1. Credit terms of a merchandising company are: 1/15, net 40. This means that the buyer can receive a discount of one percent, if the invoice is paid within 40 days of the invoice date.

Select one:

True

False

2. On November 1, 2015, Paramount Inc. sold merchandise with a cost of $5,000 for $10,000, FOB destination, with payment terms of 3/10, n/40. The company paid transportation costs of $100. Of these, merchandise sold for $3,000 (with a cost of $1,500) was returned on November 6. The company received the payment for the balance amount on November 10, 2015. Calculate the Net sales revenue.

Select one:

A. $6,790

B. $7790

C. $4790

D. $7,000

3. 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 2 days later and the accounts were appropriately adjusted. If the invoice is paid within 10 days, the amount of the purchase discount that would be available to the company is ________.

Select one:

A. $490

B. $460

C. $540

D. $500

4. The consistency principle states that a business should use the same accounting methods from period to period.

Select one:

True

False

5. Which of the following is the correct formula for calculating gross profit percentage?

Select one:

A. Net sales revenue Gross profit

B. Net sales revenue Net profit

C. Gross profit Net sales revenue

D. Net profit Net sales revenue

6. A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $200 to the vendor. Which of the following would be the correct journal entry to record these returns?

Select one:

A.

Accounts Payable	200
Purchase Returns		200

B.

Merchandise Inventory	200
Accounts Payable		200

C.

Accounts Payable	200
Merchandise Inventory		200

D.

Purchase Returns	200
Accounts payable		200

7.

On January 21, 2014, Bessant Inc. received merchandise from Mullies Inc. On that date, it found a few of these goods to be damaged. On January 22, it returned the damaged goods to the seller. Such returns will be treated as ________ by Bessant.

Select one:

A. purchase allowances

B. purchase returns

C. sales returns

D. sales allowances

9. When a seller grants a sales allowance, the customer does not return any goods to the seller.

Select one:

True

False

9. Under which of the following terms will the buyer be required to pay transportation costs?

Select one:

A. CIF

B. FOB destination

C. 5/5, net 45

D. FOB shipping point

10 Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

Select one:

A. Salaries Expense

B. Depreciation Expense

C. Supplies Inventory

D. Cost of Goods Sold

11. Avery Inc. uses a periodic inventory system. From the following details, calculate net purchases.

Beginning merchandise inventory	$3,000
Ending inventory	2,100
Purchases	24,000
Purchase Discounts	800
Purchase Returns & Allowances	1,200
Freight In	4,200

Select one:

A. $25,000

B. $23,200

C. $22,000

D. $26,000

12. Match the following.

The owner of company XYZ cannot use the company's fund to purchase furniture for private use and record it as business expense because of

Matching Principle ExpenseLiberalism" Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

Expenses are recorded when they are incurred.

Answer 2Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

Company ABC bought a vehicle for $20,000, however, the market value of the vehicle was $25,000. If ABC recorded market value of the vehicle in its balance sheet, the company has violated.

Answer 3Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

Buyer pays for the shipment and title is transferred to the buyer at the seller's place of business

Answer 4Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

An incentive for early payment.

Answer 5Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

A business is expected to remain in existence in a foreseeable future.

Answer 6Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

Seller pays for shipment

Answer 7Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

When in doubt overstate liabilities and understate assets.

Answer 8Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

The CFO of Company ABC intentionally understated the companies liabilities by $5 million and overstated revenue by $2 million.

Answer 9Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

Freight-in is considered a/an	Answer 10Choose...Matching PrincipleExpenseLiberalism"Cooking the Books"PeriodicityBusiness Entity ConceptFreight-inFOB Shipping PointSales DiscountCost PrincipleRevenue Recognition PrincipleSales AllowancesSuppliesFull Disclosure PrincipleFair Value Principle"Burning the Books"Freight-OutBusiness Expense ConceptInventoryGoing ConcernConservatism

13. The following information relates to Nebula Inc.

Sales Revenue	$230,000
Cost of Goods Sold	150,000
Interest Revenue	10,000
Operating Expenses	42,500
Sales Discounts	20,000
Sales Returns and Allowances	5,000

Calculate the net income of Nebula.

Select one:

A. $230,000

B. $12,500

C. $22,500

D. $67,500

14. A company made net sales revenue of $540,000 and cost of goods sold totaled $324,000. Calculate its gross profit percentage.

Select one:

A. 66.67%.

B. 300.00%.

C. 40.00%.

D. 100.00%.

15. A company sold merchandise with a cost of $221 for $350 on account. The seller uses the perpetual inventory system. The entry to record the cost of merchandise sold would include ________.

Select one:

A. a debit to Merchandise Inventory for $221 and a credit to Cost of Goods Sold for $221

B. a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $221

C. a debit to Cash and a credit to Sales for $350

D. a debit to Sales and a credit to Cash for $350

16. A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer.

Select one:

True

False

17. A company decides to ignore a very small error in their inventory balance. This is an example of application of the ________.

Select one:

A. materiality concept

B. accounting conservatism

C. disclosure principle

D. consistency principle

18. Which of the following principles states that a business should never anticipate gains?

Select one:

A. conservatism

B. disclosure principle

C. materiality concept

D. consistency principle

19. Delivery expense is a or an ________.

Select one:

A. overhead expense

B. administrative expense

C. operating expense

D. factory expense

20. VB Specialty Foods, a grocery merchandiser, purchased goods and paid transportation to bring them to the company warehouse. The transportation cost is known as ________.

Select one:

A. freight out

B. freight in

C. selling expense

D. cost of goods sold

21. FOB destination refers to a situation where title to goods while in transit vests with the ________.

Select one:

A. buyer

B. transport agency

C. insurance agency

D. seller