Multiple Choice Answers

1. Company A is taking the end-of-the-year physical inventory. Its accounting period ends on December 31. Which of the following items would not be counted in the ending inventory count?

A) Items sold on December 29 and shipped the same day where the purchaser is responsible for paying the freight charge. The item arrived at its destination on January 3.
B) Items owned by Company A were delivered to another company on consignment on December 27. The items are still held by the other company on December 31.
C) Items Company A ordered from a supplier on December 15 were shipped on December 17thth and received by Company A on December 28 where the seller paid the shipping charges.
D) Unsold inventory that remains in Company A’s warehouse on December 31.
E) None of the above.

2. When merchandise is purchased for resale, the Inventory account would be debited for such acquisition costs as the cost of the item itself and any freight charges for which the purchaser is responsible. This procedure is an application of which accounting principle?
A) Going-concern principle.
B) Materiality principle.
C) Historical cost principle.
D) Monetary unit principle.
E) None of the above.

3. During the current year, 2011, a company decides to carry a brand new item in its inventory. It purchases 25 new items for $100 each for a total of $2,500. It sells 7 items during 2011 and has 18 items on hand at the end of the year. In 2012, it buys 6 more items for the same price and only sells 7 items during the entire year. What is the computed amount of Cost of Goods Sold for each year?
A) $1,800 and $700.
B) $700 and $1,800.
C) $2,500 and $700.
D) $700 and $700.
E) None of the above.

4. The records for Uptown Pet Shop showed the following: Sales Revenue, $225,000; Beginning Merchandise Inventory, $40,000; purchases of Merchandise Inventory during the period, $144,000; and, Cost of Goods Sold, $172,000. What is the amount of the ending Merchandise Inventory?
A) $212,000.
B) $144,000.
C) $12,000.
D) $15,000.
E) None of the above.

5. A company uses the perpetual inventory system and makes a purchase of inventory on open account. Which of the following is the correct journal entry to record this purchase?
A) A debit to the asset Office Supplies and a credit to Cash.
B) A debit to Merchandise Inventory and a credit to Accounts Payable.
C) A debit to Merchandise Inventory and a credit to Cash.
D) A debit to Sales Returns and Allowances and a credit to Cost of Goods Sold.
E) None of the above.

6. The buyer received an invoice from the seller for merchandise with a list price of $700 and credit terms of 2/10, n/45. The term, 2/10, in the credit terms denotes which of the following?
A) The discount percentage and the number of days to the end of the month.
B) The discount percentage and the number of days in the discount period.
C) Only the discount period.
D) Only the discount percentage.
E) None of the above.

7. Net Sales Revenue is computed as:
A) Gross Sales Revenue plus Sales Returns minus Sales Allowances minus Sales Discounts.
B) Gross Sales Revenue minus Sales Returns minus Sales Allowances plus Sales Discounts.
C) Gross Sales Revenue minus Sales Discounts minus Sales Returns minus Sales Allowances.
D) Gross Sales Revenue plus Sales Returns plus Sales Discounts minus Sales Allowances.
E) None of the above.

8. A retailer who uses a perpetual inventory system purchased $8,000 of merchandise on credit. The credit terms were 2/10, n/30, FOB shipping point. The freight costs were $130. What was the journal entry to record the purchase?
A) Merchandise Inventory, debit, $8,130; Freight-In, debit, $130; Accounts Payable, credit, $8,130.
B) Merchandise Inventory, debit, $8,130; Accounts Payable, credit, $8,130.
C) Merchandise Inventory, debit, $8,000; Accounts Payable, credit, $8,000.
D) Merchandise Inventory, debit, $7,870; Accounts Payable, credit, $7,870.
E) None of the above.

9. FOB Shipping Point means that the:
A) Goods are shipped free on board (FOB) to the buyer’s place of business.
B) Buyer pays the freight.
C) Seller pays the freight.
D) Trucking company pays the freight.
E) None of the above.

10. In a perpetual inventory system, when a buyer returns defective merchandise to the seller, the buyer credits which account?
A) Sales Returns.
B) Sales Revenue.
C) Cash.
D) Merchandise Inventory.
E) None of the above.

11. Which of the following expenses would not generally be found in the General and Administrative Expenses section of a multi-step income statement?
A) Wages Expense.
B) Depreciation Expense.
C) Advertising Expense.
D) Rent Expense.
E) All of the above would be found in the General and Administrative Expense section of the multi-step income statement.
12. Which of the following items would be included in the reporting of operating income if the entity is a sole proprietorship operating as a law firm?
A) A loss on the sale of a building.
B) Interest Revenue.
C) A gain on the sale of office equipment.
D) Interest Expense.
E) Wages Expense.
13. Which of the following income statement report formats are used based on generally accepted accounting principles (GAAP)?
A) The single-step format.
B) The multi-step format.
C) A combination of the single-step and multi-step formats.
D) Any format that the company chooses.
E) All of the above formats are acceptable, except item D.

14. Under IFRSs the income statement:
A) Has no prescribed format.
B) Expenses are identified by their nature or function.
C) Allows alternative measures of income on it.
D) All of the above.
E) None of the above.

15. In an earlier chapter, we learned about the Current Ratio, and in the current chapter, we learned about the Acid-Test or Quick ratio? Which of the following statements is true?
A) The current ratio is always higher than the acid test ratio.
B) The acid-test ratio is always lower than the current ratio.
C) The acid-test ratio will be equal to or lower than the current ratio.
D) The acid-test ratio will be equal to or higher than the current ratio.
E) None of the above is true.