Select the appropriate response.
1. The Sales account and Purchases account should include:
a. only cash sales and cash purchases of merchandise.
b. only credit sales and credit purchases of merchandise.
c. both cash and credit sales and cash and credit purchases of merchandise.
d. not only merchandise transactions, but also purchases and sales of other assets used in the business.
2. Purchasers of merchandise may be dissatisfied with the quality of goods purchased on account, and return the goods to the seller with an indication that payment will not be forthcoming. In such case, the document prepared by the purchaser is called:
a. a debit memorandum.
b. a credit memorandum.
c. a receiving report.
d. an invoice.
3. Bergstrom accepted the return of merchandise by a customer. The merchandise had been sold on account, and payment had not been received on the date of return. The returned goods retailed for $400, but cost Bergstrom only $300. The appropriate journal entry for Bergstrom is:
a. Accounts Receivable 400
Sales Returns & Allowances 400
b. Sales Returns & Allowances 400
Accounts Receivable 400
c. Sales 400
Purchases 300
Accounts Receivable 100
d. Sales Returns & Allowances 400
Purchases 300
Accounts Receivable 100
4. Which of the following statements is true?
a. Cash discounts are used to reduce the invoice price below the stated list price.
b. The expression 2/30, n/60, means that a 2% cash discount is available if the invoice is paid within 30 to 60 days.
c. Cash discounts may not be used in conjunction with trade discounts.
d. Cash discounts normally apply to the invoice price of the merchandise, excluding freight charges.
5. Lux had net purchases of $50,000, ending inventory of $25,000, net sales of $100,000, and gross profit of $32,000. How much was Lux's beginning inventory?
a. $7,000
b. $43,000
c. $93,000
d. $143,000
6. On February 1, Crown Company purchased $2,000 of merchandise, terms 2/10, n/30. Crown uses the gross method of recording purchases. Payment of the accounts payable was made on February 26. Which of the following journal entries is appropriate for the February 26 transaction?
a. Purchases 2,000
Accounts Payable 2,000
b. Accounts Payable 1,960
Cash 1,960
c. Accounts Payable 1,960
Purchases Discounts Lost 40
Cash 2,000
d. Accounts Payable 2,000
Cash 2,000
7. On March 1, Zekew Company purchased $1,000 of merchandise, terms 1/10, n/30. Zekew uses the net method of recording purchases. Payment of the accounts payable was made on March 4. Which of the following journal entries is appropriate for the March 4 transaction?
b. Accounts Payable 990
Cash 990
c. Accounts Payable 1,000
Purchases Discounts 10
Cash 990
d. Accounts Payable 1,000
Cash 1,000
8. Dodd Company utilizes the periodic inventory accounting system. Dodd had beginning inventory of $59,000, ending inventory of $37,000, and net purchases of $123,000. Which of the following components should be included in the year-end closing entries prepared by Dodd?
a. Purchases 123,000
Inventory 123,000
b. Income Summary 37,000
Inventory 37,000
c. Income Summary 59,000
Inventory 59,000
9. Russell Merchandising uses the perpetual inventory system. Which of the following statements is correct?
a. When Russell records a sale, it should also debit inventory.
b. When Russell records a sale, it should also credit inventory.
c. When Russell records a sale, it should also credit cost of goods sold.
d. When Russell records a sale, it should also debit cost of goods available for sale.
10. A multiple-step income statement is thought to be more beneficial to financial users because of the revelation of important relationships. Which of the following is not separately identified on a multiple-step income statement?
a. Gross profit
b. Net income
c. Income taxes
d. Total costs and expenses
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