A. Multiple Choice: Theory 1

1. Which of the following statement is false?

a. The difference between list price and invoice price is equal to the amount of the trade discount.

b. Trade discounts are a convenient means of reducing list price to invoice price.

c Trade discounts are not entered in the accounting records,

d. Trade discounts are identical to cash discounts.

2. Revenue from the sale of merchandise should be entered in the accounting records at; 104

a. The list price,

b. The invoice price minus any cash discount

c. The list price minus any trade discount

d. The invoice price minus any trade discount and any cash discount.

3. Which of the following statement is false?

a. Cash discounts are a convenient means of reducing prices to invoice prices.

b. Cash discounts are used to encourage customers to make prompt discount payments. c. From the seller's perspective, the terms "cash discount" and "sales discount" are synonymous.

d. Cash discounts may be offered in conjunction with trade discounts.

4. The expression 3/20,n/60 means:

a. The invoice must be paid in 3 to 20 days, otherwise, interest for 60 days will be charged.

b. A 3% discount is available if the invoice is paid in 20 to 60 days; otherwise the total invoice price is due.

c. A 3% discount is available if the invoice is paid within 20 days, otherwise, the total invoice price is due in 60 days.

d. A 15% (3/4 of 20) is available if the invoice is paid within 60 days.

5. Revenue is normally entered in the accounting records when:

a. a customer orders goods

b. goods are received

c. a customer pays for the goods

d. goods are sold

6. In a merchandising operation, the Sales account should include

a. only credit sales of merchandise

b. only cash sales of merchandise

c. both cash and credit sales of merchandise

d. sales of both merchandise and other assets of the business.

7. DEF Co. had the following data for the period ended: 105 Cash sales P400,000 Credit sales 280,000 Sales discounts 25,000 Sales return 20,000 Freight-in 15,000 Freight-out 16,000 DEF Co. would report net sale revenue on its statement of comprehensive income amounting to;

a. P635,000

c. P620,000

b. P653,000

d. P680,000

8. XYZ Company sold10 units f goods with a unit list price of P 2,000 on January 1, 2020. Given that the trade discount is 5% and the cash discount is 10% and that the cash discount period is 10 days and the credit period is 30 days, if the customer settles the debt on January 28, 2020, what is the actual amount he needs to pay?

a. P17,100

c. P19,000

b. P18,050

d. P20,000

9. A supplier offers the following discounts; Trade discount of 10% at list price and another cash discount of 5% if paid in full before the due date. How much is to be paid if a customer pays before due at a list price of P16,000?

a. P13,680

c. P14,000

b. P15,520

d. P16,000

10. A trade discount is:

a. shown in the sales journal,

b. shown in the purchase journal,

c. shown in the general journal,

d. not shown anywhere,

11. Which account does a merchandiser. but not a service entity use?

a. Sales

b. Inventory 106

c. Cost of Goods Sold

d. All of the above

12. The two main inventory accounting systems are the following

a. purchase and sale,

b. returns and allowances.

c. cash and accrual.

d. perpetual and periodic.

13. Which of the following activities is not a component of the operating cycle?

a. Collection of cash from merchandise sales,

b. Ordering of merchandise,

c. Purchase of merchandise.

d. Sale of merchandise.

14. The periodic inventory system is used most commonly by companies that sell

a. high-priced, high-volume merchandise,

b. high-priced, low-volume merchandise, ,

c. low-priced, high-volume merchandise,

d. low-priced, low-volume merchandise,

15. A physical count of inventory is usually taken

a. at the end of the fiscal year,

b. at the peak of the busy season,

c. at the start of the fiscal year,

d. in the middle of the fiscal year,

16. A merchandiser will earn an operating income of exactly zero when

a. cost of goods sold equals gross margin,

b. gross margin equals operating expenses.

c. net sales equals cost of goods sold,

d. operating expenses equal net sales.

17. Gross margin equals the difference between net sales and 107

a. cost of goods sold.

b. cost of goods sold plus operating expenses,

c. operating expenses,

d. profit.

18. Which of the following goods would not be included in merchandise inventory for purchasing entity?

a. Goods in transit shipped FOB destination

b. Goods in transit shipped FOB shipping point

c, Goods on hand in the showroom

d, Goods ordered and received from the supplier

19. An amount deducted from the catalog price for an item of merchandise is called a

a. customer discount,

b. purchases discount.

c, sales discount,

d. trade discount.

20. Under the Perpetual inventory system, which of the following counts would not be used?

a. Cost of Goods Sold

b. Merchandise Inventory

c. Purchases

d. Sales