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Devry NY ACCT 504 Week 4, Midterm Exam 4

1. Merchandising businesses that sell to retailers are known as:
a. brokers
b. companies
c. wholesalers
d. service firms.
2. Which of the following companies would be most likely to use a perpetual inventory system?
a. grain company
b. supermarket
c. clothing store
d. jewellery dealer
3. A merchandiser that sells directly to consumers is a:
a. retailer
b. wholesaler
c. broker
d. service enterprise.
4. Two categories of expenses in all merchandising companies are:
a. cost of goods sold and financing expenses
b. operating expenses and sales
c. cost of goods sold and operating expenses
d. sales and cost of goods sold.
5. The primary source of revenue for a wholesaler is:
a. investment income
b. service revenue
c. the sale of merchandise
d. the sale of plant assets the company owns.
6. The operating cycle of a merchandising company is:
a. always one year in length
b. ordinarily longer than that of a service company
c. about the same as that of a service company
d. ordinarily shorter than that of a service company.
7. Sales revenue less cost of goods sold is called:
a. gross profit
b. net profit (loss)
c. operating expense
d. net sales.
8. After gross profit is calculated, operating expenses are deducted to determine:
a. gross margin
b. net profit (loss)
c. gross profit on sales
d. sales margin.
9. A perpetual inventory system would most likely be used by a:
a. motor vehicle dealership
b. hardware store
c. juice bar
d. supermarket.
10. The primary difference between a periodic and perpetual inventory system is that a periodic system:
a. keeps a record showing the inventory on hand at all times
b. provides better control over inventories
c. records the cost of the sale on the date the sale is made
d. determines the inventory on hand only at the end of the accounting period.
11. Under a perpetual inventory system, which of the following accounts would be used to record purchases?
a. Sales
b. Invoices
c. Cost of Goods Sold
d. Inventory
12. Under a perpetual inventory system, acquisition of merchandise for resale is debited to:
a. the Inventory account
b. the Sales account
c. the Supplies account
d. the Cost of Goods Sold account.
13. A company using a perpetual inventory system that returns goods previously purchased on credit would:
a. debit Accounts Payable and credit Inventory
b. debit Sales and credit Accounts Payable
c. debit Cash and credit Accounts Payable
d. debit Inventory and credit Accounts Payable.
14. Freight costs incurred by a seller on merchandise sold to customers will cause an increase:
a. in the selling expenses of the buyer
b. in operating expenses for the seller
c. to the cost of goods sold of the seller
d. to a discount received account of the seller.
15. Hunter Company purchased inventory with an invoice price of $4,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Hunter Company pays within the discount period?
a. $4,000
b. $3,920
c. $3,600
d. $3,680
16. Sales revenues are usually considered earned when:
a. cash is received from credit sales
b. an order is received
c. goods are transferred from the seller to the buyer
d. goods are invoiced to the customer.
17. Sales revenue:
a. may be recorded before cash is collected
b. will always equal cash collections in a month
c. only results from credit sales
d. is only recorded after cash is collected.
18. The journal entry to record a credit sale is:
a. Cash
Sales
b. Cash
Service Revenue
c. Accounts Receivable
Cost of goods sold
d. Accounts Receivable
Sales
19. When sales of merchandise are made for cash, the transaction should be recorded by the following entry:
a. debit Sales, credit Cash
b. debit Cash, credit Sales
c. debit Sales, credit Cash Discounts
d. debit Sales, credit Sales Returns and Allowances.
20. A sales invoice is prepared when goods:
a. are sold for cash
b. are sold on credit
c. sold on credit are returned
d. are faulty and written-down.
21. The Sales Returns and Allowances account is classified as a(n):
a. asset account
b. contra asset account
c. expense account
d. contra revenue account.
22. As an incentive for customers to pay their accounts promptly, a business may offer its customers:
a. a cash discount
b. a trade discount
c. a sales allowance
d. a sales return.
23. The credit terms offered to a customer by a business firm are 2/10, n/30, which means:
a. the customer must pay the bill within 10 days
b. the customer can deduct a 2% discount if the bill is paid between the 10th and 30th day from the invoice date
c. the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date
d. two sales returns can be made within 10 days of the invoice date and no returns thereafter.
24. Gross profit equals the difference between sales and:
a. operating expenses
b. cost of goods sold
c. net profit
d. cost of goods sold plus operating expenses.
25. Expenses that are associated with sales are classified as:
a. financial expenses
b. other expenses
c. selling expenses
d. administrative expenses.
26. Interest expense would be classified on an income statement under the heading:
a. Other expenses
b. Financial expenses
c. Selling expenses
d. Cost of goods sold.
Section “Income Statement Presentation” – Financial expenses are those associated with the financing of the firm’s operations and debt collection.
Use the following information to answer questions 27 through 28
Financial information is presented below:
Operating expenses $ 45,000
Sales returns and allowances 13,000
Cash discount 6,000
Sales 150,000
Costs of goods sold 77,000
27. The amount of net sales on the statement of financial performance would be:
a. $131,000
b. $137,000
c. $144,000
d. $150,000.
$150,000 - $13,000= $137,000
28. Gross profit would be:
a. $60,000
b. $54,000
c. $76,000
d. $73,000.
($150,000 - $13,000 - $77,000 = $60,000)
29. The gross profit ratio is computed by dividing gross profit by:
a. financial expenses
b. cost of goods sold
c. net sales
d. operating expenses.
30. The operating expenses to sales ratio is computed by dividing:
a. operating expenses by gross profit
b. operating expenses by selling expenses
c. operating expenses by net sales
d. sales by operating expenses.
31. Z sold goods to X on credit at a price of $4,400 including GST. What is the correct accounting entry to record this transaction in Z’s books?
a. Debit Accounts Receivable $4,400, credit Sales $4,400
b. Debit Accounts Receivable $4,000, credit Sales $4,000
c. Debit Accounts Receivable $4,000, debit GST Collections $400; credit Sales $4,400
d. Debit Accounts Receivable $4,400; credit Sales $4,000, credit GST Collections $400
32. Under the perpetual inventory system what is the correct entry for the credit purchase of 10 electric guitars at $250 per guitar plus GST of $25 each.
a. Debit Inventory $2,750; credit accounts payable $2,500, credit GST $250
b. Debit Inventory $2,500, debit GST $250; credit Accounts Payable $2,750
c. Debit Inventory $2,750; credit Accounts Payable $2,750
d. Debit Accounts Payable $2,750; credit Inventory $2,500, credit GST $250
33. Consumers are not required to pay goods and services tax on the following item.
a. luxury motor vehicles
b. imported textiles
c. commercial rents
d. basic foods



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