Question

5) A purchase return or allowance under a perpetual inventory system is credited to:

A) Accounts Payable

B) Purchase Returns and Allowances

C) Inventory

D) Purchases

6) Which of the following accounts is not a contra account?

A. Inventory

B. Accumulated Amortization

C. Sales Returns and Allowances

D. Sales Discounts

7) To calculate the gross margin percentage,

A. Divide net sales by net income

B. Divide current assets by current liabilities

C. Divide total liabilities by total assets

D. Divide gross margin by net sales

8) If a purchaser returns goods purchased on account to the supplier under a perpetual inventory system, the purchaser would debit:

A) Inventory and credit Accounts Payable.

B) Accounts Payable and credit Inventory.

C) Inventory and credit Accounts Receivable.

D) Accounts Receivable and credit Inventory.

9) The seller is responsible for the shipping costs when the shipping terms are:

A) FOB destination.

B) COD destination.

C) FOB shipping point.

D) COD shipping point.

10) Under a perpetual inventory system, the entry to record the cost of goods sold would include a debit to:

A) Cost of Goods Sold and a credit to Inventory for the retail price of the inventory.

B) Inventory and a credit to Sales Revenue for the retail price of the inventory.

C) Cost of Goods Sold and a credit to Inventory for the cost of the inventory.

D) Inventory and a credit to Cost of Goods Sold for the cost of the inventory.

11) To update the inventory records for the sale of merchandise under a perpetual inventory system, the entry would include a:

A) Credit to Inventory.

B) Debit to Accounts Payable.

C) Debit to Sales Revenue.

D) Credit to Cost of Goods Sold.

12) Under a perpetual inventory system, the entries to record a $2,600 sales return of undamaged goods for a sale originally made on account, when the merchandise had a cost of $1,200, include a:

A) Debit to Inventory of $1,200.

B) Debit to Sales Returns and Allowances of $1,200.

C) Credit to Cost of Goods Sold of $2,600.

D) Credit to Sales Returns and Allowances of $1,200.

13) Which of the following is true about freight in?

A) Freight in is added to the cost of merchandise inventory.

B) Freight in is a selling expense.

C) Freight in is an operating expense.

D) Freight in is deducted from Accounts payable.

14) Under a perpetual inventory system, the adjusting entry to account for inventory shrinkage would include a:

A) Credit to Miscellaneous Expense.

B) Credit to Cost of Goods Sold.

C) Credit to Inventory.

D) Debit to Miscellaneous Expense.

15) Inventory held by a business is a(n) ________ and when sold becomes a(n) ________.

A) Liability, withdrawal

B) Asset, expense

C) Liability, asset

D) Asset, contra asset

Answer 1

Answer to Q#5 (First question in the list): Option-(C): Inventory Explanation: Under perpetual inventory method, inventory records are updated continously as and when inventory related transactions take place. Temperary accounts called 'Purchases', 'Purchase Returns and Allowances', etc. will not be maintained under perpetual inventory method as inventory account will be directly updated as and when inventory related transaction takes place. Option-(A): Accounts payable is incorrect because this account shall be credited when firm purchases inventory on account. When there is a purchase returns or allowances, accounts payable account shall be debited. Option-(B): Purchase Returns and Allowances is incorrect because it is a temparary account used in recording inventory transactions under periodic inventory system. Under perpetual inventory system, this account shall not be used because inventory account will be updated continuously whenever inventory related transaction takes place.

Option-(C): Inventory is correct because under perpetual inventory system, inventory account will be updated continuously whenever inventory related transaction takes place. So, when a firm recieves purchase allowance, inventory account shall be credited as it will decrease stock. Option-(D): Purchases account is incorrect because under perpetual inventory system, 'Purchase' account shall not be used as it is used under periodic inventory system only.