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Unformatted text preview: ch05 Student: ___________________________________________________________________________ 1. Merchandise inventory consists of products that a company acquires to resell to customers. True False 2. A service company earns net income by buying and selling merchandise. True False 3. Gross profit is also called gross margin. True False 4. Cost of goods sold is also called cost of sales. True False 5. A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers. True False 6. A retailer is an intermediary that buys products from manufacturers and sells them to wholesalers. True False 7. Cost of goods sold represents the cost of buying and preparing merchandise for sale. True False 8. A company had sales and cost of goods sold of $350,000 and $200,000, respectively. Its gross profit equals $150,000. True False 9. A company had net sales and cost of goods of $545,000 and $345,000, respectively. Its gross margin equals $890,000. True False 10. A company had a gross profit of $300,000 based on sales of $400,000. Its cost of goods sold equals $700,000. True False 11. A merchandising company's operating cycle begins with the sale of merchandise and ends with the collection of cash from the sale. True False 12. Merchandise inventory is reported in the long-term assets section of the balance sheet. True False 13. Cash sales shorten the operating cycle for a merchandiser; credit sales lengthen operating cycles. True False 14. Assets tied up in inventory are not productive assets. True False 15. A perpetual inventory system requires updating of the inventory account only at the beginning of an accounting period. True False 16. A perpetual inventory system continually updates accounting records for inventory transactions. True False To download more ebooks, slides, SM and TB visit: To download more ebooks, slides, SM and TB visit: 17. Beginning merchandise inventory plus the net cost of purchases is the merchandise available for sale. True False 18. The acid-test ratio is also called the quick ratio. True False 19. Quick assets include cash, inventory, and current receivables. True False 20. The acid-test ratio is defined as current assets divided by current liabilities. True False 21. A common rule of thumb is that a company's acid-test ratio should be at least 2 or a company may face near-term liquidity problems. True False 22. Successful use of a just-in-time inventory system can narrow the gap between the acid-test and the current ratio. True False 23. A company's quick assets are $147,000 and its current liabilities are $143,000. This company's acid-test ratio is 1.03....
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