Chapter 4
Accounting Systems for Merchandising Operations

Quiz Instructions

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1. Gross profit is determined by subtracting the cost of merchandise sold from what?
a. The cost of merchandise purchased.
b. Fees earned
c. Accounts receivable
d. Net sales.

2. West, Inc. had beginning inventory of $10,000, purchases of $25,000 and ending inventory of $5,000. What is West's cost of merchandise sold?
a. $10,000
b. $25,000
c. $5,000
d. $30,000

3. Hig, Inc. had the following merchandise transactions in October:

Purchases $50,000
Purchase returns $3,000
Purchase discounts $1,000
Transportation $2,000

What is the total cost of merchandise purchased for Hig, Inc.?

a. $50,000
b. $46,000
c. $52,000
d. $48,000

4. If a $10,000 sale is made on January 1st, with terms of 2/10, n/30 how much would the discount be if payment is made on January 9th?
a. $10,000
b. $200
c. $1,000
d. $0

5. If a company purchased $2,000 of merchandise on account and paid for it during the discount period with the terms of 2/10, n/30, the effect on the accounts would be __________.
a. Decreases Accounts Payable by 2,000 and decreases cash by 2,000
b. Increases Merchandise Inventory by 2,000 and increases Accounts Payable by 2,000
c. Decreases Accounts Payable by 1,960 and decreases Merchandise Inventory by 1,960
d. Decreases Accounts Payable by 2,000, decreases Merchandise Inventory by 40, and decreases Cash by 1,960

6. If the cost of merchandise sold is overstated by $50,000, what is the effect on net income?
a. It is overstated by $50,000
b. It is correct
c. It is understated by $50,000
d. None of the above

7. Which term indicates that merchandise is free of transportation charges to the buyer?
a. FOB destination
b. Transportation Out
c. FOB Shipping point
d. Transportation In

8. Assume that beginning accounts receivable are $30,000, that there are sales on account of $20,000 during the period, and customers paid $10,000 on their accounts. Under the indirect method of preparing the statement of cash flows, what is the adjustment to net income from these transactions?
a. Subtract $10,000 from net income
b. Add $10,000 to net income
c. Subtract $20,000 from net income
d. Add $20,000 to net income

9. Under the indirect method of preparing the statement of cash flows, increases in current liabilities are __________ net income in the cash flows from operating activities section.
a. Subtracted from
b. Added to
c. Not used
d. Cannot tell from the information given

10. If Clip, Inc. sold $500,000 worth of merchandise, had $50,000 returned, and then the balance paid during the 2% discount period, how much was Clip's net sales?
a. $500,000
b. $450,000
c. $441,000
d. $510,000

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