Multiple Choice: Chapter Five

1. The Sales account and Purchases account should include:

b. only credit sales and credit purchases of merchandise.

2. Purchasers of merchandise may be dissatisfied with the quality of goods purchased on account, and return the goods to the seller with an indication that payment will not be forthcoming. In such case, the document prepared by the purchaser is called:

a. a debit memorandum.

3. Bergstrom accepted the return of merchandise by a customer. The merchandise had been sold on account, and payment had not been received on the date of return. The returned goods retailed for $400, but cost Bergstrom only $300. The appropriate journal entry for Bergstrom is:

b. Sales Returns & Allowances          400
        Accounts Receivable                         400

4. Which of the following statements is true?

d. Cash discounts normally apply to the invoice price of the merchandise, excluding freight charges.

5. Lux had net purchases of $50,000, ending inventory of $25,000, net sales of $100,000, and gross profit of $32,000. How much was Lux's beginning inventory?

b. $43,000

6. On February 1, Crown Company purchased $2,000 of merchandise, terms 2/10, n/30. Crown uses the gross method of recording purchases. Payment of the accounts payable was made on February 26. Which of the following journal entries is appropriate for the February 26 transaction?

d. Accounts Payable              2,000
        Cash                                         2,000

7. On March 1, Zekew Company purchased $1,000 of merchandise, terms 1/10, n/30. Zekew uses the net method of recording purchases. Payment of the accounts payable was made on March 4. Which of the following journal entries is appropriate for the March 4 transaction?

b. Accounts Payable          990
        Cash                                 990

8. Dodd Company utilizes the periodic inventory accounting system. Dodd had beginning inventory of $59,000, ending inventory of $37,000, and net purchases of $123,000. Which of the following components should be included in the year-end closing entries prepared by Dodd?

c. Income Summary     59,000
        Inventory                             59,000

9. Russell Merchandising uses the perpetual inventory system.  Which of the following statements is correct?

b. When Russell records a sale, it should also credit inventory.

10. A multiple-step income statement is thought to be more beneficial to financial users because of the revelation of important relationships. Which of the following is not separately identified on a multiple-step income statement?