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Exam 6: Merchandising Operations and the Multistep Income Statement

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Question 1

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The main purposes of internal controls include:

A) prevention of error,theft,and fraud.
B) promotion of efficiency.
C) ensuring compliance with laws and regulations.
D) all of the above.

E) A) and D)
F) B) and D)

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Question 2

Multiple Choice

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A company had the following partial list of account balances at year-end: The amount of net sales reported on the income statement would be:

A) $57,200.
B) $64,200.
C) $56,000.
D) $55,700.

E) A) and D)
F) B) and D)

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C

Question 3

True/False

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Most companies report their sales revenue and contra-revenue accounts as well as net sales on their externally reported income statements. BT: Knowledge

Coca-Cola reported net sales revenues of $19.8 billion and cost of goods sold of $6.0 billion.Its gross profit percentage was:

A retail chain sells 100 designer sheet sets for $199.99 a set; these sheet sets cost the company $69.95 a set to buy.The company also sells 1,000 basic sheet sets for $49.99 a set; these sheet sets cost the company $24.99 to buy.Other operating expenses total $10,000.Which of the following statements is true?

A company sells three different products.The first costs $8 and sells for $16,the second costs $18 and sells for $45,while the third costs $36 and sells for $120.

Unlike manufacturers and merchandisers,service companies do not incur operating expenses. BT: Knowledge

Using a contra-revenue account for sales returns and allowances instead of directly reducing the sales account allows a retailer the following advantage:

Before reconciling to its bank statement,Lauren Cosmetics Corporation's general ledger had a month-end balance in the cash account of $5,250.The bank reconciliation for the month contained the following items: Given the above information,what adjusted cash balance should Lauren report at month-end?

Which of the following is an activity in the operations of a manufacturer,but not in the operations of a merchandising or service company?

Only companies that use a periodic inventory system need to perform a physical count of their inventory. BT: Knowledge

Which of the following principle of internal control requires application of need basis?

Under the periodic inventory system:

Which of the following is not stated as a primary objective of a company's internal control policies and procedures?

The terms "sales discounts" and "purchase discounts" are used interchangeably by a company. BT: Knowledge

All of the following bank reconciliation items would result in an adjusting journal entry on the company's books except:

Central Company sold goods for $5,000 to Western Company on March 12 on credit.Terms of the sale were 2/10,n/30.At the time of the sale,Central recorded the transaction by debiting accounts receivable for $5,000 and crediting sales revenue for $5,000.Western paid the balance due,less the discount,on March 21.To record the March 21 transaction,Central would debit:

When sales discounts in the current year exceed sales discounts in the prior year,assuming all else remains unchanged,what is the effect on the gross profit percentage?

A retailer sells plasma TVs at a selling price of $5,000 each.The total sale on account is for $20,000 Under a perpetual inventory system the journal entries to record the sale will include:

Match the term and the definition.Not all definitions will be used. _____ Deposits in transit _____ Purchase discount _____ Perpetual inventory system _____ Merchandising company _____ Gross profit _____ Sales discount _____ Manufacturing company _____ Shrinkage _____ Periodic inventory system A.When a company gives a discount for early payment on goods it sells. B.A company that buys goods from suppliers and sells them to someone else. C.When a company updates inventory records at the end of accounting period by physical count. D.Sales revenue minus total expenses other than income taxes. E.When a company lowers its selling price to reduce excess inventory. F.A company that buys inputs and makes goods to sell. G.When a company authorizes the transfer of funds electronically to another bank. H.Loss of inventory due to theft,error,or fraud. I.Physical money or any financial instrument banks accept for deposit. J.When assets have to be reduced in book value because market value has dropped. K.When a company receives a lower price on goods it buys in bulk. L.When a company receives a discount for early payment on goods it buys. M.When a company has made a deposit that the bank has not yet recorded. N.Sales revenue minus cost of goods sold. O.When a company tracks goods in stock by updating inventory every time a purchase or sale takes place.