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Which of the following statements is correct about accounting for expected sales returns?


A) Expected returns are disclosed in the notes to the financial statements,but journal entries are not required.
B) Since no inventory has yet been received,a liability,Inventory-Estimated Returns,is credited for the cost of the expected returned items.
C) Since no cash has yet been paid,a liability,Refund Liability,is credited for the sales price of expected returns.
D) Sales Revenue will be debited and Cost of Goods Sold will be credited for the sales price of expected returns.

E) A) and B)
F) All of the above

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Under the gross method,purchase and sales discounts are recorded:


A) when the cash is paid or received.
B) at the time of initial purchase or sale.
C) as an increase to the purchase or sales price.
D) as an increase to Cost of Goods Sold or to Inventory.

E) None of the above
F) A) and B)

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Which of the following is an activity common to the operations of merchandising,manufacturing,and service companies?


A) Producing the product
B) Incurring operating expenses
C) Buying goods or raw materials
D) Selling a physical product

E) None of the above
F) B) and D)

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Which of the following statements about a multistep income statement is correct?


A) It groups all revenues together.
B) It reports a different amount of net income than a single-step income statement.
C) It includes expenses that would not appear on a single-step income statement.
D) A key measure available on a multistep income statement is the amount of profit earned over the cost of goods sold.

E) A) and B)
F) None of the above

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The gross profit percentage is computed by dividing operating income by net sales.

A) True
B) False

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A sale is recorded when goods leave the seller's shipping department when the merchandise is shipped:


A) Goods in transit,shipped collect.
B) FOB destination.
C) FOB shipping point.
D) Freight-out,seller shipped.

E) C) and D)
F) None of the above

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A company reported the following:  Cost of Goods Sold $200,000 General, Selling, and Administrative Expenses 52,800 Income Tax Expense 3,600 Inventory 12,000 Net Income 22,560 Sales Revenue 284,000 Sales Discounts 2,720 Sales Returns & Allowances 2,320\begin{array}{lr}\text { Cost of Goods Sold } & \$ 200,000 \\\text { General, Selling, and Administrative Expenses } & 52,800 \\\text { Income Tax Expense } & 3,600 \\\text { Inventory } & 12,000 \\\text { Net Income } & 22,560 \\\text { Sales Revenue } & 284,000 \\\text { Sales Discounts } & 2,720\\\text { Sales Returns \& Allowances }&2,320\end{array} What is the amount of income before income taxes?


A) $7,600
B) $26,160
C) $10,400
D) $14,000

E) A) and D)
F) B) and D)

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Sales discounts should appear in the financial statements as a(n) :


A) addition to inventory.
B) addition to sales.
C) operating expense.
D) deduction from sales.

E) None of the above
F) All of the above

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Sheridan's beginning inventory is $140,000,goods purchased during the period cost $480,000,and the cost of goods sold for the period is $560,000.What is the amount of its ending inventory?


A) $180,000
B) $80,000
C) $100,000
D) $60,000

E) B) and C)
F) A) and C)

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Match the term to the appropriate definition.There are more definitions than terms. -Periodic Inventory System


A) The sum of beginning inventory and purchases for the period.
B) Presents important subtotals,such as gross profit,to help distinguish core operating results from other,less significant items that affect net income.
C) A term of sale indicating that goods are owned by the seller until they are delivered to the buyer.
D) Sells goods that have been obtained from a supplier.
E) Inventory records are updated every time inventory is bought,sold,or returned.
F) A sales price reduction given to customers for prompt payment of their account balance.
G) Inventory records are updated at the end of the accounting period.To determine how much merchandise has been sold,inventory must be physically counted at the end of the period.
H) A term of sale indicating that goods are owned by the buyer the moment they leave the seller's premises.
I) Sells services rather than physical goods.
J) Assets acquired for resale to customers.

K) H) and J)
L) D) and I)

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Neakanie Industries sells specialized mountain bikes.Each specialized bike purchased includes free maintenance service for 12 months.The price of the specialized bike is $1,000.When sold separately,a maintenance contract is $200 and a comparable but non-specialized bike is $600.What amount of revenue will Neakanie recognize at the date of sale for each bike?


A) $400.
B) $600.
C) $750.
D) $1,000.

E) B) and D)
F) A) and B)

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A company starts the period with 300 computers in inventory,purchases 90 more,returns 12 of them to suppliers,and has 249 in inventory at the end of the period.If there is no shrinkage,how many computers were sold?


A) 141
B) 129
C) 51
D) 249

E) A) and B)
F) A) and D)

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When a perpetual system is used and transportation cost is incurred to obtain inventory,the transportation cost is:


A) added to Inventory.
B) reported as Selling,General & Administrative Expense on the income statement.
C) reported as a contra-account that is subtracted from sales revenue when determining net sales.
D) deducted from the Cost of Goods Sold when determining gross profit.

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

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Sales revenue equals $367,810,sales returns and allowances are $10,000,and sales discounts total $14,180.The cost of goods sold is $216,490,operating expenses are $28,500,and the company incurs $31,640 of income tax expense.Which of the following statements is correct?


A) Net sales equal $343,630 and gross profit is $98,640.
B) Net sales equal $67,000 and gross profit is $98,640.
C) Net sales equal $343,630 and gross profit is $127,140.
D) Net sales equal $367,810 and gross profit is $67,000.

E) B) and D)
F) A) and C)

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In a perpetual inventory system,paying transportation charges on goods purchased FOB shipping point would have which of the following effects?


A) Decrease Operating Expenses
B) Increase Selling,General,and Administrative Expenses
C) Decrease Cost of Goods Sold
D) Increase Inventory

E) A) and B)
F) C) and D)

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XYZ Company sold merchandise for $5,000,with payment terms of 2/10,n/30.If the customer pays within the discount period and takes the discount,XYZ will receive:


A) $4,900.
B) $5,000.
C) $3,500.
D) $100.

E) None of the above
F) A) and D)

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A company has net sales of $612,850 and cost of goods sold of $441,252.The company's gross profit percentage is:


A) 72%.
B) 0.28%.
C) 38.9%.
D) 28%.

E) C) and D)
F) B) and D)

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Missouri Company uses a perpetual inventory system.On October 1,Missouri Company sold inventory on account in the amount of $6,500 to Montebello Company,terms 1/10,n/30.The items cost Missouri $4,200.On October 4,Montebello returns some of the inventory.This inventory had a selling price of $500 and a cost of $200.On October 8,Montebello Company paid Missouri Company the amount due on that date. What journal entry (entries) will Missouri prepare on October 1 to record this sale?


A) Debit Accounts Receivable and credit Sales Revenue for $6,500.
B) Debit Sales Revenue for $6,500 and credit Accounts Receivable and credit for $6,500;debit Cost of Goods Sold and credit Inventory for $4,200.
C) Debit Cost of Goods Sold for $4,200,debit Gross Profit for $2,300,and credit Sales Revenue for $6,500.
D) Debit Accounts Receivable and credit Sales Revenue for $6,500;debit Cost of Goods Sold and credit Inventory for $4,200.

E) A) and B)
F) A) and C)

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Belmont Industries announces that its gross profit rose 5% but its income before income taxes fell.Which of the following statements is correct?


A) This is not possible given that net income is determined by gross profit.
B) This must mean that selling,general,and administrative expenses increased by more than 5%.
C) This must mean that sales revenue rose more than expenses.
D) This must mean that cost of goods sold decreased.

E) C) and D)
F) All of the above

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Goods available for sale can:


A) be sold and then become Cost of Goods Sold on the income statement.
B) not be sold and thus are not reported as Cost of Goods Sold on the balance sheet.
C) not be sold and thus are reported as Inventory on the income statement.
D) be sold and thus reported as Cost of Goods Sold on the balance sheet.

E) None of the above
F) B) and D)

Correct Answer

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