MERCHANDISING – REVIEWER 2

1. Gross profit will result if:

A. operating expenses are less than net income.
B. sales revenues are greater than operating expenses.
C. sales revenues are greater than cost of goods sold.
D. operating expenses are greater than cost of goods sold.

2. Under a perpetual inventory system, when goods are purchased for resale by a
company:
A. purchases on account are debited to Inventory.
B. Purchases on account are debited to Purchases.
C. Purchase returns are debited to Purchase Returns and Allowances.
D. freight costs are debited to Freight-Out.

3. The sales accounts that normally have a debit balance are:

A. Sales Discounts.
B. Sales Returns and Allowances.
C. Both (A) and (B).
D. Neither (A) nor (B).

4. A credit sale of P750 is made on June 13, terms 2/10, net/30. A return of P50 is
granted on June 16. The amount received as payment in full on June 23 is:
A. P700.
B. P686.
C. P685.
D. P650.

5. Which of the following accounts will normally appear in the ledger of a

merchandising company that uses a perpetual inventory system?
A. Purchases.
B. Freight-In.
C. Cost of Goods Sold.
D. Purchase Discounts.

6. To record the sale of goods for cash in a perpetual inventory system:

A. only one journal entry is necessary to record cost of goods sold and reduction
of inventory.
B. only one journal entry is necessary to record the receipt of cash and the sales
revenue.
C. two journal entries are necessary: one to record the receipt of cash and sales
revenue, and one to record the cost of goods sold and reduction of inventory.
D. two journal entries are necessary: one to record the receipt of cash and
reduction of inventory, and one to record the cost of goods sold and sales
revenue.
 7. The steps in the accounting cycle for a merchandising company are the same as
those in a service company except:
A. an additional adjusting journal entry for inventory may be needed in a
merchandising company.
B. closing journal entries are not required for a merchandising company.
C. a post-closing trial balance is not required for a merchandising company.
D. a multiple-step income statement is required for a merchandising company.

8. The multiple-step income statement for a merchandising company shows each of

the following features except:
A. gross profit.
B. cost of goods sold.
C. a sales section.
D. an investing activities section.

9. If sales revenues are P400,000, cost of goods sold is P310,000, and operating
expenses are p60,000, the gross profit is:
A. P30,000.
B. P90,000.
C. P340,000.
D. P400,000.

10. A single-step income statement:

A. reports gross profit.
B. does not report cost of goods sold.
C. reports sales revenue and “Other revenues and gains” in the revenues section
of the income statement.
D. reports operating income separately.

11. Which of the following appears on both a single-step and a multiple-step income
statement?
A. Inventory.
B. Gross profit.
C. Income from operations.
D. Cost of goods sold.

12. In a worksheet using a perpetual inventory system, Inventory is shown in the

following columns:
A. adjusted trial balance debit and balance sheet debit.
B. income statement debit and balance sheet debit.
C. income statement credit and balance sheet debit.
D. income statement credit and adjusted trial balance debit.




13. In determining cost of goods sold in a periodic system:
A. purchase discounts are deducted from net purchases.
B. freight-out is added to net purchases.
C. purchase returns and allowances are deducted from net purchases.
D. freight-in is added to net purchases.

14. If beginning inventory is P60,000, cost of goods purchased is P380,000, and

ending inventory is P50,000, cost of goods sold is:
A. P390,000.
B. P370,000.
C. P330,000.
D. P420,000.

15. When goods are purchased for resale by a company using a periodic inventory
system:
A. purchases on account are debited to Inventory.
B. purchases on account are debited to Purchases.
C. purchase returns are debited to Purchase Returns and Allowances.
D. freight costs are debited to Purchases.

Answers & Explanations

1. (c) Gross profit will result if sales revenues are greater than cost of goods sold.
The other choices are incorrect because (a) operating expenses and net income are
not used in the computation of gross profit; (b) gross profit results when sales
revenues are greater than cost of goods sold, not operating expenses; and (d) gross
profit results when sales revenues, not operating expenses, are greater than cost of
goods sold.

2. (a) Under a perpetual inventory system, when a company purchases goods for
resale, purchases on account are debited to the Inventory account, not (b)
Purchases or (c) Purchase Returns and Allowances. Choice (d) is incorrect
because freight costs are also debited to the Inventory account, not the Freight-
Out account.

3. (c) Both Sales Discounts and Sales Returns and Allowances normally have a debit
balance. Choices (a) and (b) are both correct, but (c) is the better answer. Choice
(d) is incorrect as both (a) and (b) are correct.

4. (b) The full amount of P686 is paid within 10 days of the purchase (P750 - $50) -
[(P750 - P50) x 2%]. The other choices are incorrect because (a) does not
consider the discount of P14; (c) the amount of the discount is based upon the
amount after the return is granted (P700 x 2%), not the amount before the return
of merchandise (P750 x 2%); and (d) does not constitute payment in full on June
23.
5. (c) The Cost of Goods Sold account normally appears in the ledger of a
merchandising company using a perpetual inventory system. The other choices
are incorrect because (a) the Purchases account, (b) the Freight-In account, and
(d) the Purchase Discounts account all appear in the ledger of a merchandising
company that uses a periodic inventory system.

6. (c) Two journal entries are necessary: one to record the receipt of cash and sales
revenue, and one to record the cost of goods sold and reduction of inventory. The
other choices are incorrect because (a) only considers the recognition of the
expense and ignores the revenue, (b) only considers the recognition of revenue
and leaves out the expense or cost of merchandise sold, and (d) the receipt of cash
and sales revenue, not reduction of inventory, are paired together, and the cost of
goods sold and reduction of inventory, not sales revenue, are paired together.

7. (a) An additional adjusting journal entry for inventory may be needed in a

merchandising company to adjust for a physical inventory count, but it is not
needed for a service company. The other choices are incorrect because (b) closing
journal entries and (c) a post-closing trial balance are required for both types of
companies, Choice (d) is incorrect because while a multiple-step income
statement is not required for a merchandising company, it is useful to distinguish
income generated from operating the business versus income or loss from
nonrecurring, non-operating items.

8. (d) An investing activities section appears on the statement of cash flows, not on a
multiple-step income statement. Choices (a) gross profit, (b) cost of goods sold,
and (c) a sales section are all features of a multiple-step income statement.

9. (b) Gross profit = Sales revenue (P400,000) - Cost of goods sold (P310,000) =
P90,000, not (a) P30,000, (c) P340,000, or (d) p400,000.

10. (c) Both sales revenue and “Other revenues and gains” are reported in the
revenues section of a single-step income statement. The other choices are
incorrect because (a) gross profit is not reported on a single-step income
statement, (b) cost of goods sold is included in the expenses section of a single-
step income statement, and (d) income from operations is not shown separately on
a single-step income statement.

11. (d) Cost of goods sold appears on both a single-step and a multiple-step income
statement. The other choices are incorrect because (a) inventory does not appear
on either a single-step or a multiple-step income statement and (b) gross profit
and (c) income from operations appear on a multiple-step income statement but
not on a single-step income statement.

12. (a) In a worksheet using a perpetual inventory system, inventory is shown in the
adjusted trial balance debit column and in the balance sheet debit column. The
other choices are incorrect because the Inventory account is not shown in the
 income statement columns.

13. (d) In determining cost of goods sold in a periodic system, freight-in is added to
net purchases. The other choices are incorrect because (a) purchase discounts are
deducted from purchases, not net purchases; (b) freight-out is a cost of sales, not a
cost of purchases; and (c) purchase returns and allowances are deducted from
purchases, not net purchases.

14. (a) Beginning inventory (P60,000) + Cost of goods purchased (P380,000) -

Ending inventory (P50,000) = Cost of goods sold (P390,000), not (b) P370,000,
(c) P330,000, or (d) P420,000.

15. (b) Purchases for resale are debited to the Purchases account. The other choices
are incorrect because (a) purchases on account are debited to Purchases, not
Inventory; (c) Purchase Returns and Allowances are always credited; and (d)
freight costs are debited to Freight-In, not Purchases.