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Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited during the closing process.

A) True
B) False

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Beginning inventory plus net purchases equals merchandise available for sale.

A) True
B) False

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A company reported the following information for the month of July:  Sales $50,475 Sales discounts 1,23 Sales returns and allowances 2,840 Cost of goods sold 33,975\begin{array} { | l | r | } \hline \text { Sales } & \$ 50,475 \\\hline \text { Sales discounts } & 1,23 \\\hline \text { Sales returns and allowances } & 2,840 \\\hline \text { Cost of goods sold } & 33,975 \\\hline\end{array} Required: Calculate this company's gross profit.

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Multiple-step income statements:


A) Are required by the FASB and IASB.
B) Contain more detail than a simple listing of revenues and expenses.
C) Are required for the periodic inventory system.
D) List cost of goods sold as an operating expense.
E) Are only used in perpetual inventory systems.

F) A) and D)
G) A) and C)

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A company purchased $10,000 of merchandise on January 5 with terms 2/10,n/30.On January 7,it returned $1,200 worth of merchandise.On January 28,it paid the full amount due.Assuming the company uses a perpetual inventory system,and records purchases using the gross method,the correct journal entry to record the payment on January 28 is:


A) Debit Merchandise Inventory $8,800; credit Cash $8,800.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $10,000; credit Merchandise Inventory $200; credit Cash $9,800
D) Debit Accounts Payable $8,800; credit Cash $8,800.
E) Debit Accounts Payable $8,624; credit Cash $8,624.

F) A) and B)
G) A) and C)

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Describe the difference(s)between the periodic and the perpetual inventory accounting systems.

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Under a perpetual system each purchase,p...

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A company purchased $1,800 of merchandise on July 5 with terms 2/10,n/30.On July 7,it returned $200 worth of merchandise.On July 8,it paid the full amount due.The amount of the cash paid on July 8 equals:


A) $200.
B) $1,564.
C) $1,568.
D) $1,600.
E) $1,800.

F) All of the above
G) B) and C)

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Morgan,Inc.uses a perpetual inventory system and the net method of recording purchases.On May 12,a merchandise purchase of $15,000 was made on credit,2/10,n/30.The journal entry to record this purchase is:


A)  Merchandise Inventory 15,000 Accounts Payable 15,000\begin{array}{|l|r|r|}\hline \text { Merchandise Inventory } & 15,000 & \\\hline \text { Accounts Payable } & & 15,000 \\\hline\end{array}
B)  Accounts Payable 15,000 Merchandise Inventory 15,000\begin{array}{|l|r|l|}\hline \text { Accounts Payable } & 15,000 & \\\hline \text { Merchandise Inventory } & & 15,000 \\\hline\end{array}
C)  Purchases 15,000 Accounts Payable 15,000\begin{array}{|l|r|r|}\hline \text { Purchases } & 15,000 & \\\hline \text { Accounts Payable } & & 15,000 \\\hline\end{array}
D)  Purchases 14,700 Accounts Payable 14,700\begin{array}{|l|r|r|}\hline \text { Purchases } & 14,700 & \\\hline \text { Accounts Payable } & & 14,700 \\\hline\end{array}
E)  Merchandise Inventory 14,700 Accounts Payable 14,700\begin{array}{|l|r|r|}\hline \text { Merchandise Inventory } & 14,700 & \\\hline \text { Accounts Payable } & & 14,700 \\\hline\end{array}

F) B) and E)
G) A) and B)

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FOB ________ means ownership of goods transfers to the buyer when the goods arrive at the buyer's place of business.The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit.

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Prepare journal entries to record the following merchandising transactions of Margin Company,which applies the perpetual inventory system and the gross method of recording invoices.Margin Company offers all of its credit customers credit terms of 2/10,n/30. Prepare journal entries to record the following merchandising transactions of Margin Company,which applies the perpetual inventory system and the gross method of recording invoices.Margin Company offers all of its credit customers credit terms of 2/10,n/30.

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Under the ________ inventory accounting system,each purchase,purchase return and allowance,purchase discount,and transportation-in transaction is recorded in a separate temporary account.

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In a perpetual inventory system,Cost of Goods Sold is debited during the closing process.

A) True
B) False

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The gross margin ratio is also called the gross profit ratio.

A) True
B) False

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On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Johnson uses the periodic inventory system and the net method of accounting for purchases.Johnson pays the invoice on September 18,and takes the appropriate discount.The journal entry that Johnson makes on September 18 is:


A)  Purchases 5,684 Cash 5,684\begin{array} { | l | r | r | } \hline \text { Purchases } & 5,684 & \\\hline \text { Cash } & & 5,684 \\\hline\end{array}
B)  Accounts payable 4,000 Merchandise inventory 80 Cash 3,920\begin{array}{|l|r|r|}\hline \text { Accounts payable } & 4,000 & \\\hline \text { Merchandise inventory } & & 80 \\\hline \text { Cash } & & 3,920 \\\hline\end{array}
C)  Accounts payable 5,800 Purchases discounts 116 Cash 5,684\begin{array}{|l|r|r|}\hline \text { Accounts payable } & 5,800 & \\\hline \text { Purchases discounts } & & 116 \\\hline \text { Cash } & & 5,684 \\\hline\end{array}
D)  Accounts payable 5,684 Cash 5,684\begin{array}{|l|r|r|}\hline \text { Accounts payable } & 5,684 & \\\hline \text { Cash } & & 5,684 \\\hline\end{array}
E)  Cash 5,684 Purchases discounts 116 Accounts payable 5,800\begin{array}{|l|r|r|}\hline \text { Cash } & 5,684 & \\\hline \text { Purchases discounts } & 116 & \\\hline \text { Accounts payable } & & 5,800 \\\hline\end{array}

F) A) and B)
G) A) and D)

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A company purchased $1,800 of merchandise on July 5 with terms 2/10,n/30.On July 7,it returned $200 worth of merchandise.On July 8,it paid the full amount due.Assuming the company uses the gross method to record purchases,the journal entry to record the cash paid on July 8 is:


A) Debit Accounts Payable,$1,800; Credit Merchandise Inventory,$36; Credit Cash,$1,764.
B) Debit Accounts Payable,$1,568; Credit Cash,$1,568.
C) Debit Accounts Payable,$1,600; Credit Merchandise Inventory,$32; Credit Cash,$1,568.
D) Debit Accounts Payable,$1,568; Debit Merchandise Inventory,$32; Credit Cash,$1,600.
E) Debit Accounts Payable,$1,600; Credit Cash,$1,600.

F) C) and D)
G) B) and D)

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A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases FOB shipping point in the Merchandise Inventory account.

A) True
B) False

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Which of the following accounts would be closed at the end of the accounting period with a debit?


A) Sales Discounts.
B) Sales Returns and Allowances.
C) Cost of Goods Sold.
D) Operating Expenses.
E) Sales.

F) A) and E)
G) A) and C)

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An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:


A) Sales discounts.
B) Trade discounts.
C) Purchases discounts.
D) Discounts lost.
E) Discounts earned.

F) A) and C)
G) A) and E)

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Distinguish between selling expenses and general and administrative expenses.

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Selling expenses include the expenses of...

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Either the gross method or net method may be used to record sales with cash discounts,but the gross method requires a period-end adjusting entry to estimate expected future sales discounts taken.

A) True
B) False

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