Test I
TRUE-FALSE STATEMENTS
1. T- Retailers and wholesalers are both considered merchandisers.
2. F- The steps in the accounting cycle are different for a merchandising company than for a service company.
3. F- Sales minus operating expenses equals gross profit.
4. T- Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.
5. F- A periodic inventory system requires a detailed inventory record of inventory items.
6. T- Freight terms of FOB Destination means that the seller pays the freight costs.
7. T- Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.
8. F- Sales revenues are earned during the period cash is collected from the buyer.
9. F- The Sales Returns and Allowances account and the Sales Discount account are both classified as expense
accounts
10. T- The revenue recognition principle applies to merchandisers by recognizing sales revenues when they are
earned.
11. F- Sales Allowances and Sales Discounts are both designed to encourage customers to pay their accounts
promptly.
12. F- To grant a customer a sales return, the seller credits Sales Returns and Allowances.
13. T- A company's unadjusted balance in Merchandise Inventory will usually not agree with the actual amount of
inventory on hand at year-end.
14. T- For a merchandising company, all accounts that affect the determination of income are closed to the Income
Summary account.
15. F- A merchandising company has different types of adjusting entries than a service company.
16. F- Nonoperating activities exclude revenues and expenses that result from secondary or auxiliary operations.
17. F- Selling expenses relate to general operating activities such as personnel management.
18. T- Net sales appears on both the multiple-step and single-step forms of an income statement.
19. T- A multiple-step income statement provides users with more information about a company’s income
performance.
20. F- The multiple-step form of income statement is easier to read than the single-step form.
TEST II
Use the following information for questions 123–125.
During 2008, Salon Enterprises generated revenues of $60,000. The company’s expenses were as follows: cost of goods
sold of $30,000, operating expenses of $12,000 and a loss on the sale of equipment of $2,000.
123. Salon’s gross profit is
a. $60,000.
b. $30,000.
c. $18,000.
d. $16,000
124. Salon’s income from operations is
a. $60,000.
b. $30,000.
c. $18,000.
d. $12,000.
125. Salon’s net income is
a. $60,000.
b. $30,000.
c. $18,000.
d. $16,000.
Use the following information for questions 126–127.
Financial information is presented below:
Operating Expenses $ 45,000
Sales 150,000
Cost of Goods Sold 77,000
126. Gross profit would be
a. $105,000.
b. $28,000.
c. $73,000.
d. $150,000.
127. The gross profit rate would be
a. .700.
b. .187.
c. .300.
d. .487.
Use the following information for questions 128–129.
Financial information is presented below:
Operating Expenses $ 45,000
Sales Returns and Allowances 13,000
Sales Discounts 6,000
Sales 150,000
Cost of Goods Sold 67,000
128. Gross profit would be
a. $77,000.
b. $64,000.
c. $70,000.
d. $83,000.
129. The gross profit rate would be
a. .535.
b. .489.
c. .511.
d. .553.
Use the following information for questions 130–132.
Financial information is presented below:
Operating Expenses $ 45,000
Sales Returns and Allowances 13,000
Sales Discounts 6,000
Sales 160,000
Cost of Goods Sold 77,000
130. The amount of net sales on the income statement would be
a. $154,000.
b. $141,000.
c. $160,000.
d. $166,000.
131. Gross profit would be
a. $77,000.
b. $70,000.
c. $64,000.
d. $83,000.
132. The gross profit rate would be
a. .454.
b. .546.
c. .500.
d. .538.
133. If a company has sales of $420,000, net sales of $400,000, and cost of goods sold of $260,000, the gross profit
rate is
a. 67%.
b. 65%
c. 35%.
d. 33%.
134. Ingrid’s Fashions sold merchandise for $38,000 cash during the month of July. Returns that month totaled
$800. If the company’s gross profit rate is 40%, Ingrid’s will report monthly net sales revenue and cost of goods
sold of
a. $38,000 and $22,800.
b. $37,200 and $14,880.
c. $37,200 and $22,320.
d. $38,000 and $22,320.
Use the following information for questions 135–138.
During August, 2008, Sal’s Supply Store generated revenues of $30,000. The company’s expenses were as follows: cost
of goods sold of $12,000 and operating expenses of $2,000. The company also had rent revenue of $500 and a gain on
the sale of a delivery truck of $1,000.
135. Sal’s gross profit for August, 2008 is
a. $30,000.
b. $19,000.
c. $18,000.
d. $16,000.
136. Sal’s nonoperating income (loss) for the month of August, 2008 is
a. $0.
b. $500.
c. $1,000.
d. $1,500.
137. Sal’s operating income for the month of August, 2008 is
a. $30,000.
b. $19,500.
c. $18,500.
d. $16,000.
138. Sal’s net income for August, 2008 is
a. $18,000.
b. $17,500.
c. $16,500.
d. $16,000.
139. At the beginning of September, 2008, RFI Company reported Merchandise Inventory of $4,000. During the
month, the company made purchases of $7,800. At September 31, 2008, a physical count of inventory reported
$3,200 on hand. Cost of goods sold for the month is
a. $600.
b. $7,800.
c. $8,600.
d. $11,800.
140. At the beginning of the year, Midtown Athletic had an inventory of $400,000. During the year, the company
purchased goods costing $1,600,000. If Midtown Athletic reported ending inventory of $600,000 and sales of
$2,000,000, the company’s cost of goods sold and gross profit rate must be
a. $1,000,000 and 50%.
b. $1,400,000 and 30%.
c. $1,000,000 and 30%.
d. $1,400,000 and 70%.
141. During the year, Darla’s Pet Shop’s merchandise inventory decreased by $20,000. If the company’s cost of
goods sold for the year was $300,000, purchases must have been
a. $320,000.
b. $280,000.
c. $260,000.
d. Unable to determine.
