BUS103: Introduction to Financial Accounting

True-false

Indicate whether each of the following statements is true or false.

1. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted from, gross sales.

2. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each purchase and credited for each sale.

3. Purchase discounts and purchase returns and allowances are recorded in contra accounts to the Purchases account.

4. In taking a physical inventory, consigned goods delivered to another party who attempts to sell the goods are not included in the ending inventory of the company that sent the goods.

5. A classified income statement consists of only two categories of items, revenues,  and expenses.

Multiple-choice

Select the best answer for each of the following questions.

1. A seller sold merchandise which has a list price of USD 4,000 on account, giving a trade discount of 20 per cent. The entry on the books of the seller is:

2. X Company began the accounting period with USD 60,000 of merchandise, and net cost of purchases was 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 300,000.

b.  USD 228,000.

c.  USD 252,000.

d.  USD 168,000.

e.  None of the above.

3. A 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.

e.  USD 3,600.

4. A classified income statement consists of all of the following major sections except for: 

a. Operating revenues.

b.  Cost of goods sold.

c.  Operating expenses.

d.  Nonoperating revenues and expenses.

e.  Current assets.

5. (Appendix) Closing entries for merchandise-related accounts include all of the following except for:

a. A credit to Sales Discounts.

b.  A credit to Merchandise Inventory for the cost of ending inventory.

c.  A debit to Purchase Discounts.

d.  A credit to Transportation-In.

e.  A debit to Sales.