: A. $ 4.75. B. $ 23.75. C. $232.75. D. $237.50.

Answer: C Calculation: $237.50 x .98 = $232.75 LO: 4-3 Difficulty: 2 EOC: S4-5 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-18 Tayler Corporation purchased merchandise from Brandon Corporation for cash. The journal entry for Tayler Corporation under a perpetual inventory system will be: A. debit Inventory; credit Cash. B. debit Cash; credit Inventory. C. debit Inventory; credit Accounts Payable-Brandon Corporation. D. debit Inventory; credit Accounts Receivable-Taylor Corporation.


4.3-19 A record to keep the amount owed to each supplier is called a(n): A. accounts receivable subsidiary ledger. B. accounts payable subsidiary ledger. C. transportation ledger. D. general ledger for accounts payable.



4.3-20 Discounts allowed for customers who pay their invoices early: A. reduce the cost of the purchased inventory. B. increase the cost of the purchased inventory. C. are called manufacturers’ discounts. D. are called allowances.


4.3-21 When merchandise is purchased on account under the perpetual inventory system, the journal entry is: A. debit Purchases and credit Accounts Payable. B. debit Accounts Payable and credit Inventory. C. debit Inventory and credit Accounts Payable. D. debit Accounts Payable and credit Purchases.


4.3-22 The inventory system that uses the merchandise inventory account as an asset account is called

the: A. periodic system. B. perpetual system. C. merchandising system. D. retailing system.



4.3-23 Casey Company purchases goods for resale from Tim Corporation. The amount of the purchase is $12,500 with terms of 3/10, n/30. Casey returns $500 of the goods. Under the perpetual inventory method, the journal entry to record the return is: A. debit Accounts Payable; credit Purchase Returns and Allowances. B. debit Purchase Returns and Allowances; credit Accounts Payable. C. debit Accounts Payable; credit Inventory. D. debit Accounts Payable; credit Purchase Discounts.


4.3-24 ABC Company returned $750 of goods it had purchased from another company. The original invoice was for $4,200, 3/10, n/30. What is the discount if ABC pays the balance within the discount period? A. $ 126.00 B. $ 103.50 C. $ 22.50 D. $ 0.00

Answer: B Calculation: ($4,200 – $750) x .03 = $103.50 LO: 4-3 Difficulty: 1 EOC: S4-6 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-25 A discount offered as an inducement for prompt payment of an invoice is called a(n): A. invoice discount. B. purchase discount. C. early discount. D. cash discount.



4.3-26 The discount period is determined by the: A. seller of the merchandise. B. purchaser of the merchandise. C. customer. D. amount of the invoice.


4.3-27 Journalize the following transactions using the perpetual inventory method. Aug. 6 Purchased $830 of inventory on account from Johnston with terms of 2/10, n/30. Aug. 8 Purchased $2,611 of inventory for cash from Pillner Company. Aug.15 Paid for August 6 purchase from Johnston. Aug. 17 Purchased $1,743 of merchandise on account from Luis Company with Terms of 3/15, n/45. Answer: Calculation for August 15: $830 x .02 = $16,60; $830 - $16.60 = $813.40

Date Description PR Debit Credit Aug. 6 Inventory $830.00 Accounts Payable - Johnston $830.00 Aug. 8 Inventory 2,611.00 Cash 2,611.00 Aug. 15 Accounts Payable - Johnston 830.00 Inventory 16.60 Cash 813.40 Aug. 17 Inventory 1,743.00 Accounts Payable - Luis Company 1,743.00

LO: 4-3 Difficulty: 2 EOC: E4-26B AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.3-28 Journalize the following transactions using the perpetual inventory method. Nov. 1 Purchased $3,600 of merchandise from Hilltop, terms 2/10, n/30. Nov. 5 Purchased $1,750 of merchandise for cash from Owen’s Supply. Nov. 7 Purchased $3,400 of merchandise from Seaside, terms 1/15, n/30. Nov. 10 Returned $500 of merchandise to Seaside. Credit Memo #131. Nov. 11 Paid the invoice from Hilltop. Answer: Calculation for November 11: $3,600 x .02 = $72; $3,600 - $72 = $3,528

Date Description PR Debit Credit Nov. 1 Inventory $3,600 Accounts Payable/Hilltop $3,600 Nov. 5 Inventory 1,750 Cash 1,750 Nov. 7 Inventory 3,400 Accounts Payable/Seaside 3,400 Nov. 10 Accounts Payable/Seaside 500 Inventory 500 Nov. 11 Accounts Payable/Hilltop 3,600 Inventory 72 Cash 3,528

LO: 4-3 Difficulty: 2 EOC: E4-26B AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.3-29 Purchases are entered into the asset account, Inventory, at: A. the time of purchase. B. the time of sale to consumers. C. the time of the inventory count. D. the end of the accounting period.



4.3-30 The document that supports the return of goods to the supplier is called a(n): A. cost of goods sold. B. sales returns and allowances. C. debit memorandum. D. credit memorandum.


4.3-31 Under the perpetual inventory method, the account to which purchased goods are recorded is: A. Purchases as a credit. B. Inventory as a debit. C. Cost of Goods Sold as a debit. D. Purchases as a debit.


4.4-1 Sales Discounts and Sales Returns and Allowances are contra-accounts of the Sales account.


4.4-2 Debit card and credit card sales are counted as cash transactions.



4.4-3 A debit memorandum acknowledges the receipt of returned goods from a customer.


4.4-4 The account Sales Returns and Allowances is debited when items are returned from a customer.


4.4-5 Cost of Goods Sold is the account that is matched with the Sales account to record the company’s cost of the inventory that was sold under a perpetual inventory system.


4.4-6 A customer purchased items on account from ABC Company. After a few days, the customer returned the goods. ABC will issue a: A. debit memorandum. B. return receipt. C. credit memorandum. D. refund check.



4.4-7 A list of credit customers is called a(n): A. accounts payable subsidiary ledger. B. general ledger. C. accounts receivable subsidiary ledger. D. general journal.

Answer: C LO: 4-4 Difficulty: 1 EOC: End-of-chapter vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.4-8 The account Sales Returns and Allowances: A. increases cost of goods sold. B. increases revenue. C. decreases cost of goods sold. D. has no effect on cost of goods sold.


4.4-9 The account in which the revenue earned from the sale of merchandise is entered is: A. Retained earnings. B. Sales. C. Cash. D. Inventory.



4.4-10 Which of the following accounts is NOT used to account for merchandise sales transactions? A. Accounts payable B. Accounts receivable C. Sales discounts D. Sales returns and allowances


4.4-11 Sara, a customer, purchased $500 of merchandise from Tammy’s store. Under the perpetual

inventory system, Tammy will record a: A. debit to Accounts Receivable or to Cash for $500. B. credit to Accounts Receivable or to Cash for $500. C. credit to Cost of Goods Sold for $500. D. debit to Sales for $500.


4.4-12 Merchandise returned by the customer for a cash refund is called a: A. sales return. B. sales allowance. C. debit memorandum. D. credit memorandum.



4.4-13 An entry that has more than one debit and/or credit is called a: A. double entry. B. compound entry. C. multiple-step entry. D. special entry.

Answer: B LO: 4-4 Difficulty: 1 EOC: E4-19A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.4-14 Under a perpetual inventory system, when goods are returned to the retailer from a customer: A. Cost of Goods Sold is debited; Sales Returns and Allowances is credited. B. Sales Returns and Allowances is debited; Cost of Goods Sold is credited. C. Sales is debited; Cost Goods Sold is credited. D. Inventory is debited; Sales is credited.


4.4-15 Tammy’s General Store has cash sales for the week of $5,000 and credit sales of $3,500. The account(s) to be debited for these transactions is/are: A. MasterCard sales; Visa sales; and cash. B. Cash; Accounts Receivable. C. Cash only. D. MasterCard sales; Visa sales.



4.4-16 Sales is a(n) ______________ account. A. asset B. liability C. revenue D. contra-


4.4-17 Sales Returns and Allowances appear on the: A. balance sheet. B. statement of retained earnings. C. income statement. D. income statement and balance sheet.


4.4-18 Jill buys $775 of merchandise on account from Toys Are Fun. Her customer terms are 3/10, n/45. The amount of her discount if she pays within the discount period is: A. $ 77.50. B. $ 23.25. C. $697.50. D. $ 0. 00

Answer: B Calculation: $775 x 0.03 = $23.25 LO: 4-4 Difficulty: 1 EOC: E4-19A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.4-19 Costs of Goods Sold includes which of the following? A. The actual cost of the item B. Administrative fees C. Management salaries D. Depreciation expense

Answer: A LO: 4-4 Difficulty: 1 EOC: E4-19A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.4-20 When a retailer sells merchandise on account, the general entry for the sale would be: A. debiting Accounts Receivable and crediting Sales. B. debiting Accounts Receivable and crediting Inventory. C. debiting Accounts Receivable and crediting Cost of Goods Sold. D. debiting Cost of Goods Sold and crediting Sales.


4.4-21 The entry to record the company’s cost of selling merchandise under a perpetual inventory system would be a: A. debit to Accounts Receivable and a credit to Sales. B. debit to Inventory and a credit to Cost of Goods Sold. C. debit to Cost of Goods Sold and a credit to Inventory. D. debit to Cost of Goods Sold and a credit to Sales.

Answer: C LO: 4-4 Difficulty: 1 EOC: E4-19A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.4-22 Cary, a customer of ABC Retail, returned $45 of goods that were purchased on account. Under the perpetual inventory system, ABC will record a:

A. debit to Sales Returns and Allowances and a credit to Accounts Receivable-Cary for $45. B. debit to Sales and a credit to Accounts Receivable-Cary for $45. C. debit to Cost of Goods Sold and a credit to Inventory for $45. D. debit to Sales and a credit to Cost of Goods Sold for $45.


4.4-23 Bill’s Bikes had sales for the week of $3,569, of which $2,900 was on credit and $659 in cash sales. The cost of the bikes sold was $1,888. The journal entries would include a: A. debit to Cost of Goods Sold for $1,888; credit to Inventory for $1,888. B. debit to Cash for $3569, credit to Sales for $3,569. C. debit to Cash for $3,569 and a credit to Cost of Goods Sold for $3,569. D. debit to Cost of Goods Sold for $1,888; credit to Sales of $1,888.


4.4-24 When a merchandiser sells on account, which of the following accounts is NOT needed to record the transaction? A. Cost of goods sold B. Accounts receivable C. Inventory D. Cash

Answer: D LO: 4-4 Difficulty: 2 EOC: E4-19A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.4-25 Journalize the following transactions for Jill Company using the perpetual inventory method. Jill Co. sold $3,500 of merchandise, costing $2,850 on account to Betty, terms 3/10, n/30 on June 8. Betty returned $350 of the merchandise, costing $190 to Jill Company for credit on her account on June 12. Betty paid her balance on June 16. Answer: Calculation for June 19: ($3,500 - $350) x .03 = $94.50; ($3,500 - $350 - $94.50) = $3,055.50 Date Description PR Debit Credit June 8 Accounts Receivable—Betty $3,500 Sales $3,500 Cost of Goods Sold 2,850 Inventory 2,850 June 12 Sales Returns and Allowances 350 Accounts Receivable—Betty 350 Inventory 190 Cost of Goods Sold 190 June 19 Cash 3,055.50 Sales Discounts 94.50 Accounts Receivable—Betty 3150

LO: 4-4 Difficulty: 2 EOC: E4-19A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.4-26 Journalize the following transactions using the perpetual inventory method. Sold merchandise to a customer for $9,000 cash on July 10. The cost of the goods is $5,650 Sold merchandise to Tammy on account for $8,000, terms 4/10, n/45 on July 11. The cost of the goods is $5,950. Tammy returned $375 of the goods purchased on account July 22 on July 20. The cost of the goods is $285. Tammy paid the balance on her bill on July 23. Answer: Date Description PR Debit Credit July 10 Cash $9,000 Sales $9,000 Cost of Goods Sold 5,650 Inventory 5,650 July 11 Accounts Receivable—Tammy 8,000 Sales 8,000 Cost of Goods Sold 5,950 Inventory 5,950 July 22 Sales Returns and Allowances 375 Accounts Receivable—Tammy 375 Inventory 285 Cost of Goods Sold 285 June 23 Cash 7625 Account Receivable--Tammy 7625



4.4-27 Net sales is computed by taking: A. Gross sales – Sales returns and allowances + Sales discounts. B. Gross sales – Sales returns and allowances – Sales discounts. C. Gross sales + Sales returns and allowances + Sales discounts. D. Gross sales – Cash received for sales. Answer: B


4.5-1 FOB destination means that title passes at the time of shipment of the product to the buyer from the seller.


4.5-2 FOB shipping means that title passes at the time the product is shipped from the seller.


4.5-3 A buyer debits the shipping charges that they pay for merchandise purchased to inventory.

Answer: True LO: 4-5 Difficulty: 1 EOC: E4-15A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.5-4 When a company sells goods to customers FOB destination, the company’s delivery expense account is credited for the cost of shipment.

Answer: False LO: 4-5 Difficulty: 1 EOC: E4-28B AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.5-5 Advertising and promotion are examples of selling expenses.


4.5-6 FOB means: A. freight on board. B. from our buyer. C. fee on board. D. free on board.

Answer: D LO: 4-5 Difficulty: 1 EOC: End-of-chapter vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.5-7 Freight charges that are paid by a buyer are: A. added to cost of goods sold. B. added to inventory. C. subtracted from inventory. D. subtracted from cost of goods sold.



4.5-8 Transferring title refers to a: A. change of ownership. B. change of buyer. C. change of seller. D. legal document.

Answer: A LO: 4-5 Difficulty: 1 EOC: End-of-chapter vocabulary AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.5-9 Depreciation is an example of a(n): A. inventory expense. B. asset expense. C. selling expense. D. delivery expense.


4.5-10 Which of the following indicates that the shipment is free on board and the buyer pays all of the shipping and freight costs? A. Cash on delivery B. FOB shipping point C. FOB destination D. 2/10, n/30

Answer: B LO: 4-5 Difficulty: 1 EOC: E4-28B AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.5-11 Which of the following indicates that the shipment is free on board and the seller pays all of the shipping and freight costs? A. Cash on delivery B. FOB shipping C. FOB destination D. 2/10, n/30

Answer: C LO: 4-5 Difficulty: 1 EOC: E4-28B AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.5-12 Under a perpetual inventory system, the account to which transportation charges on incoming

merchandise is generally entered is: A. inventory. B. FOB shipping. C. FOB destination. D. delivery expense.

Answer: A LO: 4-5 Difficulty: 2 EOC: E4-28B AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.5-13 When a company repays the seller for shipping costs on an FOB shipping transaction, which of

the following is true? A. A purchase discount can still be taken net of the prepaid shipping charges. B. A purchase discount can still be taken on the gross amount of the invoice. C. A purchase discount cannot be taken when shipping charges are prepaid. D. The shipping costs do not affect the invoice cost.

Answer: A LO: 4-5 Difficulty: 2 EOC: E4-28B AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.6-1 Most merchandising businesses prepare a single-step income statement.


4.6-2 Cost of goods sold is part of general and administrative expenses.


4.6-3 Net sales minus Cost of goods sold equals Gross profit.


4.6-4 Net income is generally referred to as the company’s “bottom line.”


4.6-5 The statement of retained earnings for a merchandiser is prepared differently than that of a service business.



4.6-6 Long-term assets on the balance sheet represent assets that will last longer than one operating cycle of the business.


4.6-7 On the balance sheet, assets are listed in alphabetical order.


4.6-8 Current assets are listed on the balance sheet in: A. alphabetical order. B. order of liquidity. C. ascending order of value. D. descending order of value.


4.6-9 Wages payable, income taxes payable and accounts payable are: A. long-term liabilities. B. long-term assets. C. short-term liabilities. D. short-term assets.



4.6-10 A 10-year note payable would be listed on the balance sheet as: A. a current liability only. B. a long-term liability only. C. partly a current liability with the balance listed as a long-term liability. D. a long-term asset.


4.6-11 The balance sheet format that lists assets above liabilities is the: A. account form. B. report form. C. alphabetical form. D. liquidity form.


4.6-12 Cash is listed as the first current asset because it is the account: A. with the most value. B. that is most liquid. C. that is most used. D. that is first alphabetically.



4.6-13 Land is an example of a: A. current asset. B. long-term asset. C. current liability. D. long-term liability.


4.6-14 In a balance sheet prepared in report form, liabilities must be listed after: A. assets in alphabetical order. B. assets with long-term liabilities listed first. C. assets with current liabilities listed first. D. stockholder’s equity.

Answer: C LO: 4-6 Difficulty: 2 EOC: E4-22A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.6-15 Given the following information, prepare a balance sheet for Isaiah’s Tool Shed for the year ending December 31, 2012. Cash $65,750 Retained Earnings $179,319Common Stock $35,000 Equipment $27,500Accounts Receivable $11,478 Accounts Payable $29,450Land $30,000 Inventory $78,311Prepaid Supplies $7,357 Income Taxes Payable $4,209Office Computers $11,345 Other PPE $31,446Accum. Depr. (all) $23,459 Prepaid Insurance $8,250 Answer:

Isaiah’s Tool Shed Balance Sheet

December 31, 2012 Assets Current Assets: Cash $65,750 Accounts Receivable 11,478 Inventory 78,311 Prepaid Insurance 8,250 Prepaid Supplies 7,357


Total Current Assets $171,146 Property, Plant and Equipment Land $30,000 Equipment 27,500 Office Computers 11,345 Other PPE 31,446 Accumulated Depreciation—all (23,459) Total PPE 76,832 TOTAL ASSETS $247,978 Liabilities Current Liabilities Accounts Payable $ 29,450 Income Taxes Payable 4,209 TOTAL LIABILITIES $ 33,659 Stockholder’s Equity Common Stock $ 35,000 Retained Earnings 179,319 TOTAL STOCKHOLDER’S EQUITY 214,319 TOTAL LIABILITIES AND STOCK. EQUITY $247,978

LO: 4-6 Difficulty: 2 EOC: P4-41A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.6-16 Given the following information, prepare a balance sheet for Brandon’s Campstore for the year ending December 31, 2012. Cash $38,745 Retained Earnings $171,309Common Stock $43,500 Equipment $37,200Accounts Receivable $14,109 Accounts Payable $26,351Land $35,000 Inventory $81,311Prepaid Supplies $9,003 Income Taxes Payable $5,284Office Computers $16,399 Other PPE $26,550Accum. Depr. (all)

$21,013 Prepaid Insurance $9,140

Answer:

Brandon’s Campstore Balance Sheet

December 31, 2012 Assets Current Assets: Cash $38,745 Accounts Receivable 14,109 Inventory 81,311 Prepaid Insurance 9,140 Prepaid Supplies 9,003 Total Current Assets $152,308 Property, Plant and Equipment Land $35,000 Equipment 37,200 Office Computers 16,399 Other PPE 26,550 Accumulated Depreciation—all (21,013) Total PPE 94,136 TOTAL ASSETS $246,444 Liabilities Current Liabilities Accounts Payable $ 26,351 Income Taxes Payable 5,284 TOTAL LIABILITIES $ 31,635 Stockholder’s Equity Common Stock $ 43,500 Retained Earnings 171,309 TOTAL STOCKHOLDER’S EQUITY 214,809 TOTAL LIABILITIES AND STOCK. EQUITY $246,444


LO: 4-6 Difficulty: 2 EOC: P4-41A AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.7-1 Gross profit percentage is computed by dividing net sales by cost of goods sold.


4.7-2 The current ratio is computed by dividing current liabilities by current assets.


4.7-3 If a company has $15,000 in current liabilities and $30,000 in current assets, the current ratio would be 2.


4.7-4 If a company had net sales of $56,000 and gross profit of $33,000, the gross profit percentage would be approximately 59%.



4.7-5 A current ratio of 0.80 means that for every $1 in current liabilities, the company has $0.80 in current assets to cover those current liabilities.


4.7-6 The dollars of gross profit means that the: A. company will subtract taxes from this number to arrive at net profit or net loss. B. company has this much money to pay for all other expenses, except taxes. C. company has this much money to pay for all other expenses, including taxes. D. this number is the same as net income.


4.7-7 A company has current assets of $35,600, total assets of $67,000 and current liabilities of $78,000. The company’s current ratio is approximately: A. 0.859. B. 2.191. C. 0.531. D. 0.456.

Answer: D Calculation: 35,600/78,000 = 0.456 LO: 4-7 Difficulty: 1 EOC: S4-13 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting


4.7-8 A company has total assets of $345,000; total liabilities of $278,000; current assets of $212,000 and current liabilities of $175,000. The company’s current ratio is approximately: A. 1.241 B. 0.507 C. 1.211 D. 0.825

Answer: C Calculation: $212,000/$175,000 = 1.211 LO: 4-7 Difficulty: 1 EOC: S4-13 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.7-9 A company has net sales of $56,700 and a cost of goods sold of $26,700. The company’s gross profit percentage is approximately: A. 52.9% B. 47.1% C. 89.0% D. 189%

Answer: A Calculation: ($56,700 – $26,700) / $56,700 = 52.9% LO: 4-7 Difficulty: 1 EOC: S4-13 AACSB: Analytic Skills AICPA Business Perspective Competencies: Strategic/Critical Thinking AICPA Functional Competencies: Measurement and Reporting

4.7-10 Which of the following current ratios would be considered the strongest ratio? A. 0.50 B. 0.75 C. 1.00 D. 1.50



4.7-11 Which of the following current ratios would be considered the worst ratio? A. 1.45 B. 1.11 C. 0.88 D. 0.50


4.7-12 A high gross profit percentage means: A. the cost of goods sold was relatively low. B. the cost of goods sold was relatively high. C. selling expenses are very low. D. general and administrative expenses are very high.


4.7-13 A low gross profit percentage means that: A. the cost of goods sold was relatively low. B. the cost of goods sold was relatively high. C. selling expenses are very low. D. general and administrative expenses are very high.



4.7-14 If current assets decrease and current liabilities increase, the current ratio: A. remains the same. B. decreases. C. increases. D. will change based upon the change in total assets.


4.7-15 If total assets go down and total liabilities go up, the current ratio: A. remains the same. B. decreases. C. increases. D. cannot be determined from the information given.


4.7-16 A company’s current ratio increased from 1.23 to 1.45. What does this mean? A. This means that current assets increased and current liabilities decreased. B. This means that current assets increased and current liabilities increased. C. This means that current assets decreased and current liabilities decreased. D. There is not enough information to explain the increase.




4.7-17 A company’s gross profit percentage decreases from 58% to 51%. What does this mean? A. This means that net income will be higher. B. This means that net income will be lower. C. This means that there will be a net loss. D. We cannot determine anything definite from the information given.


financial accounting, 1e - cleanfields.comcleanfields.com/downloads/sam1000/financial accounting 1e...

Documents