True or False 1.   Cost of goods sold is a major expense of a...

True or False

1.   Cost of goods sold is a major expense of a merchandising business.

2.   The sales returns and allowances account has a normal debit balance.

3 Net sales is not an account name.

4.  The worksheet of a merchandising entity that uses the perpetual inventory system will not have a Transportation In account.

5.     When preparing a worksheet for a merchandising entity that uses the perpetual inventory system, the cost of goods sold can be derived from the balances of several accounts in the Income Statement columns.

6.   Cost of goods sold is the primary difference between a merchandising and a service business income statement.

7.     When preparing a worksheet for a merchandising entity that uses the periodic inventory system, the merchandise inventory amount shown on the trial balance will be carried over to the Balance Sheet debit column.

8.     On the worksheet of a merchandising entity that uses the periodic inventory system, both Purchases and Purchases Returns and Allowances appear in the Income Statement columns.

9.   The Purchases account is closed to the Merchandise Inventory account.

10.  The ending inventory amount appears in both Income Statement columns on the worksheet of a merchandising entity that uses the periodic inventory system.

11.   Under the periodic inventory system, the Merchandise Inventory account appears in the closing entries made at the end of the period. 12 When preparing closing entries under the periodic inventory system, Sales and Purchases Returns and Allowances are both closed in the same entry.

13. Sales Discounts is a contra-revenue account with a normal credit balance.

14. Purchases Discounts would be recorded as a credit.

15. The closing entry for transportation in debits purchases and credits income summary.

16.   Debiting income summary and crediting beginning merchandise inventory eliminates the beginning inventory at the end of the period.

17. Both Transportation In and Transportation Out accounts are closed by crediting the accounts

18.   Using the nature of expense method of presenting expenses in the income statement has the advantage of simplicity because no allocation of operating expenses between functional classifications is necessary.

19. The function of expense method reports gross margin and income from operations.

20. Operating income is not computed in the nature of expense method.

AT 9-2 MULTIPLE CHOICE

1.  which of the following accounts would not appear on a worksheet for a merchandising entity that uses the periodic inventory system?

a.   Cost of Goods Sold

b.   Purchases

c.   Sales Returns and Allowances

d.   Transportation.

2. Which of the following accounts would appear on a worksheet for a merchandising entity that uses the perpetual inventory system?

a.   Cost of Goods Sold

b.   Income Summary

c.   Purchases

d.   Purchases Returns and Allowances

3.   The closing entries for a merchandising entity using the perpetual inventory system

a.   are fewer in number than if the periodic system were used.

b.   are the same regardless of inventory system used.

c.   calculate the gross profit in the Income Summary account.

d.   do not affect the Merchandise Inventory account.

4.     Which of the following accounts would not be closed by a merchandising entity that uses the perpetual inventory system?

a.   Cost of Goods Sold

b.   Income Summary

c.   Merchandise Inventory

d. Sales Returns and Allowances

5. The accountant erroneously recorded a charge sale as a cash sale. Which of the following is wrong assuming the company uses the periodic inventory system.

a.The profit is not affected

b.The cash is overstated

c. Net working capital is not affected

d. Current asset is overstated.

6.  The basic difference between the financial statements of a merchandising entity and a service business include the cost of good sold section of the income statement and the

a. Profit figure

b. Other income section of the statement of comprehensive income

c. Equity section of the statement of financial position

d. Inclusion of merchandise inventory on the statement of financial position

7.  Assuming the accountant failed to record a purchase that was made last year. What are the effects of the omission on the amount of purchases, cost of sales and gross profit for the period.

a. Understated, understated, understated respectively

b. Understated, overstated, understated respectively

c.  Understated, understated, overstated respectively

d.  Overstated, understated, understated respectively

8.  Statement 1 - Sales return and allowances account has a credit balance

     Statement 2 - Net sales is not an account name

   Statement 3 - Sales discount is a contra revenue account

a.  True , true, false

b. False, true, true

c. False, false, true

d. True, false, false

9, On a worksheet prepared for a merchandising entity that uses the perpetual inventory system,

a.   the components of cost of goods sold are contained in several accounts in the Income Statement columns.

b.   the Income Summary account is used to adjust the Owner's Capital account.

c.   the inventory amount in the Balance Sheet columns is the same as in the Trial Balance columns

d.   the Owner's Withdrawals account is closed into the Owner's Capital account.

10.   Which of the following accounts would appear on a worksheet for a merchandising entity that uses the periodic inventory system?

a.   Cost of Goods Sold

b.   Income Summary

c.   Purchases Returns and Allowances

d.   All of these

11. Which of the following accounts is closed by debiting the account?

a.   Purchases

b.   Purchases Returns and Allowances

c.   Sales Returns and Allowances

d. Transportation In

12. Which of the following accounts is unique to a merchandising entity that uses the periodic inventory system?

a.   Cost of Goods Sold

b.   Merchandise Inventory

c.   Purchases

d. Transportation In

13. The Merchandise Inventory account balance in the Trial Balance columns of a worksheet for a merchandising entity that uses the periodic inventory system

a.   appears in both the debit and the credit columns.

b.   appears in the credit column only.

c.   is correct as stated.

d.   is the same as it was at the beginning of the period.

14. Jan Cahilig Traders started operating in 2020. for the year ended 2020, the sales, purchases and closing inventory are P500,000, P200,000 and P1O,OOO respectively. What is the amount of cost of goods sold for the year ended 2020?

a. P190,000                                            c. P790,000

b. P200,000                                             d. P800,000

15. Refer to Question 14, what is the gross profit for the entity? a. P200,000                                c. P300,000

b. P310,000                                             d. P490,000

Based on the following information, answer Questions 16 to 20.

An entity has the following accounting information for the year: Sales                                                  400,000

Purchases 90,000

Opening Inventory 30,000

Sales Returns 80,000

Purchases Returns 70,000

Transportation In 40,000

Transportation Out 10,000

Salaries 9,000

Other Revenues 4,000

General Expenses 7,000

Gross Profit 250,000

16.   What is the amount of net sales of the entity?

a.    P260,000                                        c.  P280,000

b.    320,000                                         d. P330,000

17.   What is the amount of net purchases of the entity?

a.    P20,000                                           c. P50,000

b.    30,000                                            d. P60,000

18.   What is the amount of closing inventory of the entity?

a.    P10,000                                            c. P20,000

b.    30,000                                             d. P40,000

19.   What is the amount of profit for the year?

a.    P48,000                                            c. P198,0

b.      188,000                                          d. P228,000

20.   Which of the following is/are not relevant to the calculation of net sales?

1.   cash sales

2. sales returns

3. sales discounts

a.   (2) only                               c. (1) and (2) only

b. (3) only                                d. (2) and (3) only

AT 9-3      Adjusting Entry for Merchandise Inventory

Listed below is a partial trial balance of the Charito Guillermo Retailers at Dec. 31, 2020'.

Merchandise Inventory P80,000

Sales P190,000

Sales Returns and Allowances 20,000

Purchases 60,000

Purchases Discounts 3,000

Transportation-ln 1,000

The merchandise inventory on Dec. 31 is P74,000 Required:

1.   Prepare the adjusting entry needed for merchandise inventory.

2.   Prepare the partial income statement