Multiple Choice Questions
1. A merchandising company:
A) Earns net income by buying and selling merchandise.
B) Receives fees only in exchange for services.
C) Earns profit from commissions only.
D) Earns profit from fares only.
E) Buys products from consumers.
2. Cost of goods sold:
A) Is another term for merchandise sales.
B) Is the term used for the cost of buying and preparing merchandise for sale.
C) Is another term for revenue.
D) Is also called gross margin.
E) Is a term only used by service firms.
3. Merchandise inventory:
A) Is reported on the balance sheet as a current asset.
B) Refers to products a company owns and intends to sell.
C) Can include the cost of shipping the goods to the store and making them ready for sale.
D) Does not appear on the balance sheet of a service company.
E) All of the above.
4. The current period's ending inventory is:
A) The next period's beginning inventory.
B) The current period's cost of goods sold.
C) The prior period's beginning inventory.
D) The current period's net purchases.
E) The current period's beginning inventory.
5. The acid-test ratio:
A) Is also called the quick ratio.
B) Measures profitability.
C) Measures inventory turnover.
D) Is generally greater than the current ratio.
E) All of the above.
6. The quick assets are defined as:

A) Cash, short-term investments, and inventory.
B) Cash, short-term investments, and current receivables.
C) Cash, inventory, and current receivables.
D) Cash, noncurrent receivables, and prepaid expenses.
E) Accounts receivable, inventory, and prepaid expenses.
7. Merchandise inventory includes:
A) All goods owned by a company and held for sale.
B) All goods in transit.
C) All goods on consignment.
D) Only damaged goods.
E) All of the above.
8. Costs included in the Merchandise Inventory account can include:
A) Invoice price minus any discount.
B) Freight-in.
C) Storage.
D) Insurance.
E) All of the above.
9. Physical counts of inventory:
A) Are not necessary under the perpetual system.
B) Are necessary to measure and adjust for inventory shrinkage.
C) Must be taken at least once a month.
D) Requires the use of hand-held portable computers.
E) Are not necessary under the cost-to benefit constraint.
10. The inventory valuation method that results in the lowest taxable income in a period of inflation is:
A) LIFO method.
B) FIFO method.
C) Weighted-average cost method.
D) Specific identification method.
E) Gross profit method.