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A company purchased $10,000 of merchandise on June 15 with terms of 3/10, n/45, and FOB shipping point. The freight charge was $500. On June 20, it returned $800 of that merchandise. On June 24, it paid the balance owed for the merchandise taking any discount it is entitled to. The cash paid on June 24 equals:


A) $9,224.
B) $10,200.
C) $10,500.
D) $10,300.
E) $9,424.

F) All of the above
G) A) and D)

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If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

A) True
B) False

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FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

A) True
B) False

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Prentice Company, Inc. had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Prentice's net sales for this period equal:


A) $94,275.
B) $172,550.
C) $174,250.
D) $176,025.
E) $177,725.

F) A) and D)
G) C) and D)

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Operating expenses are classified into two categories: selling expenses and cost of goods sold.

A) True
B) False

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Cushman Company, Inc. had $800,000 in net sales, $350,000 in gross profit, and $200,000 in operating expenses. Cost of goods sold equals:


A) $150,000.
B) $450,000.
C) $800,000.
D) $350,000.
E) $200,000.

F) A) and C)
G) A) and D)

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Describe the key attributes of inventory for a merchandising company.

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Merchandise inventory refers to products...

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The following statements are true regarding the operating cycle of a merchandising company except:


A) The operating cycle begins with the purchase of merchandise.
B) The operating cycle is shortened by credit sales.
C) The operating cycle ends with the collection of cash from the sale of merchandise.
D) The operating cycle can vary in length among different merchandising companies.
E) The operating cycle sometimes involves accounts receivable.

F) A) and D)
G) A) and C)

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The amount recorded for merchandise inventory includes all of the following except:


A) Purchase discounts.
B) Returns and allowances.
C) Freight costs paid by the buyer.
D) Freight costs paid by the seller.
E) Trade discounts.

F) B) and E)
G) A) and E)

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On September 12, Vander Company, Inc. sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Vander uses the periodic inventory system. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Vander makes on September 18 is:


A)  Cash 5,800 Accounts receivable 5,800\begin{array} { | l | r | r | } \hline \text { Cash } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}
B)  Cash 4,000 Accounts receivable 4,000\begin{array} { | l | r | r | } \hline \text { Cash } & 4,000 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}
C)  Cash 3,920 Sales discounts 80 Accounts receivable 4,000\begin{array} { | l | r | r | } \hline \text { Cash } & 3,920 & \\\hline \text { Sales discounts } & 80 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}
D)  Cash 5,684 Accounts receivable 5,684\begin{array} { | l | r | r | } \hline \text { Cash } & 5,684 & \\\hline \text { Accounts receivable } & & 5,684 \\\hline\end{array}
E)  Cash 5,684 Sales discounts 116 Accounts receivable 5,800\begin{array} { | l | r | r | } \hline \text { Cash } & 5,684 & \\\hline \text { Sales discounts } & 116 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}

F) A) and B)
G) C) and D)

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When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is:


A) The ending inventory amount.
B) The beginning inventory amount.
C) Equal to the cost of goods sold.
D) Equal to the cost of goods purchased.
E) Equal to the gross profit.

F) None of the above
G) B) and D)

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Juniper Company, Inc. uses a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The amount of the cash paid on August 26 equals:


A) $8,167.50
B) $9,652.50.
C) $9,750.00.
D) $8,250.00.
E) $8,152.50.

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

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What does the acronym FOB stand for? Describe the differences between FOB shipping point (or FOB factory) and FOB destination.

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FOB stands for free on board, and it det...

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National Storage Company, Inc. had sales of $1,000,000, sales discounts of $2,500, sales returns and allowances of $15,000, and cost of goods sold of $525,000. Calculate National's gross profit.

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Gross Profit = Sales - Sales D...

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All of the following statements regarding sales returns and allowances are true except:


A) A reduction is the selling price because of damaged merchandise is included in sales returns and allowances.
B) There is no relationship between sales returns and allowances and the possibility of lost future sales.
C) Sales returns and allowances are recorded in a separate contra-revenue account.
D) Sales returns and allowances are rarely disclosed in published financial statements.
E) Sales returns and allowances are closed to the Income Summary account.

F) A) and B)
G) A) and E)

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Zenith Company Inc.'s Merchandise Inventory account at the end of year 2015 has a balance of $91,820, but a physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this $1,370 of inventory shrinkage is:


A)  Merchandise  Inventory 1,370 Inventory  shrinkage  expense 1,370\begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Merchandise } \\\text { Inventory }\end{array} & 1,370 & \\\hline \begin{array} { l } \text { Inventory } \\\text { shrinkage } \\\text { expense }\end{array} & & 1,370 \\\hline\end{array}
B)  Purchases  discounts 1,370 Cost of  goods  sold 1,370\begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Purchases } \\\text { discounts }\end{array} & 1,370 & \\\hline \begin{array} { l } \text { Cost of } \\\text { goods } \\\text { sold }\end{array} & & 1,370 \\\hline\end{array}
C)  Cost of goods  sold 1,370 Merchandise  Inventory 1,370\begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Cost of goods } \\\text { sold }\end{array} & 1,370 & \\\hline \begin{array} { l } \text { Merchandise } \\\text { Inventory }\end{array} & & 1,370 \\\hline\end{array}
D)  Inventory  shrinkage  expense 1,370 Cost of  goods 1,370 sold \begin{array} { | l | l | l | } \hline \begin{array} { l } \text { Inventory } \\\text { shrinkage } \\\text { expense }\end{array} & 1,370 & \\\hline \begin{array} { l } \text { Cost of } \\\text { goods }\end{array} & & 1,370 \\\text { sold } & & \\\hline\end{array}
E)  Cost of  Goods Sold 90,450 Merchandise  Inventory 90,450\begin{array} { | l | l | l | } \hline \text { Cost of } & \\\text { Goods Sold } & 90,450 & \\\hline \begin{array} { l } \text { Merchandise } \\\text { Inventory }\end{array} & & 90,450 \\\hline\end{array}

F) A) and B)
G) A) and D)

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A common rule of thumb is that a company's acid-test ratio should have a value near or higher than 1 to conclude that a company is unlikely to face near-term liquidity problems.

A) True
B) False

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A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

A) True
B) False

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Liquidity problems are likely to exist when a company's acid-test ratio:


A) Is less than the current ratio.
B) equals 1.
C) Is higher than 1.
D) Is substantially lower than 1.
E) Is higher than the current ratio.

F) A) and B)
G) A) and C)

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A company purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the payment on July 28 is:


A) Debit Merchandise Inventory $1,600; credit Cash $1,600.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
D) Debit Accounts Payable $1,800; credit Cash $1,800.
E) Debit Accounts Payable $1,600; credit Cash $1,600.

F) A) and C)
G) B) and E)

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