1.

In the periodic inventory system, all purchases of merchandise during the period is recorded in the
purchases account.

2. A continuous record of inventory is kept in a perpetual inventory system.

3. When using the periodic system, beginning inventory account will remain unchanged.

4. Unearned/ deferred revenue represents a liability on the balance sheet and records money
received for a sale or service not yet performed.

5. Transportation In is added to the cost of goods sold.

6. Net Sales less Cost of Goods Sold equals gross profit.

7. Net sales equals Gross Sales less Sales Discounts and Sales Returns and Allowances.

8. Net Purchases equals Purchases less purchase discounts, purchase returns and allowances

9. Ending inventory is subtracted from the cost of goods available for sale.

10. Net Purchases are added to Beginning Inventory to get the cost of goods available for sale.

11. Gross Profit less operating expenses equals Profit.

12. Purchase discounts reduce the total cost of merchandise sold.

13. Beginning inventory at the end of the period is assumed to be sold and thus a cost.

14. The ending inventory of one period becomes the beginning inventory next period.

15. Ending inventory represents goods not sold

16. The inventory account is adjusted at the end of the period.

17. Purchases are increased by a debit entry.

18. Sales returns and allowances are used in calculating net sales.

19. Beginning Inventory plus Net Purchases equals cost of goods sold available for sale.

20. Beginning Inventory and Ending Inventory are never combined on the worksheet.

T 1. The chart of accounts for a merchandising entity differs from that of a service entity.

F 2. The difference between revenues from sales and cost of sales is operating income.

F 3. For cash sales, the operating cycle is from cash to inventory to accounts receivable and back to
cash.

F 4. The bill of lading is a document prepared by the seller detailing the terms of delivery.

T 5. A validated deposit slip indicates that cash and checks were actually deposited.

F 6. Discounts offered to the buyer to encourage early payment are trade discounts.

T 7. Cash discounts are called purchases discounts from the buyer's viewpoint.

T 8. The sales discounts account is a contra-income account and will have a debit balance.

F 9. A credit term of "2/10, n/30" means that the buyer may deduct 2% from the invoice if payment is
made within 10 days from the end of the month.

T 10. Purchases returns and allowances is a deduction from purchases.

F 11. The cost of merchandise purchased during the period is determined by subtracting from the net
purchases the amount of transportation costs incurred during the period.
F 12. the purchase of equipment not for resale should be debited to the purchases account.

T 13. If the seller is to shoulder the cost of delivery, the term is stated as F.O.B. destination.

F 14. The term freight prepaid or collect will dictate who shoulders the transportation costs.

T 15. The two main systems for accounting for merchandise are periodic and perpetual.

T 16. The perpetual inventory system requires recording the cost of each sale as it occurs.

F 17. There is no need for a physical inventory count in the perpetual inventory system.

F 18. The debit balance of the inventory account in the trial balance under the periodic inventory
system is the amount of the inventory at the end of the current year.

T 19. The ending inventory of one period is the beginning inventory of the next period.

T 20. The balance in the merchandise inventory account at the beginning of the period. represents the
cost of the merchandise on hand at that time.

T 1. The operating cycle involves the purchase and sale of inventory as well as the subsequent
payment for purchases and collection of cash.

T 2. A business can shorten its operating cycle by increasing its percentage of cash sales and
reducing its percentage of credit sales.

T 3. Merchandise inventory could include goods that are in transit.

T 4. An advantage of using the periodic inventory system is that it requires less recordkeeping than
the perpetual inventory system.

T 5. The periodic inventory system relies on a physical count of merchandise for its balance sheet
amount.

F 6. Under the periodic inventory system, cost of goods sold is treated as an account.

F 7. The periodic inventory system provides an up-to-date amount of inventory on hand.

T 8. Summing ending merchandise inventory and cost of goods sold gives the cost of goods available
for sale.

T 9. A physical inventory is usually taken at the end of the accounting period.

T 10. Under the periodic inventory system, purchases of merchandise are not recorded in the
Merchandise Inventory account.

F 11. An entity would be more likely to know the amount of inventory on hand if it used the periodic
inventory system rather than the perpetual inventory system.

T 12. Taking a physical inventory refers to making a count of all merchandise on hand at a particular
time.

T 13. When the periodic inventory system is used, a physical inventory should be taken at the end of
the fiscal year.

T 14. The income statement of an entity that provides services only will not have cost of goods sold.

F 15. For a merchandising entity, the difference between net sales and operating expenses is called
gross margin.

T 16. Sales Returns and Allowances is described as a contra-revenue account.

F 17. On the income statement of a merchandising concern, profit is the amount by which net sales
exceed operating expenses.

F 18. Transportation Out is included in the cost of goods sold calculation.

T 19. Advertising Expense appears as a selling expense on the income statement.

T 20. Transportation In is considered a cost of merchandise purchased.

T 21. The difference between gross sales and net sales is equal to the sum of sales discounts, and
sales returns and allowances.

T 22. When the terms of sale include a sales discount, it usually is advisable for the buyer to pay
within the discount period.

F 23. The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before
30 days after the invoice date.

F 24. Terms of 2/10, n/30 is an example of a trade discount.

T 25. Goods should be recorded at their list price less any trade discounts involved.

F 26. FOB shipping point means that the seller incurs the shipping costs.

T 27. Under the perpetual inventory system, the cost of merchandise is debited to Merchandise
Inventory at the time of purchase.

T 28. The Merchandise Inventory account is not affected. when a sales allowance is granted.

F 29. Ending merchandise inventory is included in the calculation of cost of goods available for sale.

T 30. Ending merchandise inventory for year 1 automatically becomes beginning merchandise
inventory for year 2.

F 31. The calculation of cost of goods available for sale during the year is not affected by the previous
year's ending inventory.

T 32. The change in inventory level from the beginning to the end of the year affects cost of goods
sold.

F 33. Transportation In is treated as a deduction in the cost of goods sold section of the income
statement.

T 34. Under the periodic inventory system, the Purchases account is used to accumulate all
purchases of merchandise for resale.

1. This is an authorization made by the buyer to the seller to deliver the merchandise as detailed in
the form. PURCHASE ORDER

2. It is the discount taken by the buyer for the early payment of an invoice. PURCHASE DISCOUNTS

3. The document issued by the seller authorizing the return of merchandise or the grant of an
allowance. CREDIT MEMORANDUM

4. This document evidences the receipt of cash by the seller. OFFICIAL RECEIPT

5. This transportation arrangement passes ownership to the goods to the buyer only when the buyer
receives the merchandise. FOB DESTINATION

6. Under this inventory system, revenues from sales are recorded when sales are made, but no
attempt is made on the sales date to record the cost of goods sold. PERIODIC INVENTORY SYSTEM
7. Under this inventory system, both the sales amount and the cost of goods sold amount are
recorded when each item of merchandise is sold. PERPETUAL INVENTORY SYSTEM

8. The document prepared by the seller of goods and sent to a buyer detailing the specifics of a sale.
INVOICE

9. This discount encourages the buyers to purchase goods because of markdowns from the list price.
TRADE DISCOUNTS

10. This is the shipping term if the buyer shoulders the shipping costs. FOB SHIPPING POINT

1. On March 1, Vicente purchased merchandise with an invoice price of P270,000 and 2/10, n/30
terms. On March 3, Troy paid P10,000 transportation cost on the purchased goods. On March 10,
Vicente paid for the merchandise. What was Vicente's total cost of the purchased merchandise? C.
P274,600

Purchases 270,000
Less: Purchase discounts ( 5,400) 270,000 x 2%
Balance 264,600
Add: Transportation In 10,000
Net cost of purchases 274,600

2. Winston started business on Jan. 1. During the year, the company purchased merchandise with an
invoice price of P5,000,000. Winston paid P200,000 freight on the merchandise. During the year,
Winston returned P800,000 of the merchandise to its suppliers. All purchases were paid for in a timely
manner, and a P100,000 cash discount was taken. P4,180,000 of the merchandise was sold for
P6,270,000. What was the Dec. 31 balance in the Inventory account? C. P120,000

Purchases 5,000,000
Less: purchase returns and allow. 800,000
Purchase discounts 100,000 (900,000)
Net purchases 4,100,000
Add: transportation in 200,000
Net cost of purchase 4,300,000
Less: COGS (4,180,000)
Inventory, End 120,000

3. Gabriela uses the perpetual inventory system. Gabriela purchased merchandise. with an invoice
price of P80,000, terms 2/10, n/30. If Gabriela returned merchandise with an invoice price of P20,000
to the supplier, what should the journal entry to record the return include? C. Credit to Inventory
P20,000

4. Carl purchased P50,000 merchandise from the Sartre with terms of 3/10, 1/30. How much discount
is Carl entitled to take if it paid within the allowed discount period of 10 days?

50,000 x 3%= P1,500

5. Cormack purchased merchandise with a list price of P60,000 from the Murray. Murray offers its
customers credit terms of 2/10, n/30. What amount should Cormack pay if the cash discount is taken?
d. P58,800
Purchases 60,000
Less: Discount (1,200) 60,000 x 2%
Cash paid 58,800

6. Luis began the period with P200,000 in inventory. The entity purchased an additional P200,000 of
inventory and returned P20,000 for a full credit. A physical count of the inventory at year-end revealed
an inventory on hand of P160,000. What was Luis' costs of goods sold for the period? b. P220,000
 Beginning Inventory 200,000
Purchases 200,000
Purchase returns and allow. (20,000) 180,000
GAFS 380,000
less: Ending Inventory (160,000)
COGS 220,000

1. Which of the following journal entry is correct for the transactions of goods returned by a customer?
Account to be debited b. Dr. Sales returns Cr. Trade receivables

2. Suppose an entity purchases P50,000 goods on credit. The journal entry should be c. Dr.
Purchases Cr. Accounts Payable

3. Which of the following cases show(s) the situation(s) that the list price is higher than the net price
after a deduction as stated on the sales invoice?

1. There is a trade discount of 5% given by the seller.

2. There is a cash discount of 5% given by the seller.
3. Some goods are returned to the supplier.
a. (1) only

Based on the following information, answer Questions 4 to 5.

Suppose XYZ Trading has completed the following transactions in September 2019.

1. sales of goods of P10,000 to Company A on credit

2. purchase of goods of P20,000 from Company B on credit
3. purchase of goods of P25,000 from Company Con credit C
4. sales of office-use computer of P10,000 to Company D on credit

4. What is total amount recorded in the sales account for this month? a. P10,000

5. Which of the following shows the correct journal entry for transaction 1? a. dr. Accounts Receivable
cr. Sales

6. Which of the following is not a reason for sales discounts to be offered to the debtors? a. increase
the amount paid by the debtors

7. Which of the following statements is correct about credit period? C. It refers to the period in which
customers must settle their debts due.

8. ABC Company sold 10 units of goods with a unit list price of P2,000 on Jan. 1, 2019. Given that the
trade discount is 5% and the cash discount is 10%, and that the cash discount period is 10 days and
the credit period is 30 days, if the customer settles the debt on Jan. 28, 2019, what is the actual
amount he needs to pay? c. P19,000

List price (2,000 x 10 units) 20,000

Less: Trade discounts (1,000) 20,000 x 5%
Invoice price 19,000