Question

1. When using the asset turnover ratio, which of the following is false?

a. Using this ratio compared to suppliers may be beneficial in interpreting the business' use of assets.

b. A high ratio indicates an effective use of assets.

c. The asset turnover ratio measures how effectively a business is using its assets to generate sales.

d. The assets used in computing this ratio may be the average of monthly assets.

2. When comparing the adjusting process under the perpetual and the periodic inventory systems,

a. no entry is made for estimated returns inventory under the periodic inventory system.

b. the inventory shrinkage adjustment is the same under both systems.

c. the ending inventory is determined by a physical count under both systems.

d. the cost of goods sold account is reduced by the cost of estimated returns inventory for the current year under the perpetual inventory system.

3.

At the end of the year, assume the balance of Inventory is $109,225 and physical inventory on hand is $106,320. The adjusting journal entry to record shrinkage will be

a. a $215,545 debit to Cost of Goods Sold and a $215,545 credit to Inventory.

b. a $109,225 debit to Inventory and a $109,225 credit to Cost of Goods Sold.

c. a $2,905 debit to Cost of Goods Sold and a $2,905 credit to Inventory.

d. a $2,905 debit to Inventory and a $2,905 credit to Cost of Goods Sold.

4.

The first closing entry for a retail business will include which of the following?

a. Inventory

b. Sales

c. Dividends

d. Accounts payable

5.

When recording merchandise transactions under the periodic inventory system, which of the following is false?

a. At the end of the period, a physical count of inventory on hand is taken.

b. The sales of merchandise are not recorded in the inventory account.

c. Purchases of inventory are recorded in the inventory account.

d. There is no detailed record of the amount of inventory on hand at any given time.

6.

Morgan Company uses the perpetual inventory system and the gross method of recording sales discounts. Morgan Company sold $60,000 of merchandise to Jameson Inc. on May 10, 20Y8, with credit terms of 2/10, n/30. The cost of the merchandise sold was 45,000.

Assume Jameson pays within the discount period on May 19. When recording the journal entry to record the payment received, what amount is credited to Accounts Receivable?

a. $61,200

b. $58,800

c. $45,000

d. $60,000

Answer 1

1.
Answer is a. Using this ratio compared to suppliers may be beneficial in interpreting the business' use of assets.
Since there is nothing related to suppliers in asset turnover ratio. it is only about sales and assets

2.
Answer is c. the ending inventory is determined by a physical count under both systems.
Since ending inventory is cross checked once by conducting physical count and compared to records as per perpetual system as well.

3.
Shrinkage = $109225 - $105320 = $2905 which is debited to cost of goods sold
c. a $2,905 debit to Cost of Goods Sold and a $2,905 credit to Inventory.

4.
Answer is b. Sales

5.
Answer is c. Purchases of inventory are recorded in the inventory account.
Since inventory is not maintained under periodic system

6.
Answer is d. $60,000
Since under gross method, sales is recorded at gross amount i.e. before discount and discount is adjusted at payment.