PACO 501 EXAM 2 ACTUAL TEST PAPER 2026
QUESTIONS WITH ANSWERS GRADED A+
◉ Wholesalers. Answer: Merchandising companies that sell to
retailers
◉ Sales revenue. Answer: Primary source of revenue for a
merchandising company
◉ Cost of goods sold. Answer: The total cost of merchandise sold
during the period
This expense is directly related to the revenue recognized from the
sale of goods.
◉ Operating cycles. Answer: For a service company:
Cash --> perform services --> accounts receivable --> receive cash -->
back to cash
For a merchandising company:
Cash --> buy inventory --> inventory --> sell inventory --> accounts
receivable --> receive cash --> back to cash
,◉ Flow of costs. Answer: Beginning inventory + cost of goods
purchased = cost of goods available for sale
As goods are sold, they are assigned to cost of goods sold.
Those goods that are not sold by the end of the account period
represent ending inventory.
◉ Perpetual inventory system. Answer: Companies maintain
detailed records of the cost of each inventory purchase and sale.
These records continually show the inventory that should be on
hand for every item.
Under this system, a company determines the cost of goods sold
each time a sale occurs.
Advantages of the perpetual system:
- provides better control over inventories than a periodic system
- if shortages are uncovered, companies can investigate immediately
◉ Periodic inventory system. Answer: Companies determine the
cost of goods sold only at the end of the accounting period
(periodically).
,Steps to determine the cost of goods sold using this system:
1. Determine the cost of goods on hand at the beginning of the
accounting period.
2. Add to it the cost of goods purchased.
3. Subtract the cost of goods on hand as determined by the physical
inventory count at the end of the accounting period.
In other words:
Beginning inventory
+ Cost of goods purchased
_________________________________
Cost of goods available for sale
- Ending inventory
_________________________________
Cost of goods sold
◉ Purchase invoice. Answer: A document that indicates the total
purchase price and other relevant information
Each purchase should be supported by this
, The purchaser uses the copy of the sales invoice sent by the seller as
a purchase invoice.
◉ FOB. Answer: Free on board
◉ FOB shipping point. Answer: The seller places the goods free on
board the carrier, and the buyer pays the freight costs.
When the buyer pays the transportation costs, these costs are
considered part of the cost of purchasing inventory.
Ownership of the goods passes to the buyer when the public carrier
accepts the goods from the seller.
◉ FOB destination. Answer: The seller places the goods free on
board to the buyer's place of business, and the seller pays the
freight.
Freight costs incurred by the seller on outgoing merchandise are an
operating expense to the seller.
QUESTIONS WITH ANSWERS GRADED A+
◉ Wholesalers. Answer: Merchandising companies that sell to
retailers
◉ Sales revenue. Answer: Primary source of revenue for a
merchandising company
◉ Cost of goods sold. Answer: The total cost of merchandise sold
during the period
This expense is directly related to the revenue recognized from the
sale of goods.
◉ Operating cycles. Answer: For a service company:
Cash --> perform services --> accounts receivable --> receive cash -->
back to cash
For a merchandising company:
Cash --> buy inventory --> inventory --> sell inventory --> accounts
receivable --> receive cash --> back to cash
,◉ Flow of costs. Answer: Beginning inventory + cost of goods
purchased = cost of goods available for sale
As goods are sold, they are assigned to cost of goods sold.
Those goods that are not sold by the end of the account period
represent ending inventory.
◉ Perpetual inventory system. Answer: Companies maintain
detailed records of the cost of each inventory purchase and sale.
These records continually show the inventory that should be on
hand for every item.
Under this system, a company determines the cost of goods sold
each time a sale occurs.
Advantages of the perpetual system:
- provides better control over inventories than a periodic system
- if shortages are uncovered, companies can investigate immediately
◉ Periodic inventory system. Answer: Companies determine the
cost of goods sold only at the end of the accounting period
(periodically).
,Steps to determine the cost of goods sold using this system:
1. Determine the cost of goods on hand at the beginning of the
accounting period.
2. Add to it the cost of goods purchased.
3. Subtract the cost of goods on hand as determined by the physical
inventory count at the end of the accounting period.
In other words:
Beginning inventory
+ Cost of goods purchased
_________________________________
Cost of goods available for sale
- Ending inventory
_________________________________
Cost of goods sold
◉ Purchase invoice. Answer: A document that indicates the total
purchase price and other relevant information
Each purchase should be supported by this
, The purchaser uses the copy of the sales invoice sent by the seller as
a purchase invoice.
◉ FOB. Answer: Free on board
◉ FOB shipping point. Answer: The seller places the goods free on
board the carrier, and the buyer pays the freight costs.
When the buyer pays the transportation costs, these costs are
considered part of the cost of purchasing inventory.
Ownership of the goods passes to the buyer when the public carrier
accepts the goods from the seller.
◉ FOB destination. Answer: The seller places the goods free on
board to the buyer's place of business, and the seller pays the
freight.
Freight costs incurred by the seller on outgoing merchandise are an
operating expense to the seller.
