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Financial Accounting Tools for Business Decision Making, 7th Edition By Kimmel -Test Bank

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Financial Accounting Tools for Business Decision Making, 7th Edition By Kimmel -Test Bank

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WITH ANSWERS
Financial Accounting Tools for Business Decision Making, 7th Edition By Kimmel -Test Bank

CHAPTER 5

 

MERCHANDISING OPERATIONS

 

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVE AND BLOOMS TAXONOMY

Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT  
 

True-False Statements
  1. 1 K 12. 1 K 23. 3 K 34. 4 C 45. 5 K
  2. 1 K 13. 1 K 24. 3 K 35. 4 K 46. 6 AP
  3. 1 K 14. 1 K 25. 3 K 36. 4 K 47. 6 C
  4. 1 K 15. 1 K 26. 3 K 37. 4 K 48. 6 K
  5. 1 K 16. 2 K 27. 3 K 38. 4 K 49. 7 K
  6. 1 C 17. 2 K 28. 3 K 39. 4 K 50. 7 K
  7. 1 C 18. 2 K 29. 3 K 40. 4 K 51.   *8 K
  8. 1 K 19. 2 K 30. 3 C 41. 4 K 52.   *8 K
  9. 1 C 20. 2 K 31. 3 K 42. 4 K      
  10. 1 K 21. 2 AP 32. 3 AP 43. 4 C      
  11. 1 K 22. 2 C 33. 3 K 44. 5 K      
 

Multiple Choice Questions
  53. 1 K 82. 2 K 111. 3 AP 140. 3 AN 169. 6 AP
  54. 1 K 83. 2 AP 112. 3 AP 141. 3 C 170. 4 AP
  55. 1 K 84. 2 AP 113. 3 K 142. 4 K 171. 4 AP
  56. 1 K 85. 2 C 114. 3 K 143. 4 K 172. 6 AP
  57. 1 K 86. 2 AP 115. 3 AP 144. 4 K 173. 6 AP
  58. 1 K 87. 2 C 116. 3 AP 145. 4 K 174. 4 C
  59. 1 K 88. 2 C 117. 3 AP 146. 4 K 175. 4 K
  60. 1 K 89. 2 AP 118. 3 AP 147. 4 K 176. 5 C
  61. 1 K 90. 2 AP 119. 3 AP 148. 4 K 177. 5 C
  62. 1 K 91. 2 K 120. 3 K 149. 4 K 178. 5,6 AP
  63. 1 K 92. 2 AN 121. 3 AP 150. 4 K 179. 5,6 AP
  64. 1 K 93. 2 AP 122. 3 C 151. 4 K 180. 5 AP
  65. 1 C 94. 2 AP 123. 3 C 152. 4 K 181. 5 AP
  66. 1 K 95. 2 AN 124. 3 K 153. 4 K 182. 5 K
  67. 1 K 96. 2 AP 125. 3 K 154. 4 K 183. 5 K
  68. 1 K 97. 2 AN 126. 3 C 155. 4 K 184. 5 AN
  69. 1 K 98. 2 K 127. 3 AP 156. 4 K 185. 5 K
  70. 1 K 99. 2 AP 128. 3 AP 157. 4 K 186. 5 AP
  71. 1 K 100. 2 C 129. 3 AP 158. 4 K 187. 5 AP
  72. 1 K 101. 2 C 130. 3 K 159. 4 K 188. 6 K
  73. 1 K 102. 2 AP 131. 3 AP 160. 4 AP 189. 6 AP
  74. 1 K 103. 2 AP 132. 3 AP 161. 6 AP 190. 6 K
  75. 1 K 104. 2 K 133. 3 AP 162. 6 AP 191. 6 K
  76. 1 K 105. 2 K 134. 3 AP 163. 4 AP 192. 6 K
  77. 1 K 106. 3 K 135. 3 K 164. 6 AP 193. 6 C
  78. 1 C 107. 3 K 136. 3 K 165. 6 AP 194. 6 AP
  79. 1 K 108. 3 K 137. 3 K 166. 4 AP 195. 6 AP
  80. 1 K 109. 3 AP 138. 3 AP 167. 4 AP 196. 6 AP
  81. 1 C 110. 3 AP 139. 3 AP 168. 6 AP 197. 6 AP
 

Multiple Choice Questions  (Cont.)
  198. 6 C 200. 6 AP 202. 6 AP *204. 8 AP *206. 8 AP
  199. 6 AP 201. 6 AP *203. 8 AP *205. 8 AP      
 

Brief Exercises
    207. 1,4 AP 209. 2,3 AP 211. 4 AP 213. 5 AP      
  208. 2,3 AP 210. 3 AP 212. 5 AP 214. 6 AP      
  Exercises
  215. 2 AP 220. 2,3 AP 225. 4 K 230. 5 AP *235. 8 AP
  216. 2 AP 221. 2,3 AP 226. 4,6 AP 231. 5 AP *236. 8 AP
  217. 2,3 AP 222. 2,3 AP    227. 4,6 AP 232. 6 AP      
  218. 2,3 AP 223. 3 AP 228. 4,6 AP *233. 8 AP      
  219. 2,3 AP 224. 3 AP 229. 4,6 AP *234. 8 AP      
 

Completion Statements
  237. 1 K 239. 1 K 241. 2 K 243. 3 K 245. 4 K
  238. 1 K 240. 2 K 242. 3 K 244. 3 K 246. 6 K
  Matching
  247. 1-6 K                        
  Short-Answer Essay Questions
  248. 1 C 251. 3 C 254. 4 C 257. 2 C      
  249. 3 C 252. 4 C 255. 6 C 258. 2 C      
  250. 3 C 253. 4 C 256. 6 K            

 

* This topic is dealt with in an Appendix to the chapter.

 

 

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

 

Learning Objective 1
Item Type Item Type Item Type Item Type Item Type Item Type
1. TF 10. TF 56. MC 65. MC 74. MC 207. BE
2. TF 11. TF 57. MC 66. MC 75. MC 237. C
3. TF 12. TF 58. MC 67. MC 76. MC 238. C
4. TF 13. TF 59. MC 68. MC 77. MC 239. C
5. TF 14. TF 60. MC 69. MC 78. MC 247. Ma
6. TF 15. TF 61. MC 70. MC 79. MC 248. SA
7. TF 53. MC 62. MC 71. MC 80. MC    
8. TF 54. MC 63. MC 72. MC 81. MC    
9. TF 55. MC 64. MC 73. MC 82. MC    
Learning Objective 2
16. TF 84. MC 92. MC 100. MC 215. Ex 240. C
17. TF 85. MC 93. MC 101. MC 216. Ex 241. C
18. TF 86. MC 94. MC 102. MC 217. Ex 247. Ma
19. TF 87. MC 95. MC 103. MC 218. Ex 257. SA
20. TF 88. MC 96. MC 104. MC 219. Ex 258. SA
21. TF 89. MC 97. MC 105. MC 220. Ex    
22. TF 90. MC 98. MC 208. BE 221. Ex    
83. MC 91. MC 99. MC 209. BE 222. Ex    

 

 

Learning Objective 3
Item Type Item Type Item Type Item Type Item Type Item Type
23. TF 106. MC 117. MC 128. MC 139. MC 222. Ex
24. TF 107. MC 118. MC 129. MC 140. MC 223. Ex
25. TF 108. MC 119. MC 130. MC 141. MC 224. Ex
26. TF 109. MC 120. MC 131. MC 208. BE 242. C
27. TF 110. MC 121. MC 132. MC 209. BE 243. C
28. TF 111. MC 122. MC 133. MC 210. BE 244. C
29. TF 112. MC 123. MC 134. MC 217. Ex 247. Ma
30. TF 113. MC 124. MC 135. MC 218. Ex 249. SA
31. TF 114. MC 125. MC 136. MC 219. Ex 250. SA
32. TF 115. MC 126. MC 137. MC 220. Ex 251. SA
33. TF 116. MC 127. MC 138. MC 221. Ex    
Learning Objective 4
34. TF 43. TF 150. MC 159. MC 207. BE 252. SA
35. TF 142. MC 151. MC 160. MC 211. BE 253. SA
36. TF 143. MC 152. MC 163. MC 225. Ex 254. SA
37. TF 144. MC 153. MC 166. MC 226. Ex    
38. TF 145. MC 154. MC 167. MC 227. Ex    
39. TF 146. MC 155. MC 170. MC 228. Ex    
40. TF 147. MC 156. MC 171. MC 229. Ex    
41. TF 148. MC 157. MC 174. MC 245. C    
42. TF 149. MC 158. MC 175. MC 247. Ma    
Learning Objective 5
44. TF 178. MC 182. MC 186. MC 230. Ex    
45. TF 179. MC 183. MC 187. MC 231. Ex    
176. MC 180. MC 184. MC 212. BE 247. Ma    
177. MC 181. MC 185. MC 213. BE        
Learning Objective 6
46. TF 168. MC 189. MC 196. MC 214. BE 247. Ma
47. TF 169. MC 190. MC 197. MC 226. Ex 255. SA
48. TF 172. MC 191. MC 198. MC 227. Ex 256. SA
161. MC 173. MC 192. MC 199. MC 228. Ex    
162. MC 178. MC 193. MC 200. MC 229. Ex    
164. MC 179. MC 194. MC 201. MC 232. Ex    
165. MC 188. MC 195. MC 202. MC 246. C    
Learning Objective 7
49. TF 50. TF 247. Ma            
Learning Objective 8
51. TF 203. MC 205. MC 233. Ex 235. Ex    
52. TF 204. MC 206. MC 234. Ex 236. Ex    

 

Note:   TF  =  True-False                             C  =  Completion

MC  =  Multiple Choice                    Ex  =  Exercise

Ma  =  Matching                              SA  =  Short Answer Essay

 

 

CHAPTER LEARNING OBJECTIVES

  1. Identify the differences between a service company and a merchandising company. Because of the presence of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual inventory system and a periodic inventory system.
  2. Explain the recording of purchases under a perpetual inventory system. The Inventory account is debited for all purchases of merchandise and for freight costs, and it is credited for purchase discounts and purchase returns and allowances.
  3. Explain the recording of sales revenues under a perpetual inventory system. When inventory is sold, Accounts Receivable (or Cash) is debited and Sales Revenue is credited for the selling price of the merchandise. At the same time, Cost of Goods Sold is debited and Inventory is credited for the cost of inventory items sold. Separate contra revenue accounts are maintained for Sales Returns and Allowances and Sales Discounts. These accounts are debited as needed to record returns, allowances, or discounts related to the sale.
  4. Distinguish between a single-step and a multiple-step income statement. In a single-step income statement, companies classify all data under two categories, revenues or expenses, and net income is determined in one step. A multiple-step income statement shows numerous steps in determining net income, including results of nonoperating activities.
  5. Determine cost of goods sold under a periodic system. The periodic system uses multiple accounts to keep track of transactions that affect inventory. To determine cost of goods sold, first calculate cost of goods purchased by adjusting purchases for returns, allowances, discounts, and freight-in. Then calculate cost of goods sold by adding cost of goods purchased to beginning inventory and subtracting ending inventory.
  6. Explain the factors affecting profitability. Profitability is affected by gross profit, as measured by the gross profit rate, and by managements ability to control costs, as measured by the profit margin ratio.
  7. Identify a quality of earnings Indicator. Earnings have high quality if they provide a full and transparent depiction of how a company performed. An indicator of the quality of earnings is the quality of earnings ratio, which is net cash provided by operating activities divided by net income. Measures above 1 suggest the company is employing conservative accounting practices. Measures significantly below 1 might suggest the company is using aggressive accounting to accelerate the recognition of income.

*8.  Explain the recording of purchases and sales of inventory under a periodic inventory system. To record purchases, entries are required for (a) cash and credit purchases, (b) purchase returns and allowances, (c) purchase discounts, and (d) freight costs. To record sales, entries are required for (a) cash and credit sales, (b) sales returns and allowances, and (c) sales discounts.


TRUE-FALSE STATEMENTS

 

  1. Retailers and wholesalers are both considered merchandising enterprises.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The operating cycle of a merchandising company ordinarily is shorter than that of a service company.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Sales revenue minus operating expenses equals gross profit.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A periodic inventory system does not require a detailed record of inventory items.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.

 

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The purchase of inventory and its eventual sale lengthen the operating cycle of a merchandising company.

 

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

 

  1. Under the periodic inventory system, cost of goods sold is treated as an account.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

 

  1. An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.

 

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

 

  1. The periodic inventory system provides an up to date amount of inventory on hand.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A very small business most likely would have to use the perpetual inventory system.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. The computer has increased greatly the use of the periodic inventory system.

 

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Leverage Technology, AICPA PC: None, IMA: Business Economics

 

 

  1. Cost of Goods Sold is considered an expense of a merchandising firm.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Operating expenses are subtracted from revenue for a service enterprise and from gross profit for a merchandising enterprise.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Net sales minus cost of goods sold is called gross profit.

 

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Under the perpetual inventory system, purchases of merchandise for sale are recorded in the Inventory account.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

 

  1. Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

 

  1. The terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period.

 

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 20 days after the invoice date to take advantage of the cash discount.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Discounts taken by the buyer for early payment of an invoice are called sales discounts by the buyer.

 

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. If merchandise costing $5,000, with terms 2/10, n/30, is paid within 10 days, the amount of the purchase discount is $100.

 

Ans: T, LO: 2, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Quantitative Methods

 

  1. When an invoice is paid within the discount period, the amount of the discount decreases Inventory.

 

Ans: T, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Sales revenues are only earned during the period cash is collected from the buyer.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

 

  1. Cash register tapes provide evidence of credit sales.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

 

 

  1. The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The revenue recognition principle applies to merchandising companies by recognizing sales revenues when the performance obligation is satisfied.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. Sales allowances and Sales discounts are both designed to encourage customers to pay their accounts promptly.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Decision Modeling, AICPA PC: None, IMA: Business Economics

 

  1. Sales Discounts is a contra revenue account to Sales Revenue.

 

Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. The normal balance of Sales Returns and Allowances is a credit.

 

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

 

  1. When the terms of sale include a sa

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