Skip to ContentGo to accessibility pageKeyboard shortcuts menu
OpenStax Logo

Multiple Choice

1.

C

3.

A

5.

D

7.

D

9.

C

11.

A

13.

C

15.

A

17.

C

19.

D

21.

B

23.

D

25.

B

27.

B

Questions

1.

It helps solidify a long-term relationship with the customer, encourages the customer to purchase more, and decreases the time it takes for the company to see a liquid asset (cash). Cash can be used for other purposes immediately, such as reinvesting the business, paying down loans quicker, and distributing dividends to shareholders.

3.

A sales return occurs when a customer returns merchandise for a full refund. A sales allowance occurs when a customer keeps the merchandise and is issued a partial refund.

5.

Advantages could include real-time data and more robust information. Disadvantages could include fewer inventory counts with opportunity for mismanagement of inventory. It is also costly, and time consuming.

7.
Oct 18 Accounts Receivable 130  
  Sales   130
  To recognize sale under periodic inventory system    
Note: No cost of sale entry is required currently, only at the end of the period under periodic.
9.

Cash would be remitted to a retainer if the retailer returns merchandise to a manufacturer after payment, or if the retailer receives an allowance for damaged merchandise after payment.

11.

$110; $1,100 × 50% = $550, $550 × 20% = $110

13.

$6.15; $205 × 3%

15.

With FOB Destination, the seller is responsible for goods in transit, the seller pays for shipping, and the point of transfer is when the goods reach the buyer’s place of business. With FOB Shipping Point, the buyer is responsible for goods in transit, the buyer pays for shipping, and the point of transfer is when the goods leave the seller’s place of business.

17.
Accounts Receivable 800  
Sales   800
To recognize sale on credit, 2/10, n/30, FOB Destination    
COGS 300  
Merchandise Inventory   300
To recognize cost of sale    
Delivery Expense 100  
Cash   100
To recognize shipping charge, FOB Destination    
19.

32% or $.32; ($176,750 – 120,470) / $176,750

21.

The gross profit margin ratio shows the company’s margin over costs of sales to cover operating expenses and profit. If margin continue to increase over time, an investor or lender might consider the financial contribution less risky. If the ratio decreases, the stakeholder may perceive an increased risk that the company may not have enough revenue to service debt.

23.

$14.70; $490 × 3%

25.

Recognizing the return of merchandise to inventory occurs under the perpetual inventory system but not under the periodic inventory system.

Order a print copy

As an Amazon Associate we earn from qualifying purchases.

Citation/Attribution

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution-NonCommercial-ShareAlike License and you must attribute OpenStax.

Attribution information
  • If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
    Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters
  • If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
    Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters
Citation information

© Dec 13, 2023 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.