Question

1) On a merchandising balance sheet, merchandise inventory is listed as a(n) A) current liability. B) expense. C) revenue. D) current asset. 2) A company that uses the perpetual inventory system purchases inventory for $65,000 on account, with terms of 2/1o, n/30. Which of the following is the journal entry to record the payment made within 1 A) a debit to Accounts Payable for $63,700, a debit to Merchandise Inventory for $1,300 and a credit to Cash fors65,000 B) a debit to Merchandise Inventory for $1,300, a debit to Accounts Payable for $65,000 and a credit to Cash for $66,300 C) a debit to Accounts payable for $65,000, a credit to Merchandise Inventory for $1,300, and a credit to Cash for $63,700 D) a debit to Accounts payable for $65,000, a credit to Cash for $65,000 and a debit to Merchandise Inventory for $1,300 Which A) Salaries Expense of the following line items will appear on the income statement of a merchandiser but not of a service company? B) Cost of Goods Sold C) Depreciation Expense D) Supplies Inventory 4) A company using the perpetual inventory system purchased inventory worth $25,000 on account with terms of 2/10, n/30. Defective inventory of $2,000 was returned two days later and the accounts were appropriately invoice is paid within 10 days, the amount of the purchase discount that would be available to the company is A) $500. B) $540 C) $490 D) $460 5) The Sales Discounts Forfeited account A) is a contra Sales Revenue account B) represents additional sales revenue C) is a balance sheet account D) represents the discount lost when a customer does not pay within the discount period 6) A merchandiser uses a perpetual inventory system. The third step in the process of closing the accounts of a merchandiser is to A) make the revenue accounts equal to zero using the Income Summary account B) make the Income Summary account equal to zero using the Owners' Name, Capital account. C) make the Income Summary account equal to zero using the Owner's Name, Withdrawals account. D) make the expense accounts equal to zero using the Income Summary account.

Answer 1

1) (D) Current Asset, (because merchandise is always moving and can be sold quickly, merchandise is not held for a long time therefore it is a current asset.)

2) (C) a debit to Accounts Payable for $65,000, a credit to Merchandise Inventory for $1,300, and a credit to Cash $63,700. (because we will give the customer 2% discount ($1,300) for paying within 10 days therefore we will receive on $63,700 as cash.)

3) (B) Cost of Goods Sold ( a service company will not have cost of goods sold as they do not sell goods.)

4) (D) $460 ($25,000 - $2,000 = $23,000, $23,000 * 2% = $460)

5) (D) represents the discount lost when a customer does not pay within the discount period. (because a customer is not paying within the specified time he loses the discount therefore it a benefit for us.)

6) (B) make the income summary account equal to zero using the owner's Name, Capital Account. (Because the Net income will be transferred to the owners' capital account hence, Income Summary account will become zero.)

7) (D) $89,000 (Sales Revenue - Cost of Goods Sold) ($169,000 - $80,000 = $89,000)

8) (C) Selling and Administrative Expenses ( as these are the expenses which need to be deducted to determine net revenue.)

9) (B) Cost of Goods Sold $5,500

                 Merchandise Inventory $ 5,500

(Because our Inventory will decrease when we sell goods hence we will credit the account.)