6.

Merchandise inventory
Describe merchandising, and identify and explain the important income statement and A. Can include supplies D. Is a type of long-term investment
balance sheet components for a merchandising company. B. Is a capital asset E. Is an expense
Merchandising Activities C. Is a current asset
1. A merchandising company 

A. Earns profit from buying and selling merchandise Operating Cycle
B. Buys products from manufacturers and sells to retailer 7. The operating cycle of a merchandising company
C. Buys products from manufacturers and sells them to consumers
 A. Varies among types of businesses
D. Reports cost of goods sold on the income statement
 B. Applies to both cash and credit sales
E. All of the above C. Begins with the purchase of merchandise
D. Ends with the collection of cash from the sale of merchandise
2. Merchandisers E. All of the above
A. Earn profit from fare

8. The cash sales operating cycle moves from
B. Do not report gross profit
A. Purchases to inventory for sale to cash sales
C. Earn profit from commissions
 C. Inventory for sale to cash sales to purchases
D. Receive fees in exchange for services
 E. Accounts receivable to inventory for sale to cash sales
E. Earn profit from buying and selling merchandise
 B. Purchases to inventory for sale to accounts receivable to cash sales
D. Accounts receivable to purchases to inventory for sale to cash sales
3. Wholesalers
A. Buy products from manufacturers and sell to retailer Describe both perpetual & periodic inventory systems
B. Buy products from manufacturers and sell to consumers Inventory Systems
C. Buy products from other wholesalers and sell to consumers 9. A periodic inventory system
D. Buy products from retailers and sell to consumers A. Does not require a physical count of inventory
B. Requires updating the inventory account every month
4. Retailers C. Records the cost of new merchandise purchased in a temporary account
A. Buy only from wholesalers D. Records the cost of new merchandise purchased in a permanent account
B. Buy products from manufacturers and sell to wholesalers E. All of the above
C. Buy products from wholesalers and sell to other wholesalers
D. Buy products from manufacturers and wholesalers and sell to consumers 10. A periodic inventory system
A. Is widely used in practice
Reporting Financial Performance B. Provides point of sale data
5. Merchandise inventory is C. Gives more timely information
A. Includes supplies D. Does not use a Purchases account
B. Included on a service company's balance sheet E. Was historically used by companies that sold large quantities of low-value items
C. Reported on the income statement as an expense
D. Products a company owns for resale to customers 11. In a periodic inventory system
E. Reported on the balance sheet under plant and equipment A. The inventory value is not based on a physical count
B. A continuous record of the amount of inventory on hand is maintained
 C. The company records the cost of new merchandise in the permanent Purchases account D. Debit Cash $60,140; Debit Sales Discounts $1,860; Credit Accounts Receivable $62,000
D. The cost of merchandise on hand is determined by relating the quantities on hand to E. Debit Cash $62,000; Debit Sales Discounts $1,860; Credit Accounts Receivable $55,290
records showing each item's original cost
E. None of these Summary of Merchandising Cost Flows
16. A trade discount is
12. A perpetual inventory system A. Also called a rebate
A. Is not widely used in practice B. A reduction below a list price
B. Gives a continuous record of the amount of inventory on hand C. A reduction in price for prompt payment
C. Uses a Purchases account for the cost of new merchandise purchased D. A term used by a purchaser to describe a cash discount given to customers for prompt
D. Was historically used by companies that sold large quantities of low-value items payment
E. All of the above E. A term used by a seller to describe a cash discount granted to customers for prompt
payment
Analyze and record transactions for merchandise purchases and sales using a perpetual
system.
 17. 2/10, n/30 is interpreted as
Accounting for Merchandise Purchases—Perpetual Inventory System
 A. 2% discount if paid within 30 days
13. On December 5, Z-Mart purchased $1,800 worth of merchandise. On December 7, Z-Mart B. 30% discount if paid within 2 days
returned $800 worth of merchandise. On December 8, it paid the balance in full after taking a C. 30% discount if paid within 10 days
2% discount. The amount of the payment was D. 2% cash discount if the whole amount is paid within 10 days, the balance is due in 30 days
A. $200 D. $1,600 E. 10% cash discount if the whole amount is paid within 2 days, the balance is due in 30 days
B. $980 E. $1,800
C. $1,000 18. To calculate the total cost of a merchandise purchase, the invoice account must be adjusted
for which of the following?
14. Z-Mart purchased $3,000 worth of merchandise on credit. Transportation costs were an A. Any freight costs paid by a purchaser
additional $100, paid cash to the cartage company on delivery. Z-Mart returned $300 worth of B. Any discounts given to a purchaser by a supplier
merchandise and paid the invoice on time, and took a 2% purchase discount. The amount of C. Any returns and allowances received from a supplier
this payment was D. Any taxes or other costs necessary to make the goods ready for sale
A. $2,646 D. $3,000 E. All of the above
B. $2,700 E. $3,100
C. $2,900 Adjusted Trial Balance for a Merchandising Company—Perpetual Inventory System
19. Z-Mart uses the perpetual inventory system and recorded the following journal entry:


Additional Merchandising Issues—Perpetual Inventory System Accounts Payable 2,500
15. On April 4, Fignola Company (FC) sold sweaters to one of its customers for $65,000 on credit Merchandise Inventory 50
terms of 3/15, net 30. On April 8, the customer contacted FC to say that the sweater colours Cash 2,450
did not match their original order. FC reached an agreement with the customer to keep the The transaction was
shipment and FC granted the customer a price reduction of $3,000. The customer paid the A. A return
outstanding bill on April 15. The journal entry to be made by FC on April 15 is B. A purchase
A. Debit Cash $62,000; Credit Accounts Receivable $62,000 C. A return and payment of the account payable
B. Debit Accounts Receivable $62,000; Credit Sales Revenue $62,000 D. A purchase and recognition of a cash discount taken
C. Debit Sales Returns and Allowances $3,000; Credit Accounts Receivable $3,000 E. A payment of the account payable and recognition of a cash discount taken
 B. Transportation-in and income summary
Financial Statement Analysis Tools for Inventory C. Cost of goods sold, and purchase discounts
20. Merchandising companies must account for D. Sales returns and allowances, cost of goods sold
A. Cost of goods sold D. Sales returns and allowances E. Sales returns and allowances and purchase discounts.
B. Sales E. All of the above
C. Sales discounts Prepare adjustments for a merchandising company.

Adjusting Entries
21. For a merchandiser, each sales transaction involves 26. Shrinkage
A. Recognizing cash discounts A. Is recognized by debiting Cost of Goods Sold
B. Recording accounts payable B. Can arise because of theft and deterioration of merchandise
C. Recognizing purchase discounts C. Refers to the loss of inventory for merchandising companies
D. Recognizing the cost of merchandise sold to a customer D. Is not able to be directly measured by a perpetual inventory system
E. Revenue received in the form of a liability from a customer E. All of the above

Accounting Comparisons Define, prepare, and analyze merchandising income statements.

22. Sales returns
Single-Step Income Statement

A. Represent cash discounts
27. An income statement on which the cost of goods sold, and operating expenses are added
B. Represent trade discounts
together and subtracted from net sales in one step to get profit is a(n)
C. Are related to purchase discounts
A. Balanced income statement D. Single-step income statement
D. Refer to merchandise that customers return to the seller after the sale
B. Merchandise income statement E. Unclassified income statement
E. Refer to reductions in the selling price of merchandise sold to customers
C. Multiple-step income statement
23. Sales returns and allowances
Multiple-Step Income Statement
A. Are omitted from published statements
28. Classified multiple-step income statements
B. Are usually recorded in separate contra-revenue accounts
A. Do not report gross profit
C. Represent a reduction of the customer's account receivable
B. Are required for the perpetual system
D. Provide information about dissatisfied customers and the possibility of lost future sales
C. Are generally used for internal reporting
E. All of the above
D. Are required by Canada Revenue Agency
E. List cost of goods sold as an operating expense
24. A debit to Sales Returns and Allowances and a credit to Accounts Receivable
A. Recognizes a cash discount taken by a customer
29. The first step in preparing the multi-step income statement is to find
B. Recognizes that a customer returned merchandise
A. Gross profit D. Operating loss
C. Requires a debit memorandum to recognize the customer's return
B. Net sales E. Profit
D. Is not possible; it should be a credit to Sales Returns and Allowances and a debit to
C. Operating income
Accounts Receivable
E. All of the above
30. Cost of goods sold is
A. An operating expense
25. The normal balance of the following accounts is a debit
B. Also called gross margin
A. Sales discounts and interest revenue
C. Another term for net sales
 D. The cost of goods sold to customers the Fabletics yoga pants at a cost of $12 per pair. At what price should Marshalls sell the
E. The term used for the cost of buying and preparing merchandise Fabletics Yoga pants?
A. $6.18 C. $18.18
31. Z-Mart had sales of $572,300. Gross profit was $239,106. What is the cost of goods sold? B. $17.82 D. $23.30
A. $40,088 C. $360,194
B. $279,194 D. $811,406 37. MicroAge sells cellphones at a selling price that includes a 65% markup on cost. If a cellphone
C. $333,194 costs MicroAge $300, its selling price is
A. $214.81 C. $461.54
32. Gross profit is B. $391.50 D. $495.00
A. The same as profit
B. Net sales less cost of goods sold 38. You work at a sporting goods store. You are considering adding baseball gloves and bats to
C. A special general ledger account your inventory. What would be the selling price of baseball bats with a mark-up percentage of
D. Subtracted from operating income to get profit 85% (cost is $12) and the baseball gloves with a target gross margin of 60% (cost is $20).
E. Only calculated when using the perpetual inventory system A. Selling Price (bats) = $37; Selling Price (gloves) = $22
B. Selling Price (bats) = $32; Selling Price (gloves) = $10.2
33. Z-Mart had sales of $500,100. Cost of goods sold was $143,400. What is the gross profit? C. Selling Price (bats) = $22.20; Selling Price (gloves) = $50
A. $216,600 D. $356,700 D. Selling Price (bats) = $24; Selling Price (gloves) = $25.00
B. $213,300 E. $503,900 E. None of these answers is correct.
C. $217,100
Gross Profit Margin
34. Gross profit is derived from 39. JEANSTOP sells jeans that cost it $43.99 per pair for $62.99 per pair. The percentage markup
A. Beginning inventory D. Sales on cost is
B. Cost of goods sol E. All of the above A. 30.2% C. 46.0%
C. Ending inventory B. 43.2% D. 185.3%

35. Expenses that support the overall operations of a business and include the expenses of such 40. A car dealership has a used truck on its lot that it bought for $10,000 and is selling it for $20,000.
activities as providing accounting services, human resource management, and financial The rate of markup on cost is
management are called A. 20% C. 50%
A. Selling expenses B. 30% D. 100%
B. Operating expenses
C. Purchasing expenses Record and compare merchandising transactions using both periodic and perpetual
D. Miscellaneous expenses inventory systems.
E. General and administrative expenses Recording Merchandise Transactions
41. If a merchandising company ends a period with a larger inventory than it owned at the beginning
Calculate gross margin and markup on inventory cost. of the period, then,
Financial Statement Analysis Tools for Inventory A. Profit was larger than gross profit.
36. Marshalls Retailing now carries the Fabletics yoga pants line of athletic wear. Marshalls needs B. Gross profit was larger than the cost of goods sold.
to ensure that the new line contributes no less to their profit than other clothing lines it carries. C. The cost of goods sold was larger than net purchases.
The Fabletics line needs to provide a 48.5% gross profit margin percentage. Marshalls buys D. The cost of goods sold was smaller than net purchases.
 E. The cost of goods available for sale was smaller than the cost of goods sold. 47. The agreed cost of an item to be purchased by a business on credit is $4,000. The applicable
cost will be debited to advertising expense. The item is subject to 5% goods and services tax
An Income Statement for a Merchandising Company-Periodic Inventory
 (GST) and 7% provincial sales tax (PST). When this transaction is recorded, what amount will
42. The difference between a company's gross profit on sales and total operating expenses is be credited to accounts payable?
A. Income from operations D. Net sale A. $4,000 C. $4,240
B. Income summary E. Profit B. $4,200 D. $4,480
C. Net loss
48. A business sold some inventory on credit for $5,000 before taxes. The sale is subject to 5%
Explain and record Provincial Sales Tax (PST), Goods and Services Tax (GST), and goods and services tax (GST) and 7% provincial sales tax (PST). The business uses a
Harmonized Sales Tax (HST). perpetual inventory system. What is the amount that will be recorded in the GST payable
GST & PST account as a result of this sale?
43. A business sold some inventory on credit for $5,000 before taxes. The sale is subject to 5% A. $250 debit C. $350 debit
goods and services tax (GST) and 7% provincial sales tax (PST). The business uses a B. $250 credit D. $350 credit
perpetual inventory system. What is the amount of the accounts receivable that was recorded
as a result of this sale?
A. $5,000 C. $5,350
B. $5,300 D. $5,600

44. A business sold some inventory that had cost $5,000 before taxes. The sale is subject to 5%
goods and services tax (GST) and 7% provincial sales tax (PST). The business uses a
perpetual inventory system. How much will be credited to the Merchandise Inventory account
as a result of this sale?
A. $5,000 C. $5,350
B. $5,300 D. $5,600

45. The agreed cost of an item to be purchased by a business on credit is $4,000. The applicable
cost will be debited to advertising expense. The item is subject to 5% goods and services tax
(GST) and 7% provincial sales tax (PST). When this transaction is recorded, what amount will
be debited to advertising expense?
A. $4,000 C. $4,280
B. $4,200 D. $4,480

46. The agreed cost of an item to be purchased by a business on credit is $4,000. The applicable
cost will be debited to advertising expense. The item is subject to 5% goods and services tax
(GST) and 7% provincial sales tax (PST). When this transaction is recorded, what amount will
be recorded as GST Receivable?
A. $200 debit C. $240 debit
B. $200 credit D. $240 credit