True/False1.40Income from operations appears on both the single-step and multipl
True/False1.40Income from operations appears on both the single-step and multiple-step forms of an income statement.A) TrueB) False2.25The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.A) TrueB) FalseMultiple Choice3.248You are at a company picnic and the company president starts a conversation with you. The president says “Since we use the perpetual inventory system, there is no reason to take a physical count of our inventory.” What is your response to the president’s remarks?HTML Editor4.68After gross profit is calculated, operating expenses are deducted to determineA) gross margin. B) net income. C) gross profit on sales. D) net margin. 5.157The operating expenses section of an income statement for a merchandising company would not includeA) Freight-out. B) Utilities expense. C) Cost of goods sold. D) Insurance expense. 6.65Under a perpetual inventory systemA) accounting records continuously disclose the amount of inventory. B) increases in inventory resulting from purchases are debited to purchases. C) there is no need for a year-end physical count. D) the account purchase returns and allowances is credited when goods are returned to vendors. 7.70Detailed records of goods held for resale are not maintained under aA) perpetual inventory system. B) periodic inventory system. C) double entry accounting system. D) single entry accounting system. 8.147What is the term applied to the excess of sales over the cost of goods sold?A) Net sales B) Income from operations C) Net income D) Gross profit 9.86A company using a perpetual inventory system that returns goods previously purchased on credit wouldA) debit Accounts Payable and credit Merchandise Inventory. B) debit Sales and credit Accounts Payable. C) debit Cash and credit Accounts Payable. D) debit Accounts Payable and credit Purchases. 10.196A company shows the following balances:What is the gross profit rate?A) 60% B) 75% C) 40% D) 25% 11.253Distinguish between cost of goods sold and operating expenses, describe the nature of these two items and their placement on the income statement.HTML Editor12.258Sandy Lang and Mandy Starr, two salespersons in adjoining territories, regularly compete for bonuses. During the last month, their dollar volume of sales, on which the bonuses are based, was nearly equal. On May 30, 2010, each made a large sale. Both orders were shipped on May 31, 2010, the last day of the month, and both were received by the customers on June 5, 2010. Sandy’s sale was FOB shipping point (ownership passes to buyer at time of shipping), and Mandy’s was FOB destination (ownership passes to buyer at time of receipt). The printed policy of the company states that sales “count” for purposes of calculating bonuses on the date that ownership passes to the purchaser. Sandy’s sale was therefore counted in her May monthly total of sales while Mandy’s sale was not. Mandy is quite upset. She has asked you to just include it, or to take Sandy’s off as well. She also has told you that you are being unethical for allowing Sandy to get a bonus just for choosing a particular shipping method.As the accounting manager write a memo to Mandy on June 15, 2010, and explain your position.HTML Editor13.59Net income will result if gross profit exceedsA) cost of goods sold. B) operating expenses. C) purchases. D) cost of goods sold plus operating expenses. 14.165Financial information is presented below:The profit margin ratio would beA) .127. B) .132. C) .139. D) .145. 15.182The amount of cost of good available for sale during the year depends on the amounts ofA) beginning merchandise inventory and cost of goods sold. B) beginning merchandise inventory, net cost of purchases, and ending merchandise inventory. C) beginning merchandise inventory, cost of goods sold, and ending merchandise inventory. D) beginning merchandise inventory and net costs of purchases. 16.117The entry to record a sale of $750 with terms of 2/10, n/30 will include aA) credit to Sales Discounts for $15. B) debit to Cash for $735. C) credit to Accounts Receivable for $750. D) credit to Sales for $750. 17.159Gross profit does not appearA) on a merchandising company income statement. B) on a service company income statement. C) to be relevant in analyzing the operation of a merchandising company. D) on the income statement if the periodic inventory system is used because it cannot be calculated. 18.194If Hostell Company has net sales of $500,000 and cost of goods sold of $300,000, Hostell’s gross profit rate isA) 60%. B) 40%. C) 20%. D) 100%. 19.150An advantage of the single-step income statement over the multiple-step form isA) the amount of information it provides. B) its comprehensiveness. C) its simplicity. D) its use in computing ratios. 20.180During the year, Megan’s Pet Shop’s merchandise inventory decreased by $20,000. If the company’s cost of goods sold for the year was $300,000, purchases would have beenA) $320,000. B) $280,000. C) $260,000. D) Unable to determine.