1. The basic differences between the financial statements of a merchandising business and a service business include reporting cost of merchandise sold on the income statement and the: inclusion of merchandise inventory on the balance sheet as a current asset.
stockholders' equity section of the balance sheet.
other income section of the income statement.
inclusion of a stockholders' equity statement.
2. Which of the following best describes gross profit?
Net sales less cost of goods sold.
Total sales less merchandise returns and discounts.
Net sales less operating expenses.
Net sales less cost of goods sold less operating expenses.
3. When using the indirect method of preparing the statement of cash flows, how is each of the following items treated?
Depreciation expense Increase in a current asset
Add Subtract
Add Add
Subtract Add
Subtract Subtract
4. West, Inc. had beginning inventory of $10,000, purchases of $25,000 and ending inventory of $5,000. What is West's cost of merchandise sold? (Points : 1) $10,000
$25,000
$5,000
$30,000
5. If a $10,000 sale is made on January 1st, with terms of 2/10, n/30 how much would the discount be if payment is made on January 9th?
$10,000
$200
$1,000
$0
6. If a company purchased $2,000 of merchandise on account and paid for it during the discount period with the terms of 2/10, n/30, the effect on the accounts would be:
decreases Accounts Payable by $2,000 and decreases cash by $2,000.
increases Merchandise Inventory by $2,000 and increases Accounts Payable by $2,000.
decreases Accounts Payable by $1,960 and decreases Merchandise Inventory by $1,960.
decreases Accounts Payable by $2,000, decreases Merchandise Inventory by $40, and decreases Cash by $1,960.
7. Hedgehog Co. sells dog toys and other pet supplies. Compute Hedgehog's merchandise available for sale for 2011, given the following information:
January 1 inventory $530,000
Purchases 420,000
Purchase returns 50,000
Transportation in 105,000
December 31 inventory 85,000 (Points : 1) $1,005,000
$1,190,000
$1,105,000
Cannot be determined from the information given.
8. Which term indicates that merchandise is free of transportation charges to the buyer? (Points : 1) FOB destination Freight in
FOB shipping point
Transportation in
9. Assume that beginning accounts receivable are $30,000, that there are sales on account of $20,000 during the period, and customers paid $10,000 on their accounts. Under the indirect method of preparing the statement of cash flows, what is the adjustment to net income from these transactions? (Points : 1) Subtract $10,000 from net income.
Add $10,000 to net income.
Subtract $20,000 from net income.
Add $20,000 to net income.
10. How is inventory shrinkage recorded? (Points : 1) As a contra asset.
As a reduction to merchandise inventory.
As an increase to merchandise inventory.
As a separate liability account.