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Financial and Managerial Accounting John Wild 8th Edition- Test Bank
Sample Questions
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Chapter 2 Accounting for Business Transactions
1) Business transactions and events are the starting points of financial statements.
Answer: TRUE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
2) Preparation of a trial balance is the first step in processing a financial transaction.
Answer: FALSE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
3) Source documents identify and describe transactions and events entering the accounting process.
Answer: TRUE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
4) Items such as sales receipts, bank statements, checks, and purchase orders are examples of a business’s source documents.
Answer: TRUE
Difficulty: 1 Easy
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
5) An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense item.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
6) A customer’s promise to pay on credit is classified as an account payable by the seller.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
7) Dividends are subtracted on the income statement as a business expense.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
8) The purchase of land and buildings will generally be recorded in the same ledger account.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
9) Unearned revenues are classified as liabilities.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
10) Cash dividends paid to stockholders are not reported on the income statement.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
11) When a company provides services for which cash will not be received until some future date, the company should record the amount billed as accounts receivable.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
12) Dividends always decrease equity.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
13) Expenses always decrease equity.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
14) Revenues always increase equity.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
15) The issuance of common stock always decrease equity.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
16) Unearned revenue is a liability that is settled in the future when a company delivers its products or services.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
17) A company’s chart of accounts is a list of all the accounts used and includes an identification number assigned to each account.
Answer: TRUE
Difficulty: 1 Easy
Topic: Ledger and Chart of Accounts
Learning Objective: 02-C3 Describe a ledger and a chart of accounts.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
18) An account’s balance is the difference between the total debits and total credits for the account, including any beginning balance.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
19) The right side of an account is called the debit side.
Answer: FALSE
Difficulty: 1 Easy
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
20) In a double-entry accounting system, total debits must equal total credits for all entries, and total debit account balances in the ledger must equal total credit account balances.
Answer: TRUE
Difficulty: 1 Easy
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
21) Increases in liability accounts are recorded as debits.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
22) Debits increase asset and expense accounts.
Answer: TRUE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
23) Credits always increase account balances.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
24) An expense account normally has a credit balance.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
25) A revenue account normally has a debit balance.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
26) Asset accounts are decreased by debits.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
27) Debit means increase and credit means decrease for all accounts.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
28) Asset accounts normally have debit balances and revenue accounts normally have credit balances.
Answer: TRUE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
29) The Dividends account normally has a debit balance.
Answer: TRUE
Difficulty: 1 Easy
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
30) A debit entry always increases an account.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debits and Credits
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
31) A transaction that credits an asset account and credits a liability account must also affect one or more other accounts.
Answer: TRUE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
32) A transaction that decreases a liability and increases an asset must also affect one or more other accounts.
Answer: TRUE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
33) If insurance coverage for the next two years is paid for in advance, the amount of the payment is debited to an asset account called Prepaid Insurance.
Answer: TRUE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
34) The purchase of supplies on credit should be recorded with a debit to Supplies and a credit to Accounts Payable.
Answer: TRUE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
35) If a company purchases equipment paying cash, the journal entry to record this transaction will include a debit to Cash.
Answer: FALSE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
36) If a company provides services to a customer on credit, the company providing the service should credit Accounts Receivable.
Answer: FALSE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
37) When a company bills a customer for $700 for services performed, the journal entry to record this transaction will include a $700 debit to Services Revenue.
Answer: FALSE
Difficulty: 3 Hard
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
38) The debt ratio helps to assess the risk a company has of failing to pay its debts and is helpful to both its owners and creditors.
Answer: TRUE
Difficulty: 2 Medium
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
39) The higher a company’s debt ratio, the lower the risk of a company not being able to pay its debts.
Answer: FALSE
Difficulty: 2 Medium
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
40) The debt ratio is calculated by dividing total assets by total liabilities.
Answer: FALSE
Difficulty: 1 Easy
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Remember
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
41) A company that finances a relatively large portion of its assets with liabilities is said to have a high degree of financial leverage.
Answer: TRUE
Difficulty: 3 Hard
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
42) If a company is highly leveraged, this means that it has relatively high risk of not being able to repay its debt.
Answer: TRUE
Difficulty: 3 Hard
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
43) Stark Co. has liabilities of $105 million and total assets of $350 million. Its debt ratio is 40.0%.
Answer: FALSE
Explanation: Debt Ratio = Total Liabilities/Total Assets
Debt Ratio = $105 million/$350 million = 30%
Difficulty: 2 Medium
Topic: Debt Ratio
Learning Objective: 02-A2 Compute the debt ratio and describe its use in analyzing financial condition.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
44) A journal entry that affects only two accounts is called a compound entry.
Answer: FALSE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Reflective Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
45) Posting is the transfer of journal entry information to the ledger.
Answer: TRUE
Difficulty: 1 Easy
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
46) Transactions are recorded first in the ledger and then transferred to the journal.
Answer: FALSE
Difficulty: 2 Medium
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
47) A general journal gives a complete record of each transaction in one place, and shows the debits and credits for each transaction.
Answer: TRUE
Difficulty: 1 Easy
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
48) The general journal is a collection of all accounts and their balances.
Answer: FALSE
Difficulty: 1 Easy
Topic: Journalizing and Posting Transactions
Learning Objective: 02-P1 Record transactions in a journal and post entries to a ledger.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
49) At a given point in time, a trial balance is a list of all ledger accounts and their balances.
Answer: TRUE
Difficulty: 1 Easy
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
50) Errors made in journalizing transactions, posting to the ledger, and preparing the trial balance can still exist in a balanced trial balance.
Answer: TRUE
Difficulty: 2 Medium
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
51) The trial balance can serve as a replacement for the balance sheet, since total debits must equal total credits.
Answer: FALSE
Difficulty: 2 Medium
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
52) A balanced trial balance is proof that no errors were made in journalizing transactions, posting to the ledger, and preparing the trial balance.
Answer: FALSE
Difficulty: 1 Easy
Topic: Preparing a Trial Balance
Learning Objective: 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
53) If cash was incorrectly debited for $100 instead of correctly debiting accounts receivable for $100, assuming no other errors, the trial balance will balance.
Answer: TRUE
Difficulty: 2 Medium
Topic: Analyzing Transactions
Learning Objective: 02-A1 Analyze the impact of transactions on accounts and financial statements.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
54) The financial statement that summarizes how equity changes over the reporting period is called the balance sheet.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
55) An income statement reports revenues earned minus expenses incurred over a period of time.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
56) The detail of individual revenue and expense accounts is reported on the balance sheet.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
57) The heading on every financial statement lists the three W’s—Who (the name of the business); What (the name of the statement); and Where (the organization’s address).
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
58) If the Common stock account had a $10,000 credit balance at the beginning of the period, and during the period, an additional $5,000 of common stock is issued, the balance in the common stock account listed on the trial balance will be equal to a debit balance of $5,000.
Answer: FALSE
Explanation: $10,000cr + $5,000cr = $15,000 credit balance
Difficulty: 2 Medium
Topic: Debits and Credits; Preparing a Trial Balance
Learning Objective: 02-C4 Define debits and credits and explain double-entry accounting.; 02-P2 Prepare and explain the use of a trial balance.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
59) Dividends paid to stockholders are not reported on a business’s income statement.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
60) An income statement reports the revenues earned minus expenses incurred by a business over a period of time.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
61) The balance sheet reports the financial position of a company at a point in time.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
62) The same four basic financial statements are prepared by both U.S. GAAP and IFRS.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Global; FN Reporting
63) Neither U.S. GAAP nor IFRS require the use of accrual basis accounting.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Global; FN Reporting
64) The amount of net income is added on the statement of retained earnings.
Answer: TRUE
Difficulty: 2 Medium
Topic: Financial Statements
Learning Objective: 02-P3 Prepare financial statements from business transactions.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
65) The accounting process begins with:
- A) Analysis of business transactions and source documents.
- B) Preparing financial statements and other reports.
- C) Analysis of prepared financial statements.
- D) Presentation of financial information to decision-makers.
- E) Preparation of the trial balance.
Answer: A
Difficulty: 2 Medium
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
66) Which of the following statements is not true:
- A) Accounts receivable are held by a seller.
- B) Accounts receivable arise from credit sales.
- C) Accounts receivable are increased by customer payments.
- D) Accounts receivable are classified as assets.
- E) Accounts receivable are increased by billings to customers.
Answer: C
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
67) A business’s source documents may include all of the following except:
- A) Sales receipts.
- B) Ledgers.
- C) Checks.
- D) Purchase orders.
- E) Bank statements.
Answer: B
Difficulty: 2 Medium
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
68) A business’s source documents:
- A) Include the ledger.
- B) Provide objective evidence that a transaction has taken place.
- C) Must be in electronic form.
- D) Are records of all increases and decreases in specific asset.
- E) Include the chart of accounts.
Answer: B
Difficulty: 2 Medium
Topic: Analyzing and Recording Process
Learning Objective: 02-C1 Explain the steps in processing transactions and the role of source documents.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
69) A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense is known as a(n):
- A) Journal.
- B) Posting.
- C) Trial balance.
- D) Account.
- E) Chart of accounts.
Answer: D
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
70) When cash is received from a stockholder in exchange for common stock, the transaction is recorded by debiting Cash and crediting a(n):
- A) Asset account.
- B) Equity account.
- C) Revenue account.
- D) Expense account.
- E) Liability account.
Answer: B
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
71) Identify the account used by businesses to record the transfer of assets from a business to its stockholders:
- A) A revenue account.
- B) The Dividends account.
- C) The Common stock account.
- D) An expense account.
- E) A liability account.
Answer: B
Difficulty: 1 Easy
Topic: The Account and Its Analysis
Learning Objective: 02-C2 Describe an account and its use in recording transactions.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Measurement
Financial and Managerial Accounting, 8e (Wild)
Chapter 4 Accounting for Merchandising Operations
1) Merchandise inventory refers to products that a company owns and plans to sell to customers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
2) A service company earns net income by buying and selling merchandise.
Answer: FALSE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
3) Gross profit is also called gross margin.
Answer: TRUE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
4) Cost of goods sold is also called cost of sales.
Answer: TRUE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
5) A wholesaler buys products from manufacturers or other wholesalers and sells them to consumers.
Answer: FALSE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
6) A retailer buys products from manufacturers and sells them to wholesalers.
Answer: FALSE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
7) Cost of goods sold represents the expense of buying and preparing merchandise for sale.
Answer: TRUE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
8) A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals $150,000.
Answer: TRUE
Difficulty: 2 Medium
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Measurement
9) A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross margin equals $890,000.
Answer: FALSE
Difficulty: 2 Medium
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Measurement
10) A company had a gross profit of $300,000 based on sales of $400,000. Its cost of goods sold equals $700,000.
Answer: FALSE
Difficulty: 2 Medium
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Measurement
11) A merchandising company’s operating cycle begins with the purchase of merchandise and ends with the collection of cash from the sale.
Answer: TRUE
Difficulty: 2 Medium
Topic: Reporting Inventory for a Merchandiser
Learning Objective: 04-C2 Identify and explain the inventory asset and cost flows of a merchandising company.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
12) Merchandise inventory is reported in the long-term assets section of the balance sheet.
Answer: FALSE
Difficulty: 1 Easy
Topic: Reporting Inventory for a Merchandiser
Learning Objective: 04-C2 Identify and explain the inventory asset and cost flows of a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
13) Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles.
Answer: TRUE
Difficulty: 2 Medium
Topic: Reporting Inventory for a Merchandiser
Learning Objective: 04-C2 Identify and explain the inventory asset and cost flows of a merchandising company.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
14) Cost of goods sold is an expense, and is reported on the income statement.
Answer: TRUE
Difficulty: 1 Easy
Topic: Merchandising Activities
Learning Objective: 04-C1 Describe merchandising activities and identify income components for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
15) A periodic inventory system requires updating of the inventory account only at the beginning of an accounting period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Reporting Inventory for a Merchandiser
Learning Objective: 04-C2 Identify and explain the inventory asset and cost flows of a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
16) A perpetual inventory system continually updates accounting records for merchandising transactions.
Answer: TRUE
Difficulty: 1 Easy
Topic: Reporting Inventory for a Merchandiser
Learning Objective: 04-C2 Identify and explain the inventory asset and cost flows of a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
17) Beginning inventory plus net purchases equals merchandise available for sale.
Answer: TRUE
Difficulty: 1 Easy
Topic: Reporting Inventory for a Merchandiser
Learning Objective: 04-C2 Identify and explain the inventory asset and cost flows of a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
18) The acid-test ratio is also called the quick ratio.
Answer: TRUE
Difficulty: 1 Easy
Topic: Acid-Test Ratios
Learning Objective: 04-A1 Compute the acid-test ratio and explain its use to assess liquidity.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
19) Quick assets include cash and cash equivalents, inventory, and current receivables.
Answer: FALSE
Difficulty: 1 Easy
Topic: Acid-Test Ratios
Learning Objective: 04-A1 Compute the acid-test ratio and explain its use to assess liquidity.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
20) The acid-test ratio is defined as current assets divided by current liabilities.
Answer: FALSE
Difficulty: 1 Easy
Topic: Acid-Test Ratios
Learning Objective: 04-A1 Compute the acid-test ratio and explain its use to assess liquidity.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
21) A company with an acid-test ratio of 4.1 is unlikely to face near-term liquidity problems.
Answer: TRUE
Difficulty: 2 Medium
Topic: Acid-Test Ratios
Learning Objective: 04-A1 Compute the acid-test ratio and explain its use to assess liquidity.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
22) Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio.
Answer: TRUE
Difficulty: 2 Medium
Topic: Acid-Test Ratios
Learning Objective: 04-A1 Compute the acid-test ratio and explain its use to assess liquidity.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
23) A company’s quick assets are $147,000 and its current liabilities are $143,000. This company’s acid-test ratio is 1.03.
Answer: TRUE
Explanation: Acid-Test Ratio = Quick Assets/Current Liabilities
Acid-Test Ratio − $147,000/$143,000 = 1.03
Difficulty: 3 Hard
Topic: Acid-Test Ratios
Learning Objective: 04-A1 Compute the acid-test ratio and explain its use to assess liquidity.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
24) A company’s current ratio is 1.2 and its quick ratio is 0.25. This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.
Answer: FALSE
Difficulty: 2 Medium
Topic: Acid-Test Ratios
Learning Objective: 04-A1 Compute the acid-test ratio and explain its use to assess liquidity.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
25) The gross margin ratio is defined as gross margin divided by net sales.
Answer: TRUE
Difficulty: 1 Easy
Topic: Gross Margin Ratio
Learning Objective: 04-A2 Compute the gross margin ratio and explain its use to assess profitability.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
26) The profit margin ratio is the same as the gross profit ratio.
Answer: FALSE
Difficulty: 1 Easy
Topic: Gross Margin Ratio
Learning Objective: 04-A2 Compute the gross margin ratio and explain its use to assess profitability.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
27) A company had net sales of $340,500, its cost of goods sold was $257,000, and its net income was $13,750. The company’s gross margin ratio equals 24.5%.
Answer: TRUE
Explanation: Gross Margin Ratio = (Sales − Cost of Goods Sold)/Sales
Gross Margin Ratio = ($340,500 − $257,000)/$340,500 = 24.5%
Difficulty: 3 Hard
Topic: Gross Margin Ratio
Learning Objective: 04-A2 Compute the gross margin ratio and explain its use to assess profitability.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Risk Analysis
28) The Merchandise Inventory account balance at the beginning of the current period is equal to the amount of ending Merchandise Inventory from the previous period.
Answer: TRUE
Difficulty: 1 Easy
Topic: Reporting Inventory for a Merchandiser
Learning Objective: 04-C2 Identify and explain the inventory asset and cost flows of a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
29) Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
30) Purchase returns refer to merchandise a buyer purchases but then returns to the seller.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
31) Purchase allowances refer to merchandise a buyer acquires but then returns to the seller.
Answer: FALSE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
32) Purchase allowances refer to a price reduction (allowance) granted to a buyer of defective or unacceptable merchandise.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
33) Under the perpetual inventory system, the cost of merchandise purchased is recorded in the Merchandise Inventory account.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
34) Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
35) Sellers always offer a discount to buyers for prompt payment toward purchases made on credit.
Answer: FALSE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
36) Purchase discounts are the same as trade discounts.
Answer: FALSE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
37) If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10 days and the discount period is 60 days.
Answer: FALSE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
38) The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.
Answer: TRUE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
39) If goods are shipped FOB destination, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.
Answer: TRUE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
40) If goods are shipped FOB shipping point, the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.
Answer: FALSE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
41) A buyer using a perpetual inventory system records the costs of shipping merchandise it purchases in a Delivery Expense account.
Answer: FALSE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
42) A buyer of $5,000 in merchandise inventory does not take advantage of a supplier’s credit terms of 2/10, n/30, and instead pays the invoice in full at the end of 30 days. The buyer will pay $4,900.
Answer: FALSE
Explanation: Payment not made in discount period so full invoice of $5,000 is paid
Difficulty: 3 Hard
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
43) FOB shipping point means that the buyer accepts ownership when the goods arrive at the buyer’s place of business.
Answer: FALSE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Purchases
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
44) Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
45) Offering sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
46) Sales Discounts is added to the Sales account when computing a company’s net sales.
Answer: FALSE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
47) Sales discounts has a normal debit balance because it decreases Sales, which has a normal credit balance.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
48) Under a perpetual inventory system, when a credit customer returns non-defective merchandise to the seller, the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.
Answer: TRUE
Difficulty: 3 Hard
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
49) The perpetual system requires that each sale of merchandise has two entries: the revenue side and the cost side.
Answer: TRUE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
50) A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.
Answer: FALSE
Explanation: $20/$1,000 = 2% discount
Difficulty: 3 Hard
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Apply
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Measurement
51) Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.
Answer: TRUE
Explanation: $350,000 − $323,000 = $27,000
Difficulty: 2 Medium
Topic: Accounting for Merchandise Sales
Learning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.
Bloom’s: Understand
AACSB/Accessibility: Analytical Thinking/Keyboard Navigation
AICPA: BB Industry; FN Measurement
52) A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.
Answer: FALSE
Difficulty: 1 Easy
Topic: Adjusting and Closing Entries for Merchandisers
Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
53) Sales Discounts and Sales Returns and Allowances are contra revenue accounts that are debited to close the accounts during the closing process.
Answer: FALSE
Difficulty: 1 Easy
Topic: Adjusting and Closing Entries for Merchandisers
Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
54) Cost of Goods Sold is debited to close the account during the closing process.
Answer: FALSE
Difficulty: 1 Easy
Topic: Adjusting and Closing Entries for Merchandisers
Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
55) In a perpetual inventory system, the Merchandise Inventory account must be closed at the end of the accounting period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Adjusting and Closing Entries for Merchandisers
Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
56) The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.
Answer: FALSE
Difficulty: 2 Medium
Topic: Adjusting and Closing Entries for Merchandisers
Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
57) A multiple-step income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial Statement Formats
Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
58) Operating expenses are classified into two categories: selling expenses and cost of goods sold.
Answer: FALSE
Difficulty: 1 Easy
Topic: Financial Statement Formats
Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
59) A merchandiser’s classified balance sheet reports merchandise inventory as a current asset.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial Statement Formats
Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
60) Expenses related to accounting, human resource management, and financial management are known as selling expenses.
Answer: FALSE
Difficulty: 1 Easy
Topic: Financial Statement Formats
Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
61) When a company has no reportable non-operating activities, its income from operations is simply labeled net income.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial Statement Formats
Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
62) A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.
Answer: TRUE
Difficulty: 1 Easy
Topic: Financial Statement Formats
Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
63) Under a periodic inventory system, purchases, purchases returns and allowances, purchase discounts, and transportation-in transactions are recorded in the Merchandise Inventory account.
Answer: FALSE
Difficulty: 1 Easy
Topic: Periodic Inventory System
Learning Objective: 04-P5 Appendix 4A-Record and compare merchandising transactions using both periodic and perpetual inventory systems.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
64) The periodic inventory system requires updating the inventory account only at the end of the period.
Answer: TRUE
Difficulty: 1 Easy
Topic: Periodic Inventory System
Learning Objective: 04-P5 Appendix 4A-Record and compare merchandising transactions using both periodic and perpetual inventory systems.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
65) In a periodic inventory system, cost of goods sold is recorded as each sale occurs.
Answer: FALSE
Difficulty: 1 Easy
Topic: Periodic Inventory System
Learning Objective: 04-P5 Appendix 4A-Record and compare merchandising transactions using both periodic and perpetual inventory systems.
Bloom’s: Remember
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
66) Under both the periodic and perpetual inventory systems, the temporary account Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period.
Answer: FALSE
Difficulty: 2 Medium
Topic: Accounting for Merchandise Purchases; Periodic Inventory System
Learning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.; 04-P5 Appendix 4A-Record and compare merchandising transactions using both periodic and perpetual inventory systems.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
67) Delivery expense is reported as part of general and administrative expense in the seller’s income statement.
Answer: FALSE
Difficulty: 2 Medium
Topic: Financial Statement Formats
Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
68) New revenue recognition rules require that sellers report sales net of expected sales discounts.
Answer: TRUE
Difficulty: 2 Medium
Topic: Adjusting Entries under New Revenue Recognition Rules
Learning Objective: 04-P6 Appendix 4B-Prepare adjustments for discounts, returns, and allowances per revenue recognition rules.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
69) Under new revenue recognition rules, the gross method requires a period-end adjusting entry to estimate future sales discounts.
Answer: TRUE
Difficulty: 2 Medium
Topic: Adjusting Entries under New Revenue Recognition Rules
Learning Objective: 04-P6 Appendix 4B-Prepare adjustments for discounts, returns, and allowances per revenue recognition rules.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Decision Making
70) Inventory Returns Estimated, which reflects an adjustment to inventory for expected future returns, is a liability account reported in the balance sheet, usually under Current Liabilities.
Answer: FALSE
Difficulty: 2 Medium
Topic: Adjusting Entries under New Revenue Recognition Rules
Learning Objective: 04-P6 Appendix 4B-Prepare adjustments for discounts, returns, and allowances per revenue recognition rules.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
71) Inventory Returns Estimated is a current asset account used in a period-end adjusting entry to reflect the inventory estimated to be returned in the future.
Answer: TRUE
Difficulty: 2 Medium
Topic: Adjusting Entries under New Revenue Recognition Rules
Learning Objective: 04-P6 Appendix 4B-Prepare adjustments for discounts, returns, and allowances per revenue recognition rules.
Bloom’s: Understand
AACSB/Accessibility: Communication/Keyboard Navigation
AICPA: BB Industry; FN Reporting
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