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The operating cycle of a merchandising company

28/10/2021 Client: muhammad11 Deadline: 2 Day

5 - 12

Test Bank for Accounting Principles, Eleventh Edition

5 - 13

Accounting for Merchandising Operations

CHAPTER 5
ACCOUNTING FOR MERCHANDISING OPERATIONS
Summary of Questions by LEARNING Objectives and Bloom’s Taxonomy
Item
LO
BT
Item
LO
BT
Item
LO
BT
Item
LO
BT
Item
LO
BT
True-False Statements
1.

1

C

10.

3

C

19.

5

K

28.

5

K

sg37.

2

K

2.

1

C

11.

3

C

20.

5

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29.

5

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sg38.

3

K

3.

1

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12.

3

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21.

5

C

a30.

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sg39.

3

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1

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13.

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C

22.

5

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a31.

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sg40.

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C

5.

1

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14.

4

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23.

5

C

a32.

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sg41.

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2

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15.

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24.

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a33.

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sg42.

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7.

2

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16.

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25.

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a34.

7

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8.

3

C

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26.

5

AP

sg35.

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9.

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27.

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sg36.

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Multiple Choice Questions
43.

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73.

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AP

103.

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133.

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a163.

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44.

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74.

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104.

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134.

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a164.

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45.

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75.

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105.

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C

135.

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sg165.

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AP

46.

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K

76.

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AP

106.

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136.

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sg166.

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47.

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77.

3

C

107.

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137.

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sg167.

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48.

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78.

3

C

108.

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138.

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st168.

2

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49.

1

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79.

3

AP

109.

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139.

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sg169.

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50.

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80.

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110.

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140.

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st170.

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51.

1

C

81.

3

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111.

1

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141.

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sg171.

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AP

52.

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82.

3

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112.

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142.

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st172.

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53.

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83.

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113.

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sg173.

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54.

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55.

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115.

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175.

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56.

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57.

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177.

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58.

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88.

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118.

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a148.

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178.

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59.

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3

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119.

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AP

179.

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60.

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3

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120.

5

C

150.

7

AP

180.

8

K

61.

2

K

91.

3

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121.

5

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151.

7

C

181

8

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62.

2

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92.

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AP

122.

5

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a152.

7

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182

8

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63.

2

C

93.

3

C

123.

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a153.

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183.

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64.

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94.

3

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124.

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a154.

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184.

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65.

2

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95.

3

C

125.

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a155.

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185.

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66.

2

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96.

3

C

126.

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a156.

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186.

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67.

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97.

3

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127.

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a157.

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187.

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68.

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98.

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128.

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a158.

7

C

188.

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69.

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99.

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129.

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a159.

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C

189.

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70.

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100.

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130.

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a160.

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71.

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101.

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a161.

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72.

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102.

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132.

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a162.

7

C

sg This question also appears in the Study Guide.

st This question also appears in a self-test at the student companion website.

a This question covers a topic in an appendix to the chapter.

Summary of Questions by LEARNING Objectives and Bloom’s Taxonomy
Brief Exercises
190.

1

AP

193.

3

AP

196.

5

AP

199.

7

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191.

2

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194.

3

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197.

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200.

7

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192.

2,3

AP

195.

4

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198.

7

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a201.

7

AP

Exercises
202.

1

C

207.

2,3

AN

212.

4

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217.

5

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a222.

7

AP

203.

2,3

AP

208.

2

AP

213.

4

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218.

5

C

a223.

7

AP

204.

2,3

AP

209.

3

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214.

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AN

219.

5

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a224.

7

AP

205.

2

E

210.

3

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215.

5

AP

220.

5

AP

a221.

7

AP

206.

2,3

AP

211.

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216.

5

AP

a221.

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AP

a226.

7

AP

Completion Statements
227.

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229.

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231.

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233.

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228.

1

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230.

2

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232.

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234.

3

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236.

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Matching Statements

237.

1

K

Short-Answer Essay

238.

3

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240.

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242.

1

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244.

1

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239.

1

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241.

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243.

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245.

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K

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Item
Type
Learning Objective 1
1.

TF

35.

TF

46.

MC

51.

MC

56.

MC

202.

Ex

239.

SA

2.

TF

36.

TF

47.

MC

52.

MC

57.

MC

227.

C

242.

SA

3.

TF

43.

MC

48.

MC

53.

MC

111.

MC

228.

C

244.

SA

4.

TF

44.

MC

49.

MC

54.

MC

165.

MC

229.

C

245.

SA

5.

F

45.

MC

50.

MC

55.

MC

190.

BE

237.

MA

Learning Objective 2
6.

TF

60.

MC

65.

MC

70.

MC

157.

MC

204.

Ex

230.

C

7.

TF

61.

MC

66.

MC

71.

MC

158.

MC

205.

Ex

231.

C

37.

TF

62.

MC

67.

MC

72.

MC

203.

Ex

206.

Ex

58.

MC

63.

MC

68.

MC

73.

MC

166.

BE

207.

Ex

59.

MC

64.

MC

69.

MC

156.

MC

167.

BE

208.

Ex

Learning Objective 3
8.

TF

75.

MC

83.

MC

91.

MC

99.

MC

107.

MC

209.

Ex

9.

TF

76.

MC

84.

MC

92.

MC

100.

MC

169.

MC

210.

Ex

10.

TF

77.

MC

85.

MC

93.

MC

101.

MC

192.

BE

232.

C

11.

TF

78.

MC

86.

MC

94.

MC

102.

MC

193.

BE

233.

C

12.

TF

79.

MC

87.

MC

95.

MC

103.

MC

194.

BE

234.

C

38.

TF

80.

MC

88.

MC

96.

MC

104.

MC

203.

Ex

240.

SA

39.

TF

81.

MC

89.

MC

97.

MC

105.

MC

204.

Ex

74.

MC

82.

MC

90.

MC

98.

MC

106.

MC

206.

Ex

SUMMARY OF Learning OBJECTIVES BY QUESTION TYPE
Learning Objective 4
13.

TF

15.

TF

108.

MC

110.

MC

170.

MC

211.

Ex

213.

Ex

14.

TF

40.

TF

109.

MC

112.

MC

195.

BE

212.

Ex

Learning Objective 5
16.

TF

26.

TF

117.

MC

127.

MC

137.

MC

172.

MC

235.

C

17.

TF

27.

TF

118.

MC

128.

MC

138.

MC

173.

MC

236.

C

18.

TF

28.

TF

119.

MC

129.

MC

139.

MC

196.

BE

241.

SA

19.

TF

29.

TF

120.

MC

130.

MC

140.

MC

197.

BE

243.

SA

20.

TF

41.

TF

121.

MC

131.

MC

141.

MC

215.

Ex

21.

TF

42.

TF

122.

MC

132.

MC

142.

MC

216.

Ex

22.

TF

113.

MC

123.

MC

133.

MC

143.

MC

217.

Ex

23.

TF

114.

MC

124.

MC

134.

MC

144.

MC

218.

Ex

24.

TF

115.

MC

125.

MC

135.

MC

145.

MC

219.

Ex

25.

TF

116.

MC

126.

MC

136.

MC

171.

MC

220.

Ex

Learning Objective a6
a34.

TF

175.

MC

178.

MC

181.

MC

184.

MC

187.

MC

a225.

Ex

a146.

MC

176.

MC

179.

MC

182.

MC

185.

MC

188.

MC

a147.

MC

177.

MC

180.

MC

183.

MC

186.

MC

189.

MC

Learning Objective a7
a30.

TF

a149.

MC

a154.

MC

a159.

MC

a164.

MC

a201.

BE

a225.

Ex

a31.

TF

a150.

MC

a155.

MC

a160.

MC

a174.

MC

a221.

Ex

a226.

Ex

a32.

TF

a151.

MC

a156.

MC

a161.

MC

a198.

BE

a222.

Ex

a33.

TF

a152.

MC

a157.

MC

a162.

MC

a199.

BE

a223.

Ex

a148.

MC

a153.

MC

a158.

MC

a163.

MC

a200.

BE

a224.

Ex

Learning Objective 8

175.

MC

177.

MC

179.

MC

181.

MC

183.

MC

185.

MC

176.

MC

178.

MC

180.

MC

182.

MC

184.

MC

Note: TF = True-False BE = Brief Exercise C = Completion

MC = Multiple Choice Ex = Exercise SA = Short-Answer

MA = Matching

CHAPTER LEARNING OBJECTIVES
1. Identify the differences between service and merchandising companies. Because of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual and a periodic inventory system.

2. Explain the recording of purchases under a perpetual inventory system. The company debits the Inventory account for all purchases of merchandise, and freight-in, and credits it for purchase discounts and purchase returns and allowances.

3. Explain the recording of sales revenues under a perpetual inventory system. When a merchandising company sells inventory, it debits Accounts Receivable (or Cash) and credits Sales Revenue for the selling price of the merchandise. At the same time, it debits Cost of Goods Sold and credits Inventory for the cost of the inventory items sold. Sales returns and allowances and sales discounts are debited and are contra revenue accounts.

4. Explain the steps in the accounting cycle for a merchandising company. Each of the required steps in the accounting cycle for a service company applies to a merchandising company. A worksheet is again an optional step. Under a perpetual inventory system, the company must adjust the Inventory account to agree with the physical count.

5. Distinguish between a multiple-step and a single-step income statement. A multiple-step income statement shows numerous steps in determining net income, including nonoperating activities sections. A single-step income statement classifies all data under two categories, revenues or expenses, and determines net income in one step.

a6. Prepare a worksheet for a merchandising company. The steps in preparing a worksheet for a merchandising company are the same as for a service company. The unique accounts for a merchandiser are Inventory, Sales Revenue, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold.

a7. Explain the recording of purchases and sales of inventory under a periodic inventory system. In recording purchases under a periodic system, companies must make entries for (a) cash and credit purchases, (b) purchase returns and allowances, (c) purchase discounts, and (d) freight costs. In recording sales, companies must make entries for (a) cash and credit sales, (b) sales returns and allowances, and (c) sales discounts.

TRUE-FALSE STATEMENTS
1. Retailers and wholesalers are both considered merchandisers.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

2. The steps in the accounting cycle are different for a merchandising company than for a service company.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

3. Sales minus operating expenses equals gross profit.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

4. Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

5. A periodic inventory system requires a detailed inventory record of inventory items.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

6. Freight terms of FOB Destination means that the seller pays the freight costs.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

7. Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

8. Sales revenues are earned during the period cash is collected from the buyer.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

9. The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

10. The revenue recognition principle applies to merchandisers by recognizing sales revenues when the performance obligation is satisfied.

Ans: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

11. Sales Returns and Allowances and Sales Discounts are both designed to encourage customers to pay their accounts promptly.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

12. To grant a customer a sales return, the seller credits Sales Returns and Allowances.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

13. A company's unadjusted balance in Inventory will usually not agree with the actual amount of inventory on hand at year-end.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

14. For a merchandising company, all accounts that affect the determination of income are closed to the Income Summary account.

Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

15. A merchandising company has different types of adjusting entries than a service company.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

16. Nonoperating activities exclude revenues and expenses that result from secondary or auxiliary operations.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

17. Operating expenses are different for merchandising and service enterprises.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

18. Net sales appears on both the multiple-step and single-step forms of an income statement.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

19. A multiple-step income statement provides users with more information about a company’s income performance.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

20. The multiple-step form of income statement is easier to read than the single-step form.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

21. Inventory is classified as a current asset in a classified balance sheet.

Ans: T, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

22. Gain on sale of equipment and interest expense are reported under other revenues and gains in a multiple-step income statement.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

23. The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

24. In a multiple-step income statement, income from operations excludes other revenues and gains and other expenses and losses.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

25. A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

26. If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%.

Ans: T, LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

27. Gross profit represents the merchandising profit of a company.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

28. Gross profit is a measure of the overall profitability of a company.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

29. Gross profit rate is computed by dividing cost of goods sold by net sales.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

a30. In a worksheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted trial balance (Dr.) and income statement (Dr.) columns.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a31. Freight-in is an account that is subtracted from the Purchases account to arrive at cost of goods purchased.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

a32. Under a periodic inventory system, the acquisition of inventory is charged to the Purchases account.

Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a33. Under a periodic inventory system, freight-in on merchandise purchases should be charged to the Inventory account.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

a34. Purchase Returns and Allowances and Purchase Discounts are subtracted from Purchases to produce net purchases.

Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

35. Inventory is reported as a long-term asset on the balance sheet.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

36. Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

37. The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

38. Sales revenue should be recorded in accordance with the matching principle.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

39. Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

40. A merchandising company using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

41. If a merchandising company sells land at more than its cost, the gain should be reported in the sales revenue section of the income statement.

Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

42. The major difference between the balance sheets of a service company and a merchandising company is inventory.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Answers to True-False Statements

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

Item

Ans.

1.

T

7.

T

13.

T

19.

T

25.

T

a31.

F

37.

F

2.

F

8.

F

14.

T

20.

F

26.

T

a32.

T

38.

F

3.

F

9.

F

15.

F

21.

T

27.

T

a33.

F

39.

T

4.

T

10.

T

16.

F

22.

F

28.

F

a34.

T

40.

T

5.

F

11.

F

17.

F

23.

F

29.

F

35.

F

41.

F

6.

T

12.

F

18.

T

24.

T

30.

T

36.

T

42.

T

MULTIPLE CHOICE QUESTIONS
43. Net income is gross profit less

a. financing expenses.

b. operating expenses.

c. other expenses and losses.

d. other expenses.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

44. An enterprise which sells goods to customers is known as a

a. proprietorship.

b. corporation.

c. retailer.

d. service firm.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

45. Which of the following would not be considered a merchandising company?

a. Retailer

b. Wholesaler

c. Service firm

d. Dot Com firm

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

46. A merchandising company that sells directly to consumers is a

a. retailer.

b. wholesaler.

c. broker.

d. service company.

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

47. Two categories of expenses for merchandising companies are

a. cost of goods sold and financing expenses.

b. operating expenses and financing expenses.

c. cost of goods sold and operating expenses.

d. sales and cost of goods sold.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

48. The primary source of revenue for a wholesaler is

a. investment income.

b. service fees.

c. the sale of merchandise.

d. the sale of fixed assets the company owns.

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

49. Sales revenue less cost of goods sold is called

a. gross profit.

b. net profit.

c. net income.

d. marginal income.

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

50. After gross profit is calculated, operating expenses are deducted to determine

a. gross margin.

b. net income.

c. gross profit on sales.

d. net margin.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

51. Cost of goods sold is determined only at the end of the accounting period in

a. a perpetual inventory system.

b. a periodic inventory system.

c. both a perpetual and a periodic inventory system.

d. neither a perpetual nor a periodic inventory system.

Ans: B, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

52. Which of the following expressions is incorrect?

a. Gross profit – operating expenses = net income

b. Sales revenue – cost of goods sold – operating expenses = net income

c. Net income + operating expenses = gross profit

d. Operating expenses – cost of goods sold = gross profit

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