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Merchandising Reviewer

Accountancy (Polytechnic University of the Philippines)

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MERCHANDISING – REVIEW QUESTIONS

TRUE OR FALSE

1. The main difference of a merchandising business from a servicing business is
the existence of merchandise inventory.

2. In a merchandising business, the main source of revenue is the sale of
merchandise.

3. The gross profit from sale is equal to sales minus cost of sales.

4. Purchases of items other than those which form part of inventory and
intended for sale in the normal course of business are recorded as purchases.

5. Freight-in expense is an operating expense.

6. Generally, sales are recorded only when the sale is on cash basis.

7. Transportation expense under FOB destination paid by the buyer under
collect arrangement is the expense of the buyer.

8. Sales returns will decrease the total net sales for the period.

9. A debit note issued by the supplier to the buyer will decrease the payables of
the buyer.

10. If the seller grants an allowance for the reported defective merchandise, the
seller has to issue a credit note to the buyer for the corresponding amount.

11. Transportation expenses on the sale of merchandise are recorded as freight
out and reported as part of cost of sales.

12. Good in transit under FOB shipping point arrangement are part of the seller’s
inventory.

13. Freight expenses under FOB destination arrangement are recorded in the
books of the buyer as cost of sales.

14. Freight expenses under FOB shipping point paid by the buyer is an expense
of the buyer.

15. As a rule, cash discount is given only when the accounts are fully paid within
the discount period.

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16. Under the perpetual inventory system, the cost of sale is determined every
time a sale is made.

17. Under the physical inventory system, the cost of sale is computed only after
the physical count of the unsold merchandise at the end of the period is
conducted.

18. The amount of purchase discount is computed based on the net account
payable and not on net purchases.

19. In determining the cost of sale under the periodic inventory system, the
freight in is added to purchases.

20. Under the perpetual inventory system, the cost of sale is taken from the
record which is known as subsidiary ledger or stock card.

21. All credit sales are recorded in the same manner regardless of whether the
available discount is taken or not.

22. If a customer returns merchandise after taking a cash discount with the
payment, the customer will receive credit equal to the original invoice value
of the merchandise.

23. The sales returns and allowances account is a contra-revenue account.

24. A cash discount is another name for trade discount.

25. A trade discount is taken in the book of the seller as expense.

26. Corresponding to freight expense chargeable to the buyer, the seller
advances the payment and issued a debit note for the amount.

27. Periodic inventory system is the same as physical inventory system.

MULTIPLE CHOICE

1. The following discounts are usually recorded in the journal and posted to the
ledger, except:
A. Trade discount.
B. Cash discount.
C. Purchase discount.
D. Discount due to defect of products.

2. Which of the following is period cost that is not directly related to revenue
earned?
A. Cost of sales.

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B. Operating expenses.
C. Both of the choices.
D. None of the choices.

3. This system of recording goods intended for sale maintains the merchandise
inventory account in every transaction.
A. Periodic inventory system.
B. Perpetual inventory system.
C. Just-in-time inventory system.
D. Maintenance inventory.

4. Which of the following is the income representing the difference between the
sales and cost of sales?
A. Gross profit.
B. Operating income.
C. Net operating income.
D. Net income before tax.

5. The difference between the accounts receivable and the cash collection may
be due to the following reasons except:
A. Trade discount.
B. Cash discount.
C. Sales allowances.
D. Sales returns.

6. This cost includes the purchase price of goods and the related expenses
incurred to prepare the goods ready for sale.
A. Cost of purchases.
B. Cost of good available for sale.
C. Cost of goods sold.
D. Cost of goods sold and operating expenses.

7. Which of the following is reported as part of the operating expenses?
A. Cost of sales.
B. Freight-in.
C. Freight-out.
D. Sales allowance.

8. Which of the following is reported as selling expense?
A. Sales discount.
B. Sales return.
C. Sales allowance.
D. Freight-out

9. All descriptions reveal the characteristics of a periodic inventory system,
except:

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A. Cost of goods sold is determined at the end of the period.

B. Purchases are recoded at cost.
C. Inventory record is always up-to-date.
D. Merchandise inventory account is set-up at the beginning and ending of
the accounting period.

10. In which of the following arrangements does the freight become the expense
of the buyer?
A. FOB destination, collect.
B. FOB shipping point, collect.
C. FOB destination, prepaid.
D. None of the choices.

11. The following accounts will not affect the amount of cost of goods available
for sale, except:
A. Cost of goods sold.
B. Freight-in.
C. Merchandise inventory, ending
D. Undelivered purchases.

12. This discount is granted because of bulk buying.
A. Trade discount.
B. Purchase discount.
C. Sales discount.
D. Discount card.

13. Which of the following will increase the gross profit of the merchandising
business?
A. Increase in purchase discount.
B. Increase in freight-in.
C. Decrease in freight-out.
D. Decrease in purchase return.

14. One of the accounts is not included in the computation of net purchases but
included in determining the amount of total purchases.
A. Purchase returns.
B. Purchase allowances.
C. Purchase discounts.
D. Freight-in.

15. In which of the following will the supplier be issuing a credit note?
A. Granting of trade discount to buyer.
B. Granting of allowance to buyer for defective merchandise.
C. Granting of volume discount to the buyer.
D. All of the choices.

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16. Which of the following is to be included in the inventory of the seller?

A. Goods in transit sold under FOB destination.
B. Goods in transit sold under FOB shipping point.
C. Both A and B.
D. None of the choices.

17. Under which inventory system is a stock card or subsidiary ledger
necessary?
A. Perpetual inventory system.
B. Physical inventory system.
C. Periodic inventory system.
D. All of the choices.

18. Which of the following is not recorded in the books of accounts?
A. Cash discount.
B. Sales discount.
C. Purchase discount.
D. Volume discount.

19. Which of the following is being adjusted by a purchase discount?
A. Purchases.
B. Accounts receivable.
C. Sales
D. All of the choices.

20. Which of the following accounts is used in merchandising but not in
servicing?
A. Depreciation expense.
B. Allowance for bad debts.
C. Salaries expense.
D. Purchase discount.

21. Which of the following is equal to gross profit plus cost of sales?
A. Beginning inventory.
B. Goods available for sale.
C. Ending inventory.
D. Sales.

22. Which of the following is equal to cost of sale plus ending inventory?
A. Beginning inventory.
B. Goods available for sale.
C. Gross profit.
D. Sales.

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MULTIPLE CHOICE

1. A is using a periodic inventory system. For the year, its total purchases
amounted to P250,000. Its unsold merchandise at the end of the year has a
cost of P5,000 which is 80% of its beginning inventory. X’s cost of sale is
A. P250,000
B. P251,250
C. 249,000
D. 248,750

Derivation:

Merchandise Inventory
Beg. 6,250 COGS 251,250
Purchases 250,000 End. 5,000

Merchandise Inventory, Beg. (P5,000 / 80%) P6,250

OR,

Let x = Beg. Inv.
0.80x = P5,000
x = P6,250

COGS = Beg. Inv. + Purchases – End. Inv.

COGS = P6,250 + P250,000 – P5,000
= P251,250

2. B’s purchases per purchase invoice amount to P150,000. The purchase
discount is 2/10, n/30. Freight is P500, FOB shipping point collect. Using the
net method, the amount of net purchases would be
A. P147,000
B. P147,500
C. P148,500
D. P150,500

Derivation:
Net purchases (P150,000 x 0.98 + P500) P147,500

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3. The purchase invoice shows the amount of P250,000, 2/10, 1/20, n/30; FOB
destination collect, P200. If the account is paid 15 days after the invoice date,
the net payment should be
A. P245,000
B. P247,500
C. P247,300
D. P244,800

Derivation:
Net payment (P250,000 x 0.99) P247,500

4. C purchased merchandise for P5,000 and paid P200 for freight, FOB
destination collect. The merchandise was sold at 120% of cost. The gross
profit is
A. P1,000
B. P1,040
C. P6,000
D. P6,240

Derivation:

Sales (P5,200 x 120%) P6,240
Less; Cost of goods sold 5,200
Gross profit P1,040


5. The total purchase is P1,176, net of 2% cash discount. Unsold portion of
purchase is P176. The sale is mark-up of 10%. The gross profit is
A. P117.60
B. P88.24
C. P125.25
D. P100

Derivation:
Gross profit (P1,176 – P176) x 10% P100

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6. The term of a P300,000 purchase is 2/30, n/60; FOB shipping point prepaid,
P300. If the account is paid on the 20th day from the invoice date, the total
payment would be
A. P294,000
B. P299,700
C. P294,300
D. P300,300

Derivation:
Total payment (P300,000 x 0.98) + P300 P294,300

7. The following items are taken from the records of D Enterprise:

Purchases P10,000 Sales discount P1,000
Purchase returns 100 Freight-in 400
Sales 15,000 Freight-out 500

No beginning and ending inventory. The gross profit is

Derivation:

Sales P15,000
Sales discount (1,000)
Purchases (10,000)
Purchases returns 100
Freight-in (400)
Gross profit P 3,700

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8. The following data pertain to the two-year operation of F Business

Year 1 Year 2
Sales P200,000 P250,000
Purchases 250,000 150,000
Ending inventory 90,000 40,000

F’s gross profit is

Derivation:

Sales P250,000
Less: COGS:
Beg. Inventory P 90,000
Purchases 150,000
TGAS P240,000
Less: End. Inventory 40,000 200,000
Gross Profit P 50,000


9. The purchases of G has a list price of P250,000; terms 10, 5; n/30. To record
the purchase, the journal entry would be

A. Purchases 213,750
Cash 213,750

B. Purchases 212,500
Accounts payable 212,500

C. Purchases 213,750
Accounts payable 213,750

D. Purchases 191,250
Accounts payable 191,250

Derivation:
Invoice price (P250,000 x 0.90 x 0.95) P213,750

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10. M purchased on account, P150,000. Inspection of merchandise revealed that

P20,000 worth of merchandise are defective. M received a credit memo from
supplier for P20,000 damage. The journal entry in the books of M for the
credit memo is

A. Cash 20,000
Accounts payable 20,000

B. Accounts payable 20,000
Purchase returns 20,000

C. Accounts payable 20,000
Cash 20,000

D. Accounts payable 20,000
Accounts payable 20,000

11. N is selling at list price of P80,000; 5; 1/30; n/60. To record the sales, the
debit would be
A. Cash, P76,000
B. Accounts receivable, P80,000
C. Accounts receivable, P75,240
D. Accounts receivable, P76,000

Derivation:
Invoice price (P80,000 x 0.95) P76,000

12. O sold merchandise at a list price of P150,000; 10; 1/10, n/30. If the account
is collected 8 days from the invoice date, O will receive
A. P148,500
B. P133,650
C. P135,000
D. P133,500

Derivation:
Cash received (P150,000 x 0.90 x 0.99) P133,650

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13. P sold merchandise at a list price of P250,000; 10, 5; n/30. Part of the sale
amounting to P10,000 was returned due to defect. The amount to be
collected by P is
A. P205,200
B. P203,750
C. P204,000
D. P195,200

Derivation:

Amount collected (P250,000 x 0.90 x 0.95) – P10,000 P203,750

14. The cost of sale is P250,000. Total purchases amounted to P300,000 which
increased the total goods available for sale to P310,000. The ending
inventory is
A. P10,000
B. P70,000
C. P50,000
D. P60,000

Derivation:

TGAS P310,000
Less: COGS 250,000
End. Inventory P 60,000

15. The gross profit is P100,000; goods available for sale, P1,100,000; beginning
inventory, P100,000; purchases P1,000,000 and sales P1,000,000. The
ending inventory is
A. P300,000
B. P200,000
C. P100,000
D. None

Derivation:

Sales P1,000,000
Less: Gross profit 100,000
Cost of goods sold P 900,000

Beg, inventory P 100,000
Add: Purchases 1,000,000
Total Goods Available for Sale (TGAS) P1,100,000
Less: Cost of goods sold 900,000
End. Inventory P 200,000

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16. The following data pertains to the inventory of Q:

Purchases P1,200,000
Purchase returns 200,000
Purchase discounts 20,000
Freight-in 250,000
Freight-out 300,000
Cost of sales 930,000
Actual inventory per count 275,000

The actual physical count indicates a (an)

A. shortage of P600,000.
B. Overage of P25,000.
C. Shortage of P25,000.
D. Overage of P325,000.

Derivation:

Purchases P1,200,000
Purchase returns (200,000)
Purchase discounts (20,000)
Freight-in 250,000
TGAS P1,230,000
Cost of sales (930,000)
End. Inventory per book P 300,000
Actual inventory per count (275,000)
Inventory Shortage P 25,000

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17. The beginning inventory was 100 units at P1,000 per unit. Purchases for the
period were as follows:

First batch, 900 units at P1,100 per unit P99,000
Second batch, 500 units at P1,200 per unit 600,000

Physical count at the end of the period was 50 units. Under FIFO costing, the
value of ending inventory would be

A. P60,000
B. P55,000
C. P50,000
D. P45,000

Derivation:

End. Inventory (50 units x P1,200) P60,000

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