San Jose State University BUS 220 Chapter 06 Merchandising Activities Answer Key

Chapter 06 - Merchandising Activities

Chapter 06 Merchandising Activities Answer Key

True / False Questions



1. Inventory is a relatively liquid asset and usually appears above Accounts Receivable on the
balance sheet.
FALSE

2. The operating cycle of a merchandising company consists of (1) purchases of merchandise;
(2) sales of the merchandise; and (3) collection of accounts receivable.
TRUE


3. Inventory shrinkage refers to unrecorded decreases in inventory resulting from breakage,
theft, and sales of inventory.
FALSE

4. In a perpetual inventory system, when merchandise is purchased, it is debited to an account
called Purchases.
FALSE

5. In a periodic inventory system, the Cost of Goods Sold account may be created during the
closing process by debiting Cost of Goods Sold and crediting the Beginning Inventory and the
Purchases account.
TRUE


6. Purchase Discounts Lost is shown as a reduction of cost of goods sold in the income
statement.
FALSE


7. Net Sales is computed as total sales revenue less sales returns and allowances less sales
discounts.
TRUE

8. The contra-revenue accounts, Sales Returns and Allowances and Sales Discounts, should be
closed by crediting these accounts and debiting Income Summary for each account.
TRUE

9. Gross profit margin is the dollar amount of gross profit expressed as a percentage of gross
sales.
FALSE



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,Chapter 06 - Merchandising Activities

10. The accounting cycle of a merchandising business is the length of time covered by the
company's income statement.
TRUE


11. Today, most large merchandising companies use a perpetual inventory system.
TRUE


12. Inventories are assets that a company holds for sale in the ordinary course of business.
TRUE

13. In preparing monthly bills to be sent to individual credit customers, the billing department
will use the accounts payable subsidiary ledger, rather than the general ledger.
FALSE


14. In a periodic inventory system, the Inventory and Cost of Goods Sold accounts are kept
up-to-date throughout the accounting period.
FALSE


15. A perpetual inventory system requires the capability of recording the cost of the goods
sold in individual sales transactions.
TRUE


16. Wholesalers buy from retailers and sell to the general public.
FALSE


17. Under the periodic inventory system, no effort is made to keep up-to-date records of either
Inventory or Cost of Goods Sold as transactions occur.
TRUE


18. The manager of National Software wants to know how many Microsoft Excel programs
the store sold in June. This information is contained in the Inventory controlling account.
FALSE


19. In a retail department store with an efficient perpetual inventory system, the quantities of
goods actually on hand are probably somewhat more than the quantities indicated in the
accounting records.
FALSE




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, Chapter 06 - Merchandising Activities

20. When using a perpetual inventory system, the Purchases account is debited when
merchandise is acquired.
FALSE

21. In a perpetual inventory system, the Inventory and Cost of Goods Sold accounts are kept
up-to-date throughout the accounting period.
TRUE


22. In a periodic inventory system, the ending inventory can be determined from the
accounting records, and a physical count of the merchandise on hand will confirm the
amount.
FALSE


23. In a periodic inventory system, the cost of goods sold is determined by the following end-
of-period computation: Beginning Inventory + Purchases - Ending inventory = Cost of Goods
Sold.
TRUE


24. Under the perpetual inventory system, two entries are required when goods are sold.
TRUE


25. If ending inventory and cost of goods sold are added together, they should equal gross
profit.
FALSE


26. Instead of paying for merchandise purchased on account, Olympic Corp. returned this
merchandise to the supplier. Olympic should record this transaction by debiting Accounts
Payable and crediting Sales Returns and Allowances.
FALSE


27. When using a perpetual inventory system, the Purchases account is debited when
merchandise is acquired.
FALSE

28. A large company with many different kinds of low-cost items would tend to use a
perpetual inventory system.
TRUE




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