OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
Note: All of the following assessments assume a periodic inventory system unless otherwise
noted.
Multiple Choice
1. LO 6.1 Which of the following is an example of a contra revenue account?
A. sales
B. merchandise inventory
C. sales discounts
D. accounts payable
Solution
C
2. LO 6.1 What accounts are used to recognize a retailer’s purchase from a manufacturer on
credit?
A. accounts receivable, merchandise inventory
B. accounts payable, merchandise inventory
C. accounts payable, cash
D. sales, accounts receivable
Solution
B
3. LO 6.1 Which of the following numbers represents the discount percentage applied if a
customer pays within a discount window and credit terms are 3/15, n/60?
A. 3
B. 15
C. 60
D. 3 and 15
Solution
A
4. LO 6.1 If a customer purchases merchandise on credit and returns the defective merchandise
before payment, what accounts would recognize this transaction?
A. sales discount, cash
B. sales returns and allowances, cash
C. accounts receivable, sales discount
D. accounts receivable, sales returns and allowances
Solution
D
5. LO 6.2 Which of the following is a disadvantage of the perpetual inventory system?
A. Inventory information is in real-time.
B. Inventory is automatically updated.
C. It allows managers to make current decisions about purchases, stock, and sales.
D. It is cost-prohibitive.
Solution
D
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,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
6. LO 6.2 Which of the following is an advantage of the periodic inventory system?
A. frequent physical inventory counts
B. cost prohibitive
C. time consuming
D. real-time information for managers
Solution
A
7. LO 6.2 Which of the following is not a reason for the physical inventory count to differ from
what is recognized on the company’s books?
A. mismanagement
B. shrinkage
C. damage
D. sale of services to customers
Solution
D
8. LO 6.2 Which of the following is not included when computing Net Purchases?
A. purchase discounts
B. beginning inventory
C. purchase returns
D. purchase allowances
Solution
B
9. LO 6.3 Which of the following accounts are used when recording a purchase?
A. cash, merchandise inventory
B. accounts payable, merchandise inventory
C. A or B
D. cash, accounts payable
Solution
C
10. LO 6.3 A retailer pays on credit for $650 worth of inventory, terms 3/10, n/40. If the
merchandiser pays within the discount window, how much will the retailer remit in cash to the
manufacturer?
A. $19.50
B. $630.50
C. $650
D. $195
Solution
B
11. LO 6.3 A retailer returns $400 worth of inventory to a manufacturer and receives a full
refund. What accounts recognize this return before the retailer remits payment to the
manufacturer?
A. accounts payable, merchandise inventory
B. accounts payable, cash
C. cash, merchandise inventory
D. merchandise inventory, cost of goods sold
Solution
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,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
A
12. LO 6.3 A retailer obtains a purchase allowance from the manufacturer in the amount of $600
for faulty inventory parts. Which of the following represents the journal entry for this transaction
if the retailer has already remitted payment?
A.
B.
C.
Solution
B
13. LO 6.4 Which of the following accounts are used when recording the sales entry of a sale on
credit?
A. merchandise inventory, cash
B. accounts receivable, merchandise inventory
C. accounts receivable, sales
D. sales, cost of goods sold
Solution
C
14. LO 6.4 A customer pays on credit for $1,250 worth of merchandise, terms 4/15, n/30. If the
customer pays within the discount window, how much will they remit in cash to the retailer?
A. $1,250
B. $1,200
C. $50
D. $500
Solution
B
15. LO 6.4 A customer returns $870 worth of merchandise and receives a full refund. What
accounts recognize this sales return (disregarding the merchandise condition entry) if the return
occurs before the customer remits payment to the retailer?
A. accounts receivable, sales returns and allowances
B. accounts receivable, cash
C. sales returns and allowances, merchandise inventory
D. accounts receivable, cost of goods sold
Solution
A
16. LO 6.4 A customer obtains a purchase allowance from the retailer in the amount of $220 for
damaged merchandise. Which of the following represents the journal entry for this transaction if
the customer has not yet remitted payment?
A.
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, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
B.
C.
Solution
B
17. LO 6.5 Which of the following is not a characteristic of FOB Destination?
A. The seller pays for shipping.
B. The seller owns goods in transit.
C. The point of transfer is when the goods leave the seller’s place of business.
D. The point of transfer is when the goods arrive at the buyer’s place of business.
Solution
C
18. LO 6.5 Which two accounts are used to recognize shipping charges for a buyer, assuming the
buyer purchases with cash and the terms are FOB Shipping Point?
A. delivery expense, cash
B. merchandise inventory, cash
C. merchandise inventory, accounts payable
D. The buyer does not record anything for shipping since it is FOB Shipping Point.
Solution
B
19. LO 6.5 Which of the following is not a characteristic of FOB Shipping Point?
A. The buyer pays for shipping.
B. The buyer owns goods in transit.
C. The point of transfer is when the goods leave the seller’s place of business.
D. The point of transfer is when the goods arrive at the buyer’s place of business.
Solution
D
20. LO 6.6 A multi-step income statement ________.
A. separates cost of goods sold from operating expenses
B. considers interest revenue an operating activity
C. is another name for a simple income statement
D. combines cost of goods sold and operating expenses
Solution
A
21. LO 6.6 Which of the following accounts would be reported under operating expenses on a
multi-step income statement?
A. sales
B. advertising expense
C. sales returns and allowances
D. interest expense
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Chapter 6: Merchandising Transactions
Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
Note: All of the following assessments assume a periodic inventory system unless otherwise
noted.
Multiple Choice
1. LO 6.1 Which of the following is an example of a contra revenue account?
A. sales
B. merchandise inventory
C. sales discounts
D. accounts payable
Solution
C
2. LO 6.1 What accounts are used to recognize a retailer’s purchase from a manufacturer on
credit?
A. accounts receivable, merchandise inventory
B. accounts payable, merchandise inventory
C. accounts payable, cash
D. sales, accounts receivable
Solution
B
3. LO 6.1 Which of the following numbers represents the discount percentage applied if a
customer pays within a discount window and credit terms are 3/15, n/60?
A. 3
B. 15
C. 60
D. 3 and 15
Solution
A
4. LO 6.1 If a customer purchases merchandise on credit and returns the defective merchandise
before payment, what accounts would recognize this transaction?
A. sales discount, cash
B. sales returns and allowances, cash
C. accounts receivable, sales discount
D. accounts receivable, sales returns and allowances
Solution
D
5. LO 6.2 Which of the following is a disadvantage of the perpetual inventory system?
A. Inventory information is in real-time.
B. Inventory is automatically updated.
C. It allows managers to make current decisions about purchases, stock, and sales.
D. It is cost-prohibitive.
Solution
D
Page 1 of 65
,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
6. LO 6.2 Which of the following is an advantage of the periodic inventory system?
A. frequent physical inventory counts
B. cost prohibitive
C. time consuming
D. real-time information for managers
Solution
A
7. LO 6.2 Which of the following is not a reason for the physical inventory count to differ from
what is recognized on the company’s books?
A. mismanagement
B. shrinkage
C. damage
D. sale of services to customers
Solution
D
8. LO 6.2 Which of the following is not included when computing Net Purchases?
A. purchase discounts
B. beginning inventory
C. purchase returns
D. purchase allowances
Solution
B
9. LO 6.3 Which of the following accounts are used when recording a purchase?
A. cash, merchandise inventory
B. accounts payable, merchandise inventory
C. A or B
D. cash, accounts payable
Solution
C
10. LO 6.3 A retailer pays on credit for $650 worth of inventory, terms 3/10, n/40. If the
merchandiser pays within the discount window, how much will the retailer remit in cash to the
manufacturer?
A. $19.50
B. $630.50
C. $650
D. $195
Solution
B
11. LO 6.3 A retailer returns $400 worth of inventory to a manufacturer and receives a full
refund. What accounts recognize this return before the retailer remits payment to the
manufacturer?
A. accounts payable, merchandise inventory
B. accounts payable, cash
C. cash, merchandise inventory
D. merchandise inventory, cost of goods sold
Solution
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,OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
A
12. LO 6.3 A retailer obtains a purchase allowance from the manufacturer in the amount of $600
for faulty inventory parts. Which of the following represents the journal entry for this transaction
if the retailer has already remitted payment?
A.
B.
C.
Solution
B
13. LO 6.4 Which of the following accounts are used when recording the sales entry of a sale on
credit?
A. merchandise inventory, cash
B. accounts receivable, merchandise inventory
C. accounts receivable, sales
D. sales, cost of goods sold
Solution
C
14. LO 6.4 A customer pays on credit for $1,250 worth of merchandise, terms 4/15, n/30. If the
customer pays within the discount window, how much will they remit in cash to the retailer?
A. $1,250
B. $1,200
C. $50
D. $500
Solution
B
15. LO 6.4 A customer returns $870 worth of merchandise and receives a full refund. What
accounts recognize this sales return (disregarding the merchandise condition entry) if the return
occurs before the customer remits payment to the retailer?
A. accounts receivable, sales returns and allowances
B. accounts receivable, cash
C. sales returns and allowances, merchandise inventory
D. accounts receivable, cost of goods sold
Solution
A
16. LO 6.4 A customer obtains a purchase allowance from the retailer in the amount of $220 for
damaged merchandise. Which of the following represents the journal entry for this transaction if
the customer has not yet remitted payment?
A.
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, OpenStax Principles of Accounting, Volume 1: Financial Accounting
Chapter 6: Merchandising Transactions
B.
C.
Solution
B
17. LO 6.5 Which of the following is not a characteristic of FOB Destination?
A. The seller pays for shipping.
B. The seller owns goods in transit.
C. The point of transfer is when the goods leave the seller’s place of business.
D. The point of transfer is when the goods arrive at the buyer’s place of business.
Solution
C
18. LO 6.5 Which two accounts are used to recognize shipping charges for a buyer, assuming the
buyer purchases with cash and the terms are FOB Shipping Point?
A. delivery expense, cash
B. merchandise inventory, cash
C. merchandise inventory, accounts payable
D. The buyer does not record anything for shipping since it is FOB Shipping Point.
Solution
B
19. LO 6.5 Which of the following is not a characteristic of FOB Shipping Point?
A. The buyer pays for shipping.
B. The buyer owns goods in transit.
C. The point of transfer is when the goods leave the seller’s place of business.
D. The point of transfer is when the goods arrive at the buyer’s place of business.
Solution
D
20. LO 6.6 A multi-step income statement ________.
A. separates cost of goods sold from operating expenses
B. considers interest revenue an operating activity
C. is another name for a simple income statement
D. combines cost of goods sold and operating expenses
Solution
A
21. LO 6.6 Which of the following accounts would be reported under operating expenses on a
multi-step income statement?
A. sales
B. advertising expense
C. sales returns and allowances
D. interest expense
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