Gage University College

Department of Accounting and finance

Accounting for merchandise enterprise FINAL EXAM 50%

NAME. -----------------------------------------------------------ID NO. ------------------- SECTION. --------------

Part I. Write the word “True” if the statement is correct and “False” if the statement is incorrect
1. The primary source of revenue in a merchandising company is Sales
2. The “purchases” account is not used in a perpetual inventory system
3. In a periodic system, cost of goods sold is determined and recorded at the time of sale.
4. Periodic inventory systems are, in general, less expensive to operate than perpetual systems.
5. A company that uses a perpetual inventory system should perform a physical inventory count.
6. Under term of FOB Destination the transportation cost is paid by the buyer of the merchandize.
7. Trade discounts refer to reduction from list prices of goods and it must be recorded in accounting.
8. Sales discount is a percentage reduction given by a seller for prompt early payment of a credit sale.
9. If inventory is shipped FOB shipping point, the buyer takes title when inventory leaves seller’s
warehouse.
10. In a periodic system, cost of goods sold is the difference between what a company has available for sale
and what they didn’t sell
PART II MULTIPLE CHOICE
1. Gross profit will result if:
A. Operating expenses are less than net income.
B. Sales revenues are greater than operating expenses.
C. Sales revenues are greater than cost of goods sold.
D. Operating expenses are greater than cost of goods sold.
2. under a perpetual inventory system, when goods are purchased for resale by a company:
A. Purchases on account are debited to Inventory.
B. Purchases on account are debited to Purchases.
C. Purchase returns are debited to Purchase Returns and Allowances.
D. Freight costs are debited to Freight-out.
3. The sales accounts that normally have a debit balance are:
A. Sales Discounts. C. Both (a) and (b).
B. Sales Returns and Allowances. D. Neither (a) nor (b).
4. A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16.
The amount received as payment in full on June 23 is:
A. $700. B. $686 C. $685. D. $650.
5. Which of the following accounts will normally appear in the ledger of a merchandising company
that uses a perpetual inventory system?
A. Purchases. B. Freight-in. C. Cost of Goods Sold. D. Purchase Discounts.
6. Steps in accounting cycle for merchandising company are the same as in a service company except:
A. An additional adjusting journal entry for inventory may be needed in a merchandising company .
B. Closing journal entries are not required for a merchandising company.
C. A post-closing trial balance is not required for a merchandising company.
D. A multiple-step income statement is required for a merchandising company.
7. The multiple-step income statement for a merchandising firm shows each of the following except:
A. Gross profit. C. A sales revenue section.
B. Cost of goods sold. D. Investing activities section.
8.If sales revenues are $400,000,cost of goods sold is $310,000, &operating expenses are $60,000, gross profit
is:
A. $30,000 B. $90,000 C. $340,000. D. $400,000
9. A single-step income statement:
A. Reports gross profit.
B. Does not report cost of goods sold.
 C. Reports sales revenues, other revenues section of income statement.
D. Reports operating income separately.
10. Which of the following appears on both a single-step and a multiple-step income statement?
A. Inventory. B. Gross profit. C. Income from operations. D. Cost of goods sold.
11. In determining cost of goods sold:
A. Purchase discounts are deducted from net purchases.
B. Freight-out is added to net purchases.
C. Purchase returns and allowances are deducted from Net purchases.
D. Freight-in is added to net purchases.
12. If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is
$50,000, cost of goods sold is:
A. $390,000 B. $370,000 C. $330,000 D. $420,000
13. When goods are purchased for resale by a company using a periodic inventory system:
A. Purchases on account are debited to Inventory.
B. Purchases on account are debited to Purchases.
C. Purchase returns are debited to Purchase Returns and Allowances.
D. Freight costs are debited to Purchases.
14. In a worksheet, Inventory is shown in the following columns:
A. Adjusted trial balance debit and balance sheet debit.
B. Income statement debit and balance sheet debit.
C. Income statement credit and balance sheet debit.
D. Income statement credit and adjusted trial balance debit
15. One of the following is not deduction from purchase when we determine net Purchase:
A. Freight in B. Purchase discount C. Purchase returns D. Purchase allowance
Based on data given below answer questions17 -19.The following data are taken from the income statement
columns of the worksheet of a merchandising business prepared for the year ended December 31, 2002.
Net Income Br. 12,500
Sales 45,000
Income Summary 10,000 Dr. and 6,000 Cr.
Gross Purchase 19,750
Purchase Ret. & Allowances 200
Purchase Discount 50
16. What is the total cost of goods sold for the year?
A. Br. 69,500 B. Br. 89,250 C. Br. 23,500 D. Br. 57,000 E. none
17. What is the amount of total operating expenses?
A. Br. 9,000 B. Br. 32, 5000 C. Br. 21,500 D. Br. 36,000 E. none
18. What is the amount of gross profit for the year?
A. Br. 9000 B. Br. 21,500 C. Br. 23,500 D. Br. 25,000 E. none
19. A company has $550,000 net sales & $193,000 in gross profit. This means cost of goods sold equals
A. $743,000 B. $550,000 C. $357,000 D. $193,000
20. A company purchased $4,500 of merchandise on May 1 with terms of 2y10, ny30. On May 6, it
returned $250 of that merchandise. On May 8, it paid the balance owed for merchandise, taking any
discount it is entitled to. The cash paid on May 8 is
A. $$4,250 B. $4,160 C. $4,165 D. $4,410
21. A company has cash sales of $75,000, credit sales of $320,000, sales returns and allowances of
$13,700, and sales discounts of $6,000. Its net sales equal
A. $375,300 B. $300,300 C. $339,700 D. $414,700
22. Elenor Company sells 400 units of inventory for $40 each. The inventory originally cost Elenor $26
each. What is Elenor’s gross profit on this transaction?
A. $16,000 B. $10,400 C. $ 5,600 D. $ 9,600
23. Which of the following increases with a debit?
A. Retained earnings B. Sales revenue C. Inventory D. Note payable
24. On February 13, North Carolina Furniture purchases 3ofas from a manufacturer for $300 each. The
terms of the sale are 2/10 n/45. It pays the invoice on February 21. How much did they say?
 A. $300 B. $900 C. $882 D. $810
25. Crayson Inc. started the year with $490,000 in beginning inventory. During the year, Crayson
purchased an additional $1,060,000 in inventory. At the end of the year, Crayson employees
performed a physical count and determined that ending inventory amounted to $450,000. What was
26. Crayson’s cost of goods sold for the year?
A. $1,100,000 B. $1,020,000 C. $120,000 D. $1,060,000
27. A seller sold merchandise which has a list price of USD 4,000 on account, giving a trade
discount of 20%.The entry on the books of the seller is:
A. Debit Accounts Receivable 3,200 & and Credit Trade Discounts 800 Sales 4,000
B. Debit Accounts Receivable 4,000 & Credit Sales 4,000
C. Debit Accounts Receivable 3,200 & Trade Discounts 800 Sales 4,000
D. Debit Accounts Receivable 3,200 & Credit Sales 3,200
28. X Company began the accounting period with USD 60,000 of merchandise, and net cost of Purchases
were USD 240,000. A physical inventory showed USD 72,000 of merchandise unsold at the End of the period.
The cost of goods sold of Y Company for the period is:
A. USD B. USD 228,000. D. USD 168,000.
300,000. C. USD 252,000.
29. Business purchased merchandise for USD 12,000 on account; terms are 2/10, n/30. If USD 2,000
of the merchandise was returned and the remaining amount due was paid within the discount
period, the purchase discount would be:
A. USD 240. B. USD 200. C. USD 1,200. D. USD 1,000.
30. A classified income statement consists of all of the following major sections except for:
A. Operating revenues& operating expenses. C. .Non-operating revenues and expenses.
B. Cost of goods sold. D. Current assets.
31. Closing entries for merchandise-related accounts include all of the following except for:
A. A credit to Sales Discounts. D. A credit to Transportation-In.
B. A credit to cost of ending Mer. E. A debit to Sales.
inventory. F. All of the above
C. A debit to Purchase Discounts.
32. If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing a(n):
A. debit memorandum C. Credit invoice
B. credit memorandum D. bill of exchange
33. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30, and the
seller prepays $50 in transportation costs, the amount of the discount for early payment would be:
A. $0 B. $5.00 C. $10.00 D. $10.50
34. The income statement in which the total of all expenses is deducted from the total of all revenues is termed:
A. multiple-step form C. single-step form
B. direct form D. report form
35. On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is called:
A. operating income C. Gross profit
B. income from operations D. net income
36. The following information was reported on the income statement of Wagon Wheel Company.
 Sales revenues--------------------------------------- $450,000
 Cost of goods sold------------------------------------ 200,000
 Selling, general, and administrative expenses ----- 50,000
 Interest expense ----------------------------------------30,000
Wagon Wheel's gross profit and operating income respectively would be
A. $300,000 & $70,000 C. $250,000 & $100,000
B. $250,000 & $70,000 D. $100,000 & $70,000
37. Where on an income statement would you expect to find administrative salaries expense?
A. Just after cost of goods sold C. as part of cost of goods sold
B. grouped with other operating expenses D. following income taxes
38. Sales &purchase is recorded in which financial reports?
 A. Income statement B. Trial balance. C. capital D. cash flow
39. The worksheet for LIFE Co. consisted of eight pairs of debit and credit columns. The dollar
amount of one item appeared in both the credit column of the income statement and the debit
column of the balance sheet section. That item is
A. Net income for the period C. Cost of goods sold
B. Beginning inventory D. Ending inventory
40. A business enterprise uses the periodic inventory system and uses a closing entry to record the
ending inventory (December 31). If the ending inventory is Br. 56,200 and the beginning inventory
(January 1) was Br. 42,300, the correct closing entry (explanation omitted) is:
A. Income summary……………………………….56,200
Inventory (Dec.31)………………………………56,200
B. Inventory (Jan. 1)………………………………42,300
Inventory (Dec.31)………………………………42,300
C. Inventory (Dec. 31)…………………………….56,200
Income summary………………………………..56,200
D. Inventory (Dec 31.)…………………………… 13,900
Inventory (Jan.1)………………………………...13,900
Part III MATCHING
Enter the letter for each term in the blank space beside the definition that it most closely matches.
A. Cash discount F.Merchandise inventory K. Multiple-step I/statement
B. FOB shipping point G. Sales discount L. Sales return
C. Credit period H. Gross profit M. Single-step I/statement
D. Purchase discount I. Trade discount N. Sales allowances
E. Discount period J. FOB destination
1. Ownership of goods is transferred when delivered to the buyer’s place of business.J
2. Time period in which a cash discount is available.E
3. Difference between net sales and the cost of goods sold.H
4. Reduction in a receivable or payable if it is paid within the discount period.A
5. Purchaser’s description of a cash discount received from a supplier of goods.D
6. Ownership of goods is transferred when the seller delivers goods to the carrier.B
7. Reduction below list or catalog price that is negotiated in setting the price of goods.I
8. Seller’s description of a cash discount granted to buyers for early payment.G
9. Time period that can pass before a customer’s payment is due.C
10. Goods a company owns and expects to sell to its customers.F
11. Income statement that shows only one step in determining net income.M
12. An income statement that shows several steps in determining net incomeK
13. A deduction made to the selling price of merchandise, granted by the seller so that the buyer will
keep the merchandiseN
14. A return of goods from the buyer to the seller for a cash or credit refund. L

PART IV WORK OUT

1. For each of the following, determine the missing balance.
 Net Income--------------------- $82,900  Income Tax Expense --------- $50,000
 Cost of Goods Sold ----------- $459,030  Sales Revenue--------------------?
 Advertising Expense ---------- $56,000
2. The following data were extracted from the accounting records of Meniscus Company for the year
ended April 30, 2006:
 Merchandise inventory, May 1, 2005 ---------------- $ 121,200
 Merchandise inventory, April 30, 2006 ---------------- 142,000
 Purchases -----------------------------------------------------------985,000
 Purchases returns and allowances -------------------------23,500
 Purchases discounts ----------------------------------------------21,000
 Sales -----------------------------------------------------------------1,420,000
  Sales return and allowance ---------------------------------- 20000
 Transportation in ---------------------------------------------------11,300
Required
A. Calculate Net Sales And Net Purchase for the year ended April 30, 2006:
B. Calculate Cost Of Purchase and merchandise available for sale For The Year April 30, 2006
C. Calculate the Net Income Before Tax if Operating Expense is Br 169,000
3. The unadjusted trial balance of ABC Company on December 31, 20XX is presented below.
ABC Merchandising Company
Unadjusted Trial Balance
December 31, Year 10
Debit Credit
Cash…………………………………...................………….. Br. 49,000
Account R …………………………………………................... 32,000
Allowance for doubtful accounts…………………………………………............……. Br. 200
Inventory (January 1, year10)…………………….....…… 47,000
Inventory of advertising supply’s…………………..….…..3,000
Land…………………………………………....................………..264,000
Building ……………………………………….................………. 210,000
Accumulated depreciation of building…………………………………….............……… 45,800
Equipment……………………………………….............…….. 252,000
Accumulated depreciation of equipment…………………………………….........……….62, 700
Notes payable………………………………………………………………..........................
……….180, 000
Accounts payable ………………………………………………………..........................……………
45,000
Unearned rent revenue……………………………………………………........................…………..
3,200
Interest payable…………………………………………………………………….……….
……………………..4,000
Salaries payable ……………………………………….……………….
…………………………………………2,200
Bonds payable, 9%
……………………………………………………………………………………….…. 100,000
Common stock ………………………………………………………………………………………….
……200,000
Retained earnings ((January 1, year10)………………………………………………….…………
88,800
Dividends……………………………………………… 8,000

Sales……………………………………………………………………………………………………
…………….. 830,000
Rent revenue
……………………………………………………………………………………………………….
16,600
Purchase………………………………………………. 480,000
Salaries expense ……………………………………… 56,500
Selling expenses……………………………………… 122,500
General expenses ……………………………………. 41,000
Interest expense …………………………………….. 15,500
_______
Total………………………………………Br.1,580,500 Br.
1,580,500
Additional information
1) Aging of accounts receivable indicates that an allowance for doubtful accounts in the amount of Br. 960 is
required on December 31year 10.
2) Inventory of advertising supplies is Br. 1,850 on December 31, year 10.
3) depreciation expense of building &equipments for the current period is Br 15200 and 23300 respectively
4) Unearned rent revenue is Br. 2,700 on December 31year 10.
5) Interest Accrued is Br. 6,400 on December 31year 10
6) Salaries payable amount to Br. 1,200 on December 31, year 10.
7) The physical inventory on December 31, year 10 is Br. 35,000
8) Income taxes expense for the year ended December 31year 10 is estimated at Br. 32, 000.
Instructions.
A. Record the adjusting entries and post the adjusting entries to appropriate ledger account
B. Prepare an adjusted trial balance.
C. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
D. Prepare the closing entries AND post a post-closing trial balance.