1. A merchandising company: A. Receives fees only in exchange for services B. Earns net income by buying and selling merchandise. 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 another term for revenue. C. Is the term used for the cost of buying and preparing merchandise for sale. D. Is also called gross margin. E. Is a term only used by service firms.

3. The credit terms 2/10, n/30 are interpreted as: A. 10% cash discount if the amount is paid within 2 days, or the balance due in 30 days B. 2% cash discount if the amount is paid within 10 days, or the balance due in 30 days C. 30% discount if paid within 2 days. D. 30% discount if paid within 10 days. E. 2% discount if paid within 30 days.

4. A company purchased $1,800 of merchandise on December 5. On December 7, it returned $200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 equals: A. $200. B. $1,564. C. $1,600 D. $1,568 E. $1,800.

5. Sales returns: A. Refer to reductions in the selling price of merchandise sold to customers B. Refer to merchandise that customers return to the seller after the sale. C. Represent cash discounts. D. Represent trade discounts. E. Are not recorded under the perpetual inventory system until the end of each accounting period.

6. A debit to Sales Returns and Allowances and a credit to Accounts Receivable: A. Reflects an increase in amount due from a customer. B. Requires a debit memorandum to recognize the customer's return C. Recognizes that a customer returned merchandise and/or received an allowance. D. Is recorded when a customer takes a discount. E. Reflects a decrease in amount due a supplier.

9. Which of the following accounts would be closed with a debit? A. Sales. B. Sales Returns and Allowances. C. Cost of Goods Sold. D. Operating Expenses. E. Sales Discounts.

10. An income statement that includes cost of goods sold as another expense and shows only one subtotal for total expenses is a: A. Balanced income statement. B. Multiple-step income statement C. Single-step income statement D. Combined income statement. E. Simplified income statement.

11. Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called: A. Cost of goods sold. B. Selling expenses. C. Purchasing expenses. D. Non-operating activities E. General and administrative expenses.

12. Expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers are: A. General and administrative expenses. B. Cost of goods sold. C. Purchasing expenses D. Selling expenses. E. Non-operating activities.

13. Brig Company had $800,000 in sales, sales discounts of $12,000, sales returns and allowances of $18,000, cost of goods sold of $380,000, and $275,000 in operating expenses. Gross profit equals: A. $770,000. B. $115,000. C. $402,000 D.$390,000. E. $408,000.

14. Merchandise inventory includes: A. All goods in transit B. All goods owned by a company and held for sale C. All goods on consignment. D. Only damaged goods. E. Only non-damaged goods.

15. Goods in transit are included in a purchaser's inventory: A. At any time during transit. B. When the supplier is responsible for freight charges C. When the purchaser is responsible for paying freight charges D. If the goods are shipped FOB destination. E. After the half-way point between the buyer and seller.

16. Costs included in the Merchandise Inventory account can include all of the following except: A. Damaged inventory that cannot be sold B. Transportation-in. C. Storage. D. Insurance. E. Invoice price minus any discount.

17. Physical counts of inventory: A. Are not necessary under the perpetual system. B. .Must be taken at least once a month C. Are necessary to adjust the Inventory account to the actual inventory available D. Requires the use of hand-held portable computers. E. Are not necessary under the cost-to benefit constraint.

18. During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is: A. LIFO method B. Average cost method. C. Weighted-average method. D. FIFO method. E. Specific identification method

19. The inventory valuation method that tends to smooth out erratic changes in costs is: A. FIFO. B. LIFO C. Weighted average. D. Specific identification. E. WIFO.

20. The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is: A. Weighted average B. FIFO C. LIFO. D. Specific identification. E. All of the inventory valuation methods accomplish this.

21. The inventory valuation method that results in the lowest taxable income in a period of inflation is: A. FIFO method B. LIFO method C. Weighted-average cost method. D. Specific identification method. E. Gross profit method.

22. The full disclosure principle: A. Requires that companies use the same accounting method for inventory valuation period after period B. Prescribes that when a change in inventory valuation method is made, the notes to the statements report the type of change, its justification and its effect on net income. C. Is not subject to the materiality principle. D. Is only applied to retailers. E. Is also called the consistency principle.

23. Which of the following inventory costing methods will always result in the same values for ending inventory and cost of goods sold regardless of whether a perpetual or periodic inventory system is used? A. FIFO and LIFO B. LIFO and weighted-average cost C. FIFO and weighted-average cost D. Specific identification and FIFO E. LIFO and specific identification

24. Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except: A. Retail method B. FIFO method. C. Specific identification method. D. Weighted average method. E. LIFO method

25. A company had the following purchases during the current year: January: 10 units at $120

February: 20 units at $130

May: 15 units at $140

September: 12 units at $150

November: 10 units at $160

On December 31, there were 26 units remaining in ending inventory. These 26 units consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory? A. $3,500. B. $3,960 C. $3,800 D. $3,280. E. $3,640.

26. Axme Corporation uses a weighted-average perpetual inventory system. August 2, 10 units were purchased at $12 per unit. August 18, 15 units were purchased at $14 per unit. August 29, 12 units were sold. What was the amount of the cost of goods sold for this sale? A. $148.00 B. $150.50 C. $210.00 D. $158.40 E. $330.00

27. Principles of internal control include all of the following except: A. Apply technological controls. B. Perform regular and independent reviews C. Maintain minimal assets D. Separate recordkeeping from custody of assets. E. Divide responsibilities for related transactions.

28. When two clerks share the same cash register it is a violation of which internal control principle? A. Maintain adequate records B. Establish responsibilities C. Insure assets. D. Bond key employees. E. Apply technological controls.

29. Basic bank services include: A. All of the choices are basic bank services B. Bank deposits. C. Checking. D. Electronic funds transfer. E. . Bank accounts

30. A bank statement includes: A. A list of outstanding checks. B. A list of petty cash amounts. C. A listing of deposits in transit D. The beginning and the ending balance of the depositor's account E. All of the choices are included on the bank statement.

31. The Cash Over and Short account: A. Is used to record a credit balance in the cash account. B. Is not necessary in a computerized accounting system C. Is an income statement account used for recording the income effects of cash overages and cash shortages from errors in making change and/or from errors in processing petty cash transactions. D. Can never have a debit balance. E. Can never have a credit balance.

32. Which of the following procedures would weaken control over cash receipts that arrive through the mail? A. After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender's name, the amount, and an explanation of why the money is sent. B. The bank reconciliation is prepared by a person who does not handle cash or record cash receipts. C. The cashier should not also be the record keeper who records the amounts received in the accounting records D. For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank E. All of these are good internal control procedures over cash receipts that arrive through the mail.

33. The entry necessary to establish a petty cash fund should include: A. A debit to Cash and a credit to Petty Cash. B. A debit to Cash and a credit to Cash Over and Short. C. A debit to Petty Cash and a credit to Accounts Receivable. D. A debit to Petty Cash and a credit to Cash. E. A debit to Cash and a credit to Petty Cash Over and Short.

34. An analysis that explains any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n): A. Internal audit. B. Bank audit C. Bank reconciliation D. Trial reconciliation. E. Analysis of debits and credits.

35. On a bank reconciliation, an unrecorded debit memorandum for printing checks is: A. Noted as a memorandum only. B. Added to the book balance of cash. C. Added to the bank balance of cash D. Deducted from the book balance of cash E. Deducted from the bank balance of cash.

36. Outstanding checks refer to checks that have been: A. Written, recorded, sent to payees, and received and paid by the bank. B. Written and not yet recorded in the company books. C. Held as blank checks. D. Issued by the bank E. Written, recorded on the company books, sent to the payee, but have not yet been paid by the bank.

37. On a bank reconciliation, the amount of an unrecorded bank service charge should be: A. Added to the book balance of cash. B. Added to the bank balance of cash. C. Deducted from the book balance of cash D. Deducted from the bank balance of cash. E. Noted in memorandum form only.

38. A check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period. As a result, in preparing this period's reconciliation, the amount of this check should be: A. Added to the book balance of cash. B. Deducted from the book balance of cash. C. Added to the bank balance of cash. D. Ignored in preparing the period's bank reconciliation. E. Deducted from the bank balance of cash.

39. A company made a bank deposit on September 30 that did not appear on the bank statement dated as of September 30. In preparing the September 30 bank reconciliation, the company should: A. Add the deposit to the bank statement balance B. Send the bank a debit memorandum. C. Deduct the deposit from the September 30 book balance and add it to the October 1 book balance. D. Add the deposit to the book balance of cash. E. Deduct the deposit from the bank statement balance

40. If a check correctly written and paid by the bank for $794 is incorrectly recorded in the company's books for $749, how should this error be treated on the bank reconciliation? A. Subtract $45 from the bank's balance. B. Add $45 to the bank's balance. C. Add $45 to the book balance D. Subtract $45 from the book balance E. Subtract $45 from the bank's balance and add $45 to the book's balance.