Claudia Voin
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Grade 12 Accounting Midterm Prep

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Claudia Voin
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Test 4 - Chapter 5

Question 1 of 45

1

A merchandiser differs from a service business in that it

Select one of the following:

  • is more profitable

  • makes, buys, sells goods to customers

  • has greater cash flow

  • requires more government regulation

Explanation

Question 2 of 45

1

Two categories of expenses in merchandising companies are

Select one of the following:

  • cost of goods sold and financial expenses

  • cost of goods sold and financing expenses

  • cost of goods sold and operating expenses

  • sales and cost of goods sold

Explanation

Question 3 of 45

1

The primary source of revenue for a service company is

Select one of the following:

  • Investment income

  • Service revenue

  • The sale of merchandise

  • The sale of capital assets the company owns

Explanation

Question 4 of 45

1

Service revenue less operating expenses is called

Select one of the following:

  • gross profit

  • net profit

  • net income

  • marginal income

Explanation

Question 5 of 45

1

The operating cycle of a service company differs from that of a merchandising company in that

Select one of the following:

  • is usually longer in days

  • is usually shorter in days

  • involves the purchase of inventory

  • involves the sale of merchandise

Explanation

Question 6 of 45

1

Which of the following formulas in incorrect

Select one of the following:

  • gross profit - operating expenses = net income

  • sales - cost of goods sold - operating expenses = net income

  • net income + operating expenses = gross profit

  • operating expenses - cost of goods sold = gross profit

Explanation

Question 7 of 45

1

With respect to the income statement

Select one of the following:

  • contra-revenue accounts do not appear on the income statement

  • contra-revenue accounts increase the amount of operating expenses

  • cost of goods sold reduces gross profit

  • none of the above

Explanation

Question 8 of 45

1

The journal entry to record the return of merchandise purchased on account under a perpetual inventory system would credit

Select one of the following:

  • A/P

  • Purchases R & A

  • Sales

  • Merchandise Inventory

Explanation

Question 9 of 45

1

Under a perpetual inventory system, acquisition of merchandise for resale is debited to the

Select one of the following:

  • merchandise inventory account

  • cost of goods sold account

  • supplies account

  • purchases account

Explanation

Question 10 of 45

1

Under a perpetual inventory system, cost of goods sold is recorded

Select one of the following:

  • on a daily basis

  • on a monthly basis

  • on an annual basis

  • with each sale

Explanation

Question 11 of 45

1

If ABC's accounting records should, using a perpetual inventory system, an ending inventory balance of $25 000 and a physical count shows $23 000, it is important to

Select one of the following:

  • debit your inventory records

  • purchase additional inventory

  • remove the nonexistent inventory from your records

  • credit cost of goods sold

Explanation

Question 12 of 45

1

Detailed records of goods held for resale are not maintained undera a

Select one of the following:

  • perpetual inventory system

  • periodic inventory system

  • double-entry accounting system

  • single-entry accounting system

Explanation

Question 13 of 45

1

Babcock Co. purchased merchandise from Gerber Co. with freight terms of FOB shipping point. The freight costs will be paid by the

Select one of the following:

  • seller

  • buyer

  • transportation company

  • buyer and seller

Explanation

Question 14 of 45

1

Wright Co. recently made a purchase of $10 000 from a major supplier. Shipping costs were $200, terms FOB shipping point. To record this purchase, Wright Co. will need to debit the

Select one of the following:

  • Merchandise Inventory account for $10 000

  • Cost of Goods Sold account for $200

  • Merchandise Inventory account for $10 200

  • Cost of Goods Sold account for $10 200

Explanation

Question 15 of 45

1

Benders Shoe Store had a beginning merchandise inventory of $18 000. During the period, purchases were $70 000; purchase returns, $3 000; and freight in, $6 000. A physical count of inventory at the end of the period revealed that $12 000 was still on hand. Using a perpetual inventory system, CoGS was

Select one of the following:

  • $88k

  • $79k

  • $91k

  • $85k

Explanation

Question 16 of 45

1

The Sales R&A account is classified as

Select one of the following:

  • an asset

  • a contra-asset

  • an expense

  • a contra-revenue

Explanation

Question 17 of 45

1

A sales invoice is a a source document that

Select one of the following:

  • provides support for goods purchased for resale

  • provides evidence of incurred operating expenses

  • provides evidence of credit sales

  • serves only as a customer receipts

Explanation

Question 18 of 45

1

The journal entry to record a shortage of inventory at the end of the accounting period is

Select one of the following:

  • Cost of Goods Sold
    Merchandise Inventory

  • Merchandise Inventory
    Service Revenue

  • Accounts Receivable
    Service Revenue

  • Accounts Receivable
    Merchandise Inventory

Explanation

Question 19 of 45

1

Sales revenue

Select one of the following:

  • may be recorded before cash is collected

  • will always equal cash collections in a month

  • only results from credit sales

  • is only recorded after cash is collected

Explanation

Question 20 of 45

1

A Sales R&A account is not debited if

Select one of the following:

  • a customer returns defective merchandise

  • a customer receives a credit for merchandise of inferior quality

  • a customer returns goods that are not in accordance with specifications

  • a buyer returns defective merchandise

Explanation

Question 21 of 45

1

If a customer agrees to keep merchandise that is defective because the seller is willing to reduce the price, this transaction is known as a sales

Select one of the following:

  • discount

  • return

  • mistake

  • allowance

Explanation

Question 22 of 45

1

When goods are returned that relate to a prior cash sale

Select one of the following:

  • the Sales R&A account should not be used

  • the Cash account will be credited

  • Sales R&A will be credited

  • A/R will be credited

Explanation

Question 23 of 45

1

The Sales R&A account does not provide info to management about

Select one of the following:

  • possible inferior merchandise

  • the percentage of credits vs cash sales

  • inefficiencies in filling orders

  • customers may be dissatisfied with the products

Explanation

Question 24 of 45

1

Which of the following accounts has a normal credit balance?

Select one of the following:

  • Sales R&A

  • Freight Out

  • Sales

  • Cost of Goods Sold

Explanation

Question 25 of 45

1

Tokyo Co sells merchandise on account for $1 200 (cost $750) to Thomas Co. Thomas Co returns $00 (cost $250) of merchandise that was damaged, along with a cheeque to settle the account. What entry does Tokyo Co make upon receipt of the cheque?

Select one of the following:

  • Cash 1 200, Sales 1 200

  • Sales R&A 250, Cost of Goods Sold 250

  • Cash 800 and Merchandise Inventory 400, A/R 1 200

  • Cash 800, A/R 800

Explanation

Question 26 of 45

1

Which of the following is a true statement about inventory systems

Select one of the following:

  • periodic inventory systems require more detailed inventory records

  • perpetual inventory systems require more detailed inventory records

  • periodic inventory systems requires cost of goods sold to be determined with each sale

  • perpetual inventory systems are specifically meant for companies that sell low unit value items

Explanation

Question 27 of 45

1

A physical inventory should be taken

Select one of the following:

  • after every purchase of merchandise

  • after every sale

  • at or near the balance sheet date

  • only if a manual account system is used

Explanation

Question 28 of 45

1

Northend Electric returned to Southerby Inc 5 damaged fuses. Southerby accepted the return and refunded the $200 Northend had paid for the order. To record this return, Southerby accountant must

Select one of the following:

  • Cash; Sales

  • Sales R&A; Cash

  • Cash; Merchandise Inventory

  • Cost of Goods Sold; Merchandise Inventory

Explanation

Question 29 of 45

1

In a perpetual inventory system, the Merchandise Inventory account must equal the actual merchandise on hand

Select one of the following:

  • at all times

  • only after the physical inventory count has occured

  • only at the beginning of the accounting period

  • only at the end of the accounting period

Explanation

Question 30 of 45

1

Taking a physical inventory count involves all of the following except

Select one of the following:

  • counting the units on hand

  • applying unit costs to the total inventory on hand for each item of inventory

  • evaluating whether inventory needs to be written off as obsolete

  • totaling the cost of each item of inventory determine the total cost of goods on hand

Explanation

Question 31 of 45

1

If a purchaser using a perpetual system agrees to freight terms of FOB destination, then the

Select one of the following:

  • Merchandise Inventory account will be increased

  • Merchandise Inventory account will be decreased

  • Merchandise account will not be affected

  • Cost of Goods Sold account will be increased

Explanation

Question 32 of 45

1

Freight costs paid by a seller on merchandise sold to customers will cause an increase

Select one of the following:

  • in the selling expense of the buyer

  • in operating expenses for the seller

  • to the cost of goods sold for the seller

  • to the Merchandise Inventory account for the seller

Explanation

Question 33 of 45

1

Using a perpetual inventory system, the respective normal account balances balances of Merchandise Inventory, Sales R&A, Cost of Goods Sold are

Select one of the following:

  • credit, credit, credit

  • debit, debit, debit

  • debit, credit, credit

  • debit, debit, credit

Explanation

Question 34 of 45

1

Income from operations will result if

Select one of the following:

  • the cost of goods sold exceeds operating expenses

  • revenues exceed cost of goods sold

  • revenues exceed operating expenses

  • gross profit exceeds operating expense

Explanation

Question 35 of 45

1

If a company has net sales of 500 000 and cost of goods sold of 350 000, the gross profit percentage is

Select one of the following:

  • 70%

  • 30%

  • 15%

  • 100%

Explanation

Question 36 of 45

1

Gross profit does not appear

Select one of the following:

  • on a multiple-step income statement

  • on a single-step income statement

  • to be relevant in analyzing the operating of a merchandising company

  • on the income statement if the periodic system is used because it cannot be calculated

Explanation

Question 37 of 45

1

Kerr Co has a beginning merchandise inventory at 17 000 an ending merchandise inventory of 20 000 and a cost of goods sold of 20 000. Inventory turnover is calculated to be

Select one of the following:

  • 5.41 times

  • 11.76 times

  • 10.81 times

  • 0.10 times

Explanation

Question 38 of 45

1

Inventory Turnover measures the number of times inventory is

Select one of the following:

  • purchased

  • sold

  • returned

  • paid for

Explanation

Question 39 of 45

1

In preparing closing entries for a merchandising companies, the owner's capital account will be debited for the balance of the

Select one of the following:

  • Sales Revenue

  • Cost of Goods Sold

  • Ending Inventory

  • Cash

Explanation

Question 40 of 45

1

The Merchandise Inventory account account balance appearing in an unadjusted trial balance under a perpetual inventory system represents the

Select one of the following:

  • ending inventory

  • beginning inventory

  • cost of merchandise purchased

  • cost of merchandise sold

Explanation

Question 41 of 45

1

On a classified balance sheet, merchandise inventory is classified as a

Select one of the following:

  • current liability

  • capital asset

  • current asset

  • long-term investment

Explanation

Question 42 of 45

1

The cost of goods sold account

Select one of the following:

  • is a temporary account

  • is a permenant account

  • appears on the balance sheet as an asset

  • appears on the income statement as an operating expense

Explanation

Question 43 of 45

1

When using a perpetual inventory system, the adjusting entry required when merchandise inventory records do not agree with the physical account

Select one of the following:

  • has an effect on cost of goods sold

  • has no effect on cost of goods sold

  • requires reporting a loss when actual is higher than records

  • requires reporting a gain when actual is lower than records

Explanation

Question 44 of 45

1

When recording a credit sale, all of the following accounts are affected except

Select one of the following:

  • sales

  • a/r

  • merchandise inventory

  • cash

Explanation

Question 45 of 45

1

Toby Co purchased 10 000 in merchandise and sold it six months later 18 000, At the time of the sale, Toby will

Select one of the following:

  • debit the cost of goods sold account for 18 000

  • debit the cost of goods sold account for 10 000

  • credit the cost of goods sold account for 18 000

  • credit the cost of goods sold account for 10 000

Explanation

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