True of False: 1. Merchandise inventory consists of products that a company acquires to resell to customers. 2. A service company earns net income by buying and selling merchandise. 3. Gross profit is also called gross margin.
True of False: 1. Merchandise inventory consists of products that a company acquires to resell to customers. 2. A service company earns net income by buying and selling merchandise. 3. Gross profit is also called gross margin.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
True or False
Transcribed Image Text:True of False:
1. Merchandise inventory consists of products that a company acquires to resell to
customers.
2. A service company earns net income by buying and selling merchandise.
3. Gross profit is also called gross margin.
4. Cost of goods sold is also called cost of sales.
5. A wholesaler is an intermediary that buys products from manufacturers or other
wholesalers and sells them to consumers.
6. A retailer is an intermediary that buys products from manufacturers and sells them to
wholesalers.
7. Cost of goods sold represents the cost of buying and preparing merchandise for sale.
8. A merchandising company's operating cycle begins with the sale of merchandise and
ends with the collection of cash from the sale.
9. Merchandise inventory is reported in the long-term assets section of the balance sheet.
10. Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen
operating cycles.
11. Assets tied up in inventory are not productive assets.
12. A perpetual inventory system requires updating of the inventory account only at the
beginning of an accounting period.
13. A perpetual inventory system continually updates accounting records for inventory
transactions.
14. Beginning merchandise inventory plus the net cost of purchases is the merchandise
available for sale.
15. The Merchandise Inventory account balance at the end of the current period is equal
to the amount of beginning merchandise inventory for the next period.
16. Credit terms for a purchase include the amounts and timing of payments from a buyer
to a seller.
17. Purchase returns refer to merchandise a buyer acquires but then returns to the seller.
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18. Purchase allowances refer to merchandise a buyer acquires but then returns to the
seller.
19. Under the perpetual inventory system, the cost of merchandise purchased is recorded
in the Merchandise Inventory account.
20. Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount
if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due
in 30 days.
21. Sellers always offer a discount to buyers for prompt payment toward purchases made
on credit.
22. Purchase discounts are the same as trade discounts.
23. If a company sells merchandise with credit terms 2/10 n/60, the credit period is 10
days and the discount period is 60 days.
24. Sales discounts on credit sales can benefit a seller by decreasing the delay in receiving
cash and reducing future collections efforts.
25. Sales discounts is a contra revenue account, meaning that the Sales Discounts
account is added to the Sales account when computing a company's net sales.
SUMMARY
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