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Principles of Accounting, Volume 1: Financial Accounting

Multiple Choice

Principles of Accounting, Volume 1: Financial AccountingMultiple Choice
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1.

LO 6.1Which of the following is an example of a contra revenue account?

  1. sales
  2. merchandise inventory
  3. sales discounts
  4. accounts payable
2.

LO 6.1What accounts are used to recognize a retailer’s purchase from a manufacturer on credit?

  1. accounts receivable, merchandise inventory
  2. accounts payable, merchandise inventory
  3. accounts payable, cash
  4. sales, accounts receivable
3.

LO 6.1Which of the following numbers represents the discount percentage applied if a customer pays within a discount window and credit terms are 3/15, n/60?

  1. 3
  2. 15
  3. 60
  4. 3 and 15
4.

LO 6.1If a customer purchases merchandise on credit and returns the defective merchandise before payment, what accounts would recognize this transaction?

  1. sales discount, cash
  2. sales returns and allowances, cash
  3. accounts receivable, sales discount
  4. accounts receivable, sales returns and allowances
5.

LO 6.2Which of the following is a disadvantage of the perpetual inventory system?

  1. Inventory information is in real-time.
  2. Inventory is automatically updated.
  3. It allows managers to make current decisions about purchases, stock, and sales.
  4. It is cost-prohibitive.
6.

LO 6.2Which of the following is an advantage of the periodic inventory system?

  1. frequent physical inventory counts
  2. cost prohibitive
  3. time consuming
  4. real-time information for managers
7.

LO 6.2Which of the following is not a reason for the physical inventory count to differ from what is recognized on the company’s books?

  1. mismanagement
  2. shrinkage
  3. damage
  4. sale of services to customers
8.

LO 6.2Which of the following is not included when computing Net Purchases?

  1. purchase discounts
  2. beginning inventory
  3. purchase returns
  4. purchase allowances
9.

LO 6.3Which of the following accounts are used when recording a purchase?

  1. cash, merchandise inventory
  2. accounts payable, merchandise inventory
  3. A or B
  4. cash, accounts payable
10.

LO 6.3A retailer pays on credit for $650 worth of inventory, terms 3/10, n/40. If the merchandiser pays within the discount window, how much will the retailer remit in cash to the manufacturer?

  1. $19.50
  2. $630.50
  3. $650
  4. $195
11.

LO 6.3A retailer returns $400 worth of inventory to a manufacturer and receives a full refund. What accounts recognize this return before the retailer remits payment to the manufacturer?

  1. accounts payable, merchandise inventory
  2. accounts payable, cash
  3. cash, merchandise inventory
  4. merchandise inventory, cost of goods sold
12.

LO 6.3A retailer obtains a purchase allowance from the manufacturer in the amount of $600 for faulty inventory parts. Which of the following represents the journal entry for this transaction if the retailer has already remitted payment?


  1.  Accounts Payable debit of $600 and Merchandise Inventory credit of $600.

  2. Cash credit of $600 and Merchandise Inventory credit of $600.

  3. Accounts Payable debit of $600 and credits to Merchandise Inventory of $10 and Cash of $590.
13.

LO 6.4Which of the following accounts are used when recording the sales entry of a sale on credit?

  1. merchandise inventory, cash
  2. accounts receivable, merchandise inventory
  3. accounts receivable, sales
  4. sales, cost of goods sold
14.

LO 6.4A customer pays on credit for $1,250 worth of merchandise, terms 4/15, n/30. If the customer pays within the discount window, how much will they remit in cash to the retailer?

  1. $1,250
  2. $1,200
  3. $50
  4. $500
15.

LO 6.4A customer returns $870 worth of merchandise and receives a full refund. What accounts recognize this sales return (disregarding the merchandise condition entry) if the return occurs before the customer remits payment to the retailer?

  1. accounts receivable, sales returns and allowances
  2. accounts receivable, cash
  3. sales returns and allowances, merchandise inventory
  4. accounts receivable, cost of goods sold
16.

LO 6.4A customer obtains a purchase allowance from the retailer in the amount of $220 for damaged merchandise. Which of the following represents the journal entry for this transaction if the customer has not yet remitted payment?


  1.  Debit to Sales Returns and Allowance of $220 and credit to Cash of $220.

  2. Debit to Sales Returns and Allowances of $220 and credit to Accounts Receivable of $220.

  3. Debits to Cash and Sales Returns and Allowances of $200 and $20, respectively, and credit to Accounts Receivable of $220.
17.

LO 6.5Which of the following is not a characteristic of FOB Destination?

  1. The seller pays for shipping.
  2. The seller owns goods in transit.
  3. The point of transfer is when the goods leave the seller’s place of business.
  4. The point of transfer is when the goods arrive at the buyer’s place of business.
18.

LO 6.5Which two accounts are used to recognize shipping charges for a buyer, assuming the buyer purchases with cash and the terms are FOB Shipping Point?

  1. delivery expense, cash
  2. merchandise inventory, cash
  3. merchandise inventory, accounts payable
  4. The buyer does not record anything for shipping since it is FOB Shipping Point.
19.

LO 6.5Which of the following is not a characteristic of FOB Shipping Point?

  1. The buyer pays for shipping.
  2. The buyer owns goods in transit.
  3. The point of transfer is when the goods leave the seller’s place of business.
  4. The point of transfer is when the goods arrive at the buyer’s place of business.
20.

LO 6.6A multi-step income statement ________.

  1. separates cost of goods sold from operating expenses
  2. considers interest revenue an operating activity
  3. is another name for a simple income statement
  4. combines cost of goods sold and operating expenses
21.

LO 6.6Which of the following accounts would be reported under operating expenses on a multi-step income statement?

  1. sales
  2. advertising expense
  3. sales returns and allowances
  4. interest expense
22.

LO 6.6A simple income statement ________.

  1. combines all revenues into one category
  2. does not combine all expenses into one category
  3. separates cost of goods sold from operating expenses
  4. separates revenues into several categories
23.

LO 6.6Which of the following accounts would not be reported under revenue on a simple income statement?

  1. interest revenue
  2. net sales
  3. rent revenue
  4. operating expenses
24.

LO 6.7Which of the following accounts are used when recording a purchase using a periodic inventory system?

  1. cash, purchases
  2. accounts payable, sales
  3. accounts payable, accounts receivable
  4. cash, merchandise inventory
25.

LO 6.7A retailer obtains a purchase allowance from the manufacturer in the amount of $600 for faulty inventory parts. Which of the following represents the journal entry for this transaction, assuming the retailer has already remitted payment?


  1.  Accounts Payable debit of $600 and Merchandise Inventory credit of $600.

  2. Cash debit of $600 and Purchase Returns and Allowances credit of $600.

  3. Accounts payable debit of $600 and credits to Purchase Discounts of $10 and to Cash of $590.
26.

LO 6.7A customer returns $690 worth of merchandise and receives a full refund. What accounts recognize this sales return, assuming the customer has not yet remitted payment to the retailer?

  1. accounts receivable, sales returns and allowances
  2. accounts receivable, cash
  3. sales returns and allowances, purchases
  4. sales discounts, cost of goods sold
27.

LO 6.7A customer obtains an allowance from the retailer in the amount of $450 for damaged merchandise. Which of the following represents the journal entry for this transaction, assuming the customer has not remitted payment?


  1.  Sales Returns and Allowances debit of $450 and Cash credit of $450.

  2. Sales Returns and Allowances debit of $450 and Accounts Receivable credit of $450.

  3. Debits to Cash of $400 and Sales Returns and Allowances of $50, and Accounts Receivable credit of $450.
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