Chapter 04 Accounting for Merchandising Operations.docx

Chapter 04 Accounting for Merchandising Operations.docx

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Chapter04AccountingforMerchandisingOperations

Chapter01

1.Thebusinessentityassumptionrequiresthatabusinessbeaccountedforseparatelyfrom

otherbusinessentities,includingitsownerorowners. 

2.Thefourbasicfinancialstatementsincludethebalancesheet,incomestatement,statementof

retainedearningsandstatementofcashflows. 

3.Abalancesheetcoversaperiodoftime,suchasamonthoryear. 

4.Theincomestatementshowsthefinancialpositionofabusinessonaspecificdate. 

Chapter2

5.Debitmeanstheright-handsideofanyaccount. 

6.Inadouble-entryaccountingsystem,totalamountdebitedmustalwaysequaltotalamount

credited. 

7.Adebitentryisalwaysfavorable. 

8.Postingisthetransferoftheinformationfromeachjournalentrytotheledger. 

Chapter04

9.Merchandiseinventoryisreportedinthelong-termassetssectionofthebalancesheet. 

10.Theacid-testratioisalsocalledthequickratio. 

11.Costofgoodssoldisreportedonboththeincomestatementandthebalancesheet. 

12.Credittermsincludethespecificsregardingtheamountowedandtimingofpaymentsfroma

buyertoaseller. 

13.Inaperpetualinventorysystem,themerchandiseinventoryaccountreflectsthecostof

goodsavailableforsale. 

14.Aperpetualinventorysystemcontinuallyupdatesaccountingrecordsforinventory

transactions. 

Chapter05

15.Foramerchandisingbusiness,anincreaseinsaleswillprobablyalsoresultinahigher

inventoryturnoverrate.

16.Theconsistencyprinciplerequiresacompanytousethesameaccountingmethodsperiod

afterperiod,sothatfinancialstatementsarecomparableacrossperiods. 

17.Inaperiodofrisingprices,FIFOusuallygivesalowertaxableincome,whichleadstoan

advantagewhenitcomestopayingincometax. 

18.AnadvantageofLIFOisthatitassignsthemostrecentcoststocostofgoodssoldanddoes

abetterjobofmatchingcurrentcostswithrevenuesontheincomestatement. 

19.Anunderstatementofendinginventorywillcauseanunderstatementofassetsandequityon

thebalancesheet. 

20.Threekeyvariablesdeterminethedollarvalueofinventory:

（1）inventoryquantity,

（2）costs

ofinventoryand（3）costflowassumption. 

21.Inapplyingthelowerofcostormarketmethodtoinventoryvaluation,marketisdefinedas

thecurrentreplacementcost. 

Chapter06

22.Theprinciplesofinternalcontrolinclude:

establishresponsibilities,maintainadequate

records,insureassets,separaterecordkeepingfromcustodyofassetsandperformregular

andindependentreviews. 

23.Cashequivalentsareshort-termhighlyliquidinvestmentassetsthatareeasilyconvertedto

cashandhavematuritiesofoneyear. 

24.Liquidityreferstoacompany'sabilitytopayitsshort-termobligations. 

25.Checkingaccountsarealsocalleddemanddeposits. 

26.Thejournalentryforpettycashreimbursementinvolvesadebittotheappropriateexpenses

andacredittoPettyCash. 

27.Abankreconciliationexplainsanydifferencesbetweenthebalanceofacheckingaccounton

thedepositor'srecordsandthebalancereportedonthebankstatement. 

Chapter07

28.Apromissorynoteisawrittenpromisetopayaspecifiedamountofmoneyeitheron

demandoratadefinitefuturedate. 

29.Thedirectwrite-offmethodofaccountingforbaddebtsrecordsthelossfroman

uncollectibleaccountreceivablewhenthecompanydeterminesittobeuncollectible. 

30.Thematchingprinciplerequiresuseofthedirectwrite-offmethodofaccountingforbad

debts. 

31.Theadvantageoftheallowancemethodofaccountingforuncollectibleaccountsisthatit

identifiesthespecificcustomerswhodonotpaytheirbills. 

32.Theaccountsreceivablemethodtoestimatebaddebtsobtainstheestimatedbalanceinthe

AllowanceforDoubtfulAccountsinoneoftwoways:

（1）thepercentuncollectiblefromthe

totalaccountsreceivableor

（2）agingaccountsreceivable. 

33.Theagingmethodofdeterminingbaddebtsexpenseisbasedontheknowledgethatthe

longerareceivableispastdue,thelowerthelikelihoodofcollection. 

34.Itisnevergoodpracticetoacceptanotereceivableinexchangeforanoverdueaccount

receivable. 

Chapter01

35.Whichofthefollowingaccountingprinciplesdictateswhenexpensesarerecognized?

A. Revenuerecognitionprinciple

B. Businessentityprinciple

C. Matchingprinciple

D. Fulldisclosureprinciple

36.Whichofthefollowingelementsarefoundontheincomestatement?

A. Cash

B. AccountsReceivable

C. RetainedEarnings

D. SalariesExpense

37.WhichofthefollowingelementsarefoundontheBalanceSheet?

A. ServiceRevenue

B. NetIncome

C. UtilitiesExpense

D. RetainedEarnings

38.Aparceloflandis:

offeredforsaleat$150,000,assessedfortaxpurposesat$95,000,

recognizedbyitspurchasersasbeingworth$140,000andpurchasedfor$137,000.Theland

shouldberecordedinthepurchaser'sbooksat:

A. $95,000

B. $137,000

C. $140,000

D. $150,000

39.Revenuesare:

A. Thesameasnetincome

B. Resourcesownedorcontrolledbyacompany

C. Increasesinretainedearningsfromacompany'searningactivities

D. Thecostsofassetsorservicesused

Chapter02

40.Aledgeris:

A.Arecordcontainingincreasesanddecreasesinaspecificasset,liability,equity,revenue

orexpenseitem

B. Ajournalinwhichtransactionsarefirstrecorded

C. Acollectionofdocumentsthatdescribetransactionsandeventsduringtheaccounting

process

D. Alistofallaccountswiththeirdebitbalancesatapointintime

41.Anaccountbalanceis:

A. Thetotalofthecreditsideoftheaccount

B. Thetotalofthedebitsideoftheaccount

C. Thedifferencebetweenthetotaldebitsandtotalcreditsforanaccountincludingthe

beginningbalance

D. Alwaysacredit

42.TheFiresideCountryInnisaverypopulardestinationfortourists.TheInnrequiresgueststo

makereservationsatleasttwomonthsinadvanceoftheirstay.Atwentypercentdown

paymentisrequiredatthetimethereservationismade.Whenshouldthisinnrecognize

roomrentalrevenue?

A. Onthedatethereservationisreceived

B. Onthedatethemoneyforthereservationisreceived

C. Onthedatetheguestsstayintheinn

D. Onceallcashhasbeenreceived

43.Businessescantakeallofthefollowingformsexcept:

A. Soleproprietorship

B. Commonstock

C. Partnership

D. Corporation

Chapter04

44.Acompanyhadsalesof$375,000anditsgrossprofitwas$157,500.Itscostofgoodssoldequal:

A. $375,000

B. $157,500

C. $217,500

D. $532,500

Thecurrentperiod'sendinginventoryis:

A. Thenextperiod'sbeginninginventory

B. Thecurrentperiod'scostofgoodssold

C. Thepriorperiod'sbeginninginventory

D. Thecurrentperiod'snetpurchases

45.Thecreditterms2/10,n/30areinterpretedas:

A. 2%cashdiscountiftheamountispaidwithin10days,withthebalanceduein30days

B. 30%discountifpaidwithin2days

C. 30%discountifpaidwithin10days

D. 2%discountifpaidwithin30days

46.Saleslesssalesdiscountslesssalesreturnsandallowancesequals:

A. Costofgoodssold

B. Netsales

C. Grossprofit

D. Netincome

47.HeraldCompanyhadsalesof$135,000,salesdiscountsof$2,000andsalesreturnsof

$3,200.HeraldCompany'snetsalesequals:

A. $129,800

B. $133,000

C. $135,000

D. $140,200

48.SellingExpensesare:

A.Expensesofdisplayingandadvertisingmerchandisetocustomers.

B.Expensestosupportcompany’soveralloperations（oftencalled“overhead”）

C.Partofthemarketingdistributionchain.

D.Expenseofbuyingmerchandiseandpreparingitforsale.

49.Multiple-stepincomestatements:

A. ArerequiredbytheFASB

B. Containmoredetailthanasimplelistingofrevenuesandexpenses

C. Arerequiredfortheperpetualinventorysystem

D. Listcostofgoodssoldasanoperatingexpense

Chapter05

50.Physicalinventorycounts:

A. Arenotnecessaryundertheperpetualsystem

B. Arenecessarytomeasureandadjustforinventoryshrinkage

C. Mustbetakenatleastonceamonth

D. Arenotnecessaryunderthecost-tobenefitconstraint

51.Whichinventoryvaluationmethodassignsavaluetotheinventoryonthebalancesheetthat

approximatescurrentcostandalsomimicstheactualflowofgoodsformostbusinesses?

A. FIFO

B. Weightedaverage

C. LIFO

D. Specificidentification

52.Theinventoryvaluationmethodthatresultsinthelowesttaxableincomeinaperiodof

inflationis:

A. LIFOmethod

B. FIFOmethod

C. Weighted-averagecostmethod

D. Specificidentificationmethod

53.Theconsistencyprinciple:

A. Requiresacompanytoconsistentlyusethesameaccountingmethodofinventory

valuationunlessachangewillimprovefinancialreporting

B. Requiresacompanytouseonemethodofinventoryvaluationexclusively

C. Requiresthatallcompaniesinthesameindustryusethesameaccountingmethodsof

inventoryvaluation

D. Isalsocalledthefulldisclosureprinciple

54.Theinventoryturnoverratio:

A. Isusedtoanalyzeprofitability

B. Isusedtomeasuresolvency

C. Measureshowquicklyacompanyturnsoveritsmerchandiseinventory

D. Calculationdependsonthecompany'sinventoryvaluationmethod

Days'salesininventory:

A. Isalsocalleddays'stockonhand

B. Focusesonaverageinventoryratherthanendinginventory

C. Isusedtomeasuresolvency

D. Iscalculatedbydividingcostofgoodssoldbyendinginventory

Anoverstatementofendinginventorywillcause 

A. Anoverstatementofassetsandequi