ACCT 2001 Exam 2 Review

By using a perpetual inventory system, companies can better track when to replenish inventory, thus reducing

• storage costs.

• income.

• sales.

• sales returns.

A department store uses a perpetual inventory system. At year-end, it shows a balance in the merchandise inventory account of $2 million. Assuming that the inventory records have been maintained properly, a year-end physical inventory

• will show that a periodic inventory system should be implemented.

• will confirm that a perpetual inventory system was used correctly.

• will most likely indicate more than $2 million in merchandise on hand.

• will most likely indicate less than $2 million in merchandise on hand due to handling and related losses.

Pristine Products, a wholesaler, uses a periodic inventory system. At year-end, Pristine conducts a physical inventory count to determine

• source of discrepancies in inventory records.

• inventory purchases for the year.

• ending inventory.

• beginning inventory.

Price Company, a wholesaler, records annual sales revenue of $425,000, and reports cost of goods sold of $145,000. What would Price report as its gross profit for the year?

• $280,000.00

• $570,000.00

• $135,000.00

• $285,000.00

An enterprise that sells merchandise directly to a retailer is called a

• corporation.

• wholesaler.

• broker.

• service company.

In a merchandising company, gross profit less operating expenses equals

• sales revenue.

• cost of goods sold.

• net income.

• comprehensive income.

Net income for a merchandising enterprise is computed by

• adding operating expenses and cost of goods sold.

• subtracting cost of goods sold from sales revenue.

• deducting operating expenses from cost of goods sold.

• subtracting operating expenses from gross profit.

When gross profit equals operating expenses, a merchandiser will earn an operating income of

• more than $0.

• $0.

• the difference between sales revenue and cost of goods sold.

• the difference between gross profit and net income.

Ace Corp. is a headhunting firm. Uno Corp. sells office furniture. Which firm has a longer operating cycle? Why?

• Uno Corp. because it purchases and sells inventory

• Ace Corp. because it deals with human relations

• Uno Corp. because it deals with human relations and inventory

• Ace Corp. because it has no inventory

Seneca Company sold goods on account to Rogers Enterprises with terms of 2/10, n/30. The goods had a cost of $1,600 and a selling price of $2,500. Both Seneca and Rogers use a perpetual inventory system. What does the sale look like on Seneca’s books? What does the purchase look like on Rogers’s books?

• Seneca: $2,500 Debit to Accounts Receivable, $2,500 Credit to Sales Revenue. $1,600 Debit to Cost of Goods Sold, $1,600 Credit to Inventory; Rogers: $2,500 Credit to Inventory, $2,500 Debit to Accounts Payable

• Seneca: $2,500 Credit to Accounts Receivable, $2,500 Debit to Sales Revenue, $1,600 Credit to Cost of Goods Sold, $1,600 Debit to Inventory; Rogers: $2,500 Debit to Inventory, $2,500 Credit to Accounts Payable

• Seneca: $2,500 Debit to Accounts Receivable, $2,500 Credit to Sales Revenue, $1,600 Debit to Cost of Goods Sold, $1,600 Credit to Inventory; Rogers: $2,500 Debit to Inventory, $2,500 Credit to Accounts Payable

• Seneca: $2,500 Credit to Accounts Receivable, $2,500 Debit to Sales Revenue, $1,600 Credit to Cost of Goods Sold, $1,600 Debit to Inventory; Rogers: $2,500 Credit to Inventory, $2,500 Debit to Accounts Payable