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A buyer using a perpetual inventory system uses an account named Purchases Returns and Allowances to record any goods returns to a supplier.

A) True
B) False

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On January 1,2018,the CD Warehouse began operations with a cash balance of $67,328.During the year,the company purchased 14,500 CDs on credit at a unit cost of $12.Payment was made soon enough to obtain a 2% purchase discount.During the year the company sold 3,200 CDs at a unit sales price of $25.1,000 of CD sales were sold to customers who paid early to get the 3% discount. Assuming a perpetual inventory system is used,show the journal entries for these transactions and the T-accounts for both cash and inventory.  Irventory 174,000 Accourts Payable 174,000 Accounts Payable 174,000 Cash 170,520 Irventory 3,480 Cash 79,250 Sales Discourt 750 Sales Reverue 80,000 Sales =3,200@$25=$80,000 Cost of Goods Sold 37,632 Irventory 37,632 Unit Cost of Irvertory =$170,520/14,500=$11.763,200×$11.76=$37,632\begin{array} { | l | r | r| } \hline \text { Irventory } & 174,000 & \\\hline \text { Accourts Payable } & & 174,000 \\\hline \text { Accounts Payable } & 174,000 & \\\hline \text { Cash } & & 170,520 \\\hline \text { Irventory } & & 3,480 \\\hline \text { Cash } & 79,250 & \\\hline \text { Sales Discourt } & 750 & \\\hline \text { Sales Reverue } & & 80,000 \\\hline \text { Sales } = \mathbf { 3 , 2 0 0 } @ \$ 25 = \$ 80,000 & & \\\hline \text { Cost of Goods Sold } & 37,632 & \\\hline \text { Irventory } & & 37,632 \\\hline \text { Unit Cost of Irvertory } = \$ 170,520 / 14,500 = \$ 11.76 & & \\\hline 3,200 \times \$ 11.76 = \$ 37,632 & & \\\hline\end{array}

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On June 15,a retailer purchases merchandise on account from a supplier for $2,000 terms 3/10,n/30.On June 18,the retailer returns merchandise purchased for $600 for a reduction in the amount owing.On June 22,the retailer pays their account.Under a perpetual inventory system the journal entry to record the payment includes:


A) $1,400 will be debited to Accounts Payable,$1,358 will be credited to Cash and $42 will be credited to Inventory.
B) $1,358 will be credited to Cash,$1,400 will be debited to Accounts Payable and $42 will be credited to Discounts.
C) $1,358 will be credited to Cash,$1,358 will be debited to Accounts Payable.
D) $1,400 will be credited to Cash,$1,358 will be debited to Accounts Payable,and $42 will be debited to Inventory.

E) A) and D)
F) A) and C)

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On December 31,2017,you count 300 tie clips in inventory.During the next quarter,you carefully record the effect of each purchase and sale transaction on inventory.You buy 128 tie clips during the next quarter.On March 31,2018,you count 288 tie clips in inventory.Which of the following is true?


A) Ending inventory would be 278 tie clips on March 31,2018.
B) Your company uses the periodic inventory method.
C) Your company's records would show that 140 tie clips were sold during the quarter.
D) All of the answers are acceptable.

E) C) and D)
F) A) and D)

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The company pays a shipping firm $685 to ship an order of goods from the supplier to the company.


A) debited (Dr)
B) Bedited (Cr)
C) Ceither (N)

D) All of the above
E) A) and B)

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The company purchases $3000 of goods intending to sell them to customers.


A) debited (Dr)
B) Bedited (Cr)
C) Ceither (N)

D) A) and B)
E) A) and C)

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The Tuck Shop began the current month with inventory costing $10,000,then purchased inventory at a cost of $35,000.The perpetual inventory system indicates that inventory costing $30,000 was sold during the month for $40,000.If an inventory count shows that inventory costing $14,500 is actually on hand at month-end,what amount of shrinkage occurred during the month?


A) $500.
B) $5,000.
C) $14,495.
D) $15,000.

E) A) and D)
F) None of the above

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The largest source of shrinkage in the retail industry is probably:


A) data entry error.
B) consumer shoplifting.
C) theft by suppliers or transportation companies.
D) theft by employees.

E) All of the above
F) B) and C)

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When using the perpetual inventory system,all inventory transactions are recorded to the Inventory account so to maintain an up-to-date balance.

A) True
B) False

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Gross margin is net sales minus cost of goods sold.

A) True
B) False

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Under the periodic inventory system:


A) inventory must be counted at the beginning and end of each accounting period.
B) inventory must only be counted at the end of each accounting period.(The ending inventory from the previous period can be used as the beginning inventory for the next period.)
C) inventory does not have to be counted.(It can be taken from the accounting records.)
D) inventory levels must be counted every day.

E) A) and D)
F) A) and C)

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If a company achieves a small increase in its gross profit percentage from one year to the next,the company:


A) will always have a higher net income.
B) must be obtaining products at a lower cost per unit.
C) must have increased its sales revenue.
D) none of the answers are acceptable.

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

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The Sales Returns and Allowances account balance should be reported as a reduction of Sales account balance because it is a contra revenue account.

A) True
B) False

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A company starts the period with 100 computers in inventory,purchases 30 more,returns 4 of them to suppliers,and has 83 in inventory at the end of the period.Which of the following statements is true?


A) Net purchases total 26 computers.
B) Net sales total 51 computers.
C) Net sales total 26 computers.
D) Net purchases total 51 computers.

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

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Your store buys ice cream for $1.50 a half litre (not including general and administrative expenses of $0.75) and sells it for $4 a half litre.Which of the following statements is true?


A) Your gross profit per half litre is $2.50.
B) Your gross profit per half litre is $1.75.
C) $2.50 is recorded in an account titled Gross Profit.
D) $1.75 is recorded in an account titled Gross Profit.

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

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Match the term and the definition.There are more definitions than terms.

Premises
discount period
sales returns and allowances
gross profit margin
purchase returns and allowances
net sales
maximum credit period
Responses
Sales revenue minus all sales discounts and sales returns and allowances.
When a cheque has been written but has not yet been recorded by the cheque writer's bank.
Sales revenue minus all expenses.
If companies take this long to pay suppliers they must pay a late penalty.
Net income divided by gross profit.
The length of time a company has to pay a supplier and still receive an early payment discount.
All the cost of goods bought by a company minus purchase returns and discounts.
Gross profit divided by net sales revenue.
The longest amount of time a company has to pay a supplier the undiscounted amount owed.
When companies reduce price for a sale and then raise it back again.
A reduction in sales revenue that occurs when companies accept credit cards.
When companies send goods back to suppliers.
When a company accepts goods back from customers.
A reduction in price that is given to purchasers who use credit cards.
Gross profit divided by total assets.

Correct Answer

Sales revenue minus all sales discounts and sales returns and allowances.
When a cheque has been written but has not yet been recorded by the cheque writer's bank.
Sales revenue minus all expenses.
If companies take this long to pay suppliers they must pay a late penalty.
Net income divided by gross profit.
The length of time a company has to pay a supplier and still receive an early payment discount.
All the cost of goods bought by a company minus purchase returns and discounts.
Gross profit divided by net sales revenue.
The longest amount of time a company has to pay a supplier the undiscounted amount owed.
When companies reduce price for a sale and then raise it back again.
A reduction in sales revenue that occurs when companies accept credit cards.
When companies send goods back to suppliers.
When a company accepts goods back from customers.
A reduction in price that is given to purchasers who use credit cards.
Gross profit divided by total assets.

In a perpetual inventory system,when a company purchases merchandise the journal entry includes a debit to Inventory.

A) True
B) False

Correct Answer

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A credit card discount is applied to a sales transaction.


A) debited (Dr)
B) Bedited (Cr)
C) Ceither (N)

D) B) and C)
E) All of the above

Correct Answer

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The gross profit percentage is computed by dividing operating income by net sales.

A) True
B) False

Correct Answer

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A store holding a "25% off" sale will probably hope that the lower gross profit percentage will be offset by higher sales.

A) True
B) False

Correct Answer

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