Learning Objective 5-1
1) The operating cycle for a merchandising firm is ________.
A) obtain cash from stockholders, invest cash in equipment, earn more cash
B) borrow cash from lenders, earn cash from customers, repay lenders
C) start with cash, buy inventory, sell inventory to customers, collect cash from customers
D) issue stock to owners, earn a profit, pay dividends to owners
2) Which statement below best describes how to account for the costs of purchasing inventory?
A) The costs are initially recorded as expenses and depreciated over the estimated useful life.
B) Inventory costs are initially reported as assets and then maintained in the asset accounts for the life of the business.
C) The costs are initially recorded as assets and become expenses when the inventory has an increase in market value.
D) The costs are initially recorded as assets and become expenses when the inventory is sold.
3) Inventory consists of items that ________.
A) are purchased for resale to customers as a normal operating activity
B) are purchased, and will be sold to customers only if they go up in market value
C) are intangible in nature
D) can be stored indefinitely and will be held in the business
4) A purchase requisition is a document that is ________.
A) sent to a supplier or vendor requesting that an item be shipped
B) used internally to request that something be purchased
C) used internally to approve a payment for inventory
D) sent to a supplier along with payment for inventory purchased
5) A purchase order is a document that is ________.
A) sent to a supplier or vendor requesting that an item be shipped
B) used internally to request that something be purchased
C) used internally to approve a payment for inventory
D) sent to a supplier along with payment for inventory purchased
6) Which statement below best explains the credit terms of 2/10, n/30?
A) The buyer will receive a 2 percent discount if it pays within ten days of the purchase.
B) The buyer will receive a 10 percent discount if it pays within two days.
C) The buyer will receive a 10 percent discount if it pays within thirty days.
D) The buyer will receive a 2 percent discount if it pays within thirty days.
7) Which of the following costs should be included in the inventory account when inventory is purchased FOB shipping point?
A) insurance while the merchandise is in transit
B) the cost of the warehouse
C) the advertising costs
D) the cost of merchandise returned
8) The following information is provided for PO Company:
Purchased 100 units of merchandise for $20 each
Paid $50 of freight costs for the merchandise received
Paid $1,200 for an advertising campaign related to the merchandise
Returned 10 of the units purchased because they were broken
Paid the purchasing manager's monthly salary of $3,000
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Determine the cost of PO's inventory at the end of the period.
A) $1,850
B) $3,050
C) $1,800
D) $4,800
9) Up-a-Creek Company had ending inventory of $60,000, purchases of $200,000, beginning accounts payable of $100,000, ending accounts payable of $80,000 and cost of goods sold of $150,000. What was the amount of beginning inventory?
A) $90,000
B) $10,000
C) $30,000
D) $150,000
10) Souper Bowls sold $500 of merchandise to a customer for cash. The sales tax was 5%. How much cash did Souper Bowls receive?
A) $525
B) $371
C) $329
D) $210