BSA 1101- FUNDAMENTALS OF ACCOUNTING 1 AND 2

MIDTERM DEPARTMENTAL EXAM REVIEWER

THEORIES

1. Generally, the revenue account for a merchandising business is entitled:

a. Sales c. Gross Sales

b. Net Sales d. Gross Profit

2. When purchases of merchandise are made for cash, the transaction may be recorded with
the following entry:

a. debit Cash; credit Merchandise Inventory

b. debit Merchandise Inventory; credit Cash
c. debit Merchandise Inventory; credit Cash Discounts
d. debit Merchandise Inventory; credit Purchases

3. Which of the following accounts has a normal debit balance?

a. Accounts Payable c. Sales

b. Sales Returns and d. Interest Revenue
Allowances

4. Statement 1: The periodic inventory system determines the cost of goods sold only at the
end of the accounting period.
Statement 2: The perpetual inventory system records the details of the cost of each
inventory purchase and sale.

a. First statement TRUE; Second statement FALSE

b. First statement FALSE; Second statement TRUE
c. Both statements are true
d. Both statements are false

5. Multiple-step income statements:

a. Show both gross profit and income from operations

b. Show gross profit but not income from operations
c. Show neither gross profit nor income from operations
d. Show income from operations but not gross profit
6. Statement 1: Trade discounts represent a discount offered to the purchasers for quick
payment
Statement 2: Trade discounts are deducted as part of the initial purchase transaction; they
are a purchase discount.

a. First statement TRUE; Second statement FALSE

b. First statement FALSE; Second statement TRUE
c. Both statements are true
d. Both statements are false

7. Company A’s gross profit ratio has been steadily declining for 5 years while the net profit
ratio has remained constant. The most likely reason for this pattern is:

a. Cost of merchandise sold, and operating expenses have both increased each year
b. Selling price and operating expenses have both decreased each year
c. Cost of merchandise sold, and operating expenses have both decreased each year
d. Selling price decreased and operating expenses increased each year

8. When goods are shipped FOB destination and the seller pays the transportation charges,
the buyer

a. journalizes a reduction for the cost of the merchandise.

b. journalizes a reimbursement to the seller.
c. does not take a discount.
d. makes no journal entry for the transportation.

9. The form of income statement that derives its name from the fact that the total of all
expenses is deducted from the total of all revenues is called a:

a. multiple-step statement c. single-step statement

b. revenue statement d. report-form statement

10. Which of the following accounts should be closed to Income Summary at the end of the
fiscal year?

a. Merchandise Inventory c. Drawing

b. Accumulated Depreciation d. Cost of Merchandise Sold
11. Statement 1: If the buyer is to absorb the transportation costs related to a purchase, the
terms are said to be FOB destination.
Statement 2: Discounts taken by the buyer for early payment of an invoice are called
purchases discounts by the buyer.

a. First statement TRUE; Second statement FALSE

b. First statement FALSE; Second statement TRUE
c. Both statements are true
d. Both statements are false

12. Statement 1: Expenses that cannot be associated definitely with operations, such as
interest expense, are listed as administrative expenses on the multiple-step income
statement.
Statement 2: On the multiple-step income statement, the total of all expenses is deducted
from the total of all revenues

a. First statement TRUE; Second statement FALSE

b. First statement FALSE; Second statement TRUE
c. Both statements are true
d. Both statements are false

13. The inventory system employing accounting records that continuously disclose the
amount of inventory is called:

a. Perpetual c. Periodic
b. Physical d. Retail

14. In recording the cost of merchandise sold for cash, based on data available from
perpetual inventory records, the journal entry is:

a. debit Cost of Merchandise Sold; credit Sales

b. debit Cost of Merchandise Sold; credit Merchandise Inventory
c. debit Merchandise Inventory; credit Cost of Merchandise Sold
d. debit Accounts Receivable; credit Merchandise Inventory

15. What is the term applied to the excess of net revenue from sales over the cost of
merchandise sold?

a. gross profit c. net income

b. income from operations d. gross sales
16. The expression 3/20, n/60 means:

a. the invoice must be paid within 3 to 20 days; otherwise, interest for 60 days will be
charged.
b. a 3% discount is available if the invoice is paid within 20 days to 60 days; otherwise,
the total invoice price is due.
c. a 3% discount is available if the invoice is paid within 20 days; otherwise, the total
invoice price is due in 60 days.
d. a 15% discount (3/4 of 20) is available if the invoice is paid within 60 days.

17. Which of the following statement is false?

a. A schedule of accounts receivable is prepared from the balances found in the subsidiary
ledgers.
b. Control accounts are found in both the general ledger and subsidiary ledgers.
c. The control account in the general ledger shows the sum of all the accounts in the
subsidiary ledgers.
d. A special journal is used to record one particular type of transaction only.

18. Which of the following statement is true?

a. The Sales Returns account is an expense account

b. A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales
Allowances.
c. A sales discount represents a reduction, not in the selling price of a product or service,
but in the amount to be paid by a credit customer if payment is made within a specified
period of time.
d. The Sales Discounts account is an expense account.

19. A merchandising business:

a. that uses a manual accounting system usually uses only two special
journals
b. that uses a computerized accounting system usually uses only five special journals
c. is required to use a computerized accounting system because of the volume of journal
entries
d. that uses a computerized accounting system usually uses no special journals
20. If a customer return goods to a merchandiser, what effect will it have on the books of the
merchandiser?

a. A decrease in sales account

b. A decrease in accounts payable and the sales return and allowance account
c. An increase in the purchase return and allowance account
d. An increase in the sales return and allowance account

21. Purchaser is responsible for paying the shipping charges. They are usually prepaid by
the seller and added to the invoice. Buyer adds the shipping costs to inventory.
a. FOB Destination c. FOB Shipping Point
b. Freight Prepaid d. Freight Collect

22. Which of the following statement is true?

a. The balance sheet accounts of a work sheet provide the information to prepare the
closing entries
b. On the income statement in the single-step form, the total of all expenses is deducted
from the total of all revenues.
c. On the income statement, the merchandise inventory at the beginning of the period is
added to sales to yield the cost of merchandise sold during the period.
d. On the income statement, sales returns and allowances and sales discounts are added
to gross sales to yield net sales.

23. Statement 1: In a manual accounting system, a sales journal for a merchandise business
is similar to a revenue journal for a service business.
Statement 2: In a computerized accounting system, special journals may be replaced by
electronic forms that capture the necessary information.
a. Both statements are true
b. Both statements are false
c. First statement FALSE; Second statement TRUE
d. First statement TRUE; Second statement FALSE

24. Freight costs incurred by the seller are recorded in the

a. Sales account c. Transportation In account

b. Cost of merchandise sold account d. Transportation Out account
25. The sales discount is based on

a. Invoice price plus transportation costs

b. Invoice price less discount
c. Invoice price plus transportation costs less returns and allowances
d. Invoice price less returns and allowances

26. FOB destination means:

a. title passes at shipping point; seller pays transportation cost
b. title passes at shipping point; buyer pays transportation cost
c. title does not pass at shipping point; however, seller is responsible for the
transportation cost
d. None of the above

27. Which of the following discount has no account of its own and requires no accounting
entry?
a. Cash discount c. Trade discount
b. Purchase discount d. Sales discount

28. If a customer return goods to a merchandiser, what effect will it have on the books of the
merchandiser?
a. A decrease in the Sales account
b. A decrease in the Accounts Payable and the Sales Returns and Allowances accounts
c. An increase in the Purchase Returns and Allowances account
d. An increase in the Sales Returns and Allowances account

29. Which of the following is not a contra-account?

a. Sales Discount c. Purchase Returns and Allowances
b. Accumulated Depreciation d. Freight-In

30. A purchase discount is a result of:

a. returning goods to the seller
b. receiving a purchase allowance from the seller
c. buying a large enough quantity of merchandise to get the discount
d. paying within the discount period
31. Under the periodic inventory method, when a firm purchases goods on credit, the journal
entry would debit:
a. Purchases c. Cash
b. Income Summary d. Inventory

32. A seller would request payments from sales of merchandise through the use of:
a. an invoice c. a quantity discount
b. a purchase order d. a purchase discount

33. For a merchandise entity, the Purchases account include:

a. pall item for both short term and long-term use
b. acquisition of items for resale
c. acquisition of short term asset
d. acquisition of supplies

34. Which of the following are considered special journals?

a. General journal and general ledger
b. Subsidiary ledger and general ledger
c. Sales journal and cash receipts journal
d. Purchase journal and cash disbursement journal
e. Both c and d only

35. When a debit memorandum is issued, an entry is made to:

a. debit Cash and credit Accounts Payable
b. debit Sales and credit Accounts Receivable
c. debit Accounts Payable and credit Purchase Returns and Allowances
d. debit Sales Returns and Allowances and credit Accounts Receivable
PROBLEMS

36. A sales invoice included the following information: merchandise price, ₱12,000;
transportation, ₱500; terms 2/10, n/eom, FOB shipping point. Assuming that a credit for
merchandise returned of ₱600 is granted prior to payment, that the transportation is
prepaid by the seller, and that the invoice is paid within the discount period, what is the
amount of cash received by the seller?

a. ₱11,662 c. ₱12,250
b. ₱11,672 d. ₱11,172

37. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a
customer for ₱18,000. The seller paid transportation costs of ₱1,000 and issued a credit
memorandum for ₱5,000 prior to payment. What is the amount of the cash discount
allowable?

a. ₱190 c. ₱170
b. ₱180 d. ₱130

38. Assume that sales are ₱450,000, sales discounts are ₱10,000, net income is ₱35,000,
and cost of merchandise sold is ₱320,000. Gross profit and operating expenses are,
respectively

a. ₱130,000 and ₱95,000

b. ₱120,000 and ₱95,000
c. ₱130,000 and ₱85,000
d. ₱120,000 and ₱85,000

39. Merchandise with an invoice price of ₱7,000 is purchased with terms of 2/10, n/30, FOB
shipping point. Transportation costs paid by the seller were ₱125. What is the cost of the
merchandise purchased if payment is made during the discount period?

a. ₱6,860.00 c. ₱7,000.00
b. ₱6,982.50 d. ₱6,985.00

40. Myers and Company sold ₱1,800 of merchandise on account to Oscar, Inc. on March 1
with credit terms of 2/10, n/30. Oscar returned ₱500 of the merchandise due to poor quality
on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to
record receipt of the payment?

a. Debit Cash, ₱1,764; credit A/R, ₱1,764

b. Debit Cash, ₱1,800; credit Sales Returns and allowances, ₱500; credit A/R, ₱1,300
c. Debit Cash, ₱1,274; debit Sales Discounts ₱26; credit A/R, ₱1,300
d. Debit Cash, ₱1,800; credit Sales Discounts ₱36; credit A/R, ₱1,764
41. The following information applied to Fenn Company for the current year:
Merchandise purchase for resale 4,000,000
Freight in 100,000
Freight out 50,000
Purchase returns 20,000
Interest on inventory loan 200,000
What is the inventoriable cost of the purchase?

a. 4,280,000 c. 4,080,000
b. 4,030,000 d. 4,130,000

42. On December 28, 2011, Kerr Company purchase goods costing P500,000. The terms
where F.O.B. destination. Some of the costs incurred in connection with the sale and
delivery of the goods were as follows:
Packaging for shipment 10,000
Shipping 15,000
Special handling charges 25,000

These goods were received on December 31, 2011. On December 31, 2011, what total
cost for these goods should be included in the inventory?

a. 545,000
b. 535,000
c. 520,000
d. 500,000

43. Dean Sportswear regularly buys sweaters form Mill Company and is allowed trade
discounts of 20% and 10% from the list price. Dean made a purchase on March 20, 2011
and received an invoice with a list price of P600,000, a freight charge of P15,000 and
payment terms of 2/10, n/30. What is the cost of the purchase?

a. 432,000
b. 447,000
c. 438,360
d. 435,000

44. On June 1, 2011, Pitt Company sold merchandise with a list price of P5,000,000 to Burr
on account. Pitt allowed trade discount of 30% and 20%. Credit terms were 2/10, n/30 and
the sale was made FOB shipping point. Pitt prepaid P200,000 of delivery costs for Burr as
 an accommodation. On June 11, 2011, what amount was received by Pitt form Burr as
remittance in full?

a. 2,744,000
b. 2,940,000
c. 2,944,000
d. 3,140,000

45. Clem Company provided the following for the current year:
Central warehouse
Beginning inventory 1,220,000
Purchases 5,400,000
Freight in 150,000
Freight out 300,000
Ending inventory 1,650,000

What is the cost of sales for the current year?

a. 4,550,000
b. 4,850,000
c. 5,070,000
d. 5,120,000

46. A sales invoice included the following information: merchandise price, ₱5,000;
transportation, ₱300; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for
merchandise returned of ₱600 is granted prior to payment, that the transportation is
prepaid by the seller, and that the invoice is paid within the discount period, what is the
amount of cash received by the seller?

a. ₱4,356
b. ₱4,400
c. ₱4,656
d. ₱4,950
47. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a
customer for ₱18,000. The seller paid transportation costs of ₱1,000 and issued a credit
memorandum for ₱5,000 prior to payment. What is the amount of the cash discount
allowable?

a. ₱130
b. ₱180
c. ₱170
d. ₱190

48. Merchandise with an invoice price of ₱5,000 is purchased subject to terms of 2/10, n/30,
FOB destination. Transportation costs paid by the seller totaled ₱125. What is the cost
of the merchandise?

a. ₱4,900 c. ₱5,000
b. ₱5,050 d. ₱5,150

49. X sold Y merchandise on account FOB shipping point, 2/10, net 30, for ₱10,000. X prepaid
the ₱200 shipping charge. Which of the following entries will Y make if Y pays within the
discount period?

a. Accounts Payable-X, debit ₱10,000; Transportation In, credit ₱200; Cash, credit
₱9,800
b. Accounts Payable-X, debit ₱10,200; Merchandise Inventory, credit ₱200; Cash,
credit ₱10,000
c. Accounts Payable-X, debit ₱10,000; Transportation In, debit ₱200; Cash, credit
₱10,200
d. Accounts Payable-X, debit ₱10,200; Merchandise Inventory, debit ₱200; Cash,
credit ₱10,400

50. X sold Y merchandise on account FOB shipping point, 2/10, net 30, for ₱10,000. X prepaid
the ₱200 shipping charge. Which of the following entries does X make to record this sale?
a. Accounts Receivable-Y, debit ₱10,000; Sales, credit ₱10,000
b. Accounts Receivable-Y, debit ₱10,000; Sales, credit ₱10,000, and
Accounts Receivable-Y, debit ₱200; Cash, credit ₱200
c. Accounts Receivable-Y, debit ₱10,400; Sales, credit ₱10,400
d. Accounts Receivable-Y, debit ₱10,000; Sales, credit ₱10,000, and Transportation
Out, debit ₱200; Cash, credit ₱200
51. A sales invoice included the following information: merchandise price, ₱8,000;
transportation, ₱400; terms 2/10, n/eom, FOB shipping point. Assuming that a credit for
merchandise returned of ₱800 is granted prior to payment, that the transportation is
prepaid by the seller, and that the invoice is paid within the discount period, what is the
amount of cash received by the seller?

a. ₱7,056
b. ₱7,200
c. ₱7,456
d. ₱7,600

52. Merchandise with an invoice price of ₱5,000 is purchased subject to terms of 2/10, n/30,
FOB shipping point. Transportation costs paid by the seller totaled ₱150. What is the cost
of the merchandise purchased?
a. ₱5,050 c. ₱5,025
b. ₱4,900 d. ₱5,150

53. The following information given is available for the year ended December 31, 2015:

Merchandise Inventory, Jan 1 ₱ 75,500

Gross Purchases 225, 750
Purchases Return and Allowances 5,850
Purchase Discounts 4,250
Gross Sales 350,660
Sales Return and Allowances 4,560
Sales Discount 3,560

The business has a gross profit of 20% of net sales. Calculate the cost of sales during the
year 2015.

a. ₱ 274,032 c. ₱ 291, 250

b. ₱ 342,540 d. ₱ 102,762

54. Using the information given in item 18, compute the cost of goods available for sale during
2015.
a. ₱ 291,150 c. ₱ 224,750
b. ₱ 215,650 d. ₱ 75,500
55. Using the information given in item 18, compute the estimated value of merchandise
inventory, December 31.
a. ₱ 51,390 c. ₱ 126,890
b. ₱ 75,500 d. ₱ 17,118

56. Brooke Company uses a perpetual inventory system. At the end of 2010, the balance in
the merchandise inventory account was P360,000 and P30,000 of those goods included
in ending inventory were purchased FOB Shipping point and did not arrived until 2011.
Purchases in 2011 were P3,000,000. The perpetual inventory records showed an ending
inventory of P420,000 for 2011.
A physical count of the goods on hand at the end of 2011 showed an inventory of
P380,000. Inventory shortages are included in cost of goods sold. What amount should
be reported in the 2011 income statement for cost of goods sold?
a. 2, 940,000
b. 2,980,000
c. 3,000,000
d. 3,010,000

57. On April 1, SAM Company purchased ₱ 6,000 worth of goods on the term 2/15, n/30.
Freight of ₱ 500 was prepaid by the seller under the term FOB Shipping point, goods worth
₱ 1,000 were returned and the account was paid April 3. Discount received from the seller
was:
a. ₱ 100 c. ₱ 90
b. ₱ 110 d. ₱ 120

58. Refer to item 22- Net cost of purchases was:

a. ₱ 4,900 c. ₱ 5,900
b. ₱ 5,400 d. ₱ 4,880

59. Net sales amounted to ₱ 90,000 with cost of sales representing 50%. If operating
expenses is 8%, net income will be
a. ₱ 7,200 c. ₱ 37,800
b. ₱ 45,000 d. ₱ 9,000

60. If a retailer buys an item at a price of ₱ 300 and later sells it at a 25% mark-up, the selling
price of the item will be:
a. ₱ 325 c. ₱ 366.67
b. ₱ 350 d. ₱ 375
For items 61 to 64, find the selling price of each of the following invoices:
a. ₱16,416 d. ₱4,800
b. ₱12,000 e. ₱22,610
c. ₱56,525

Selling Price Invoice Date List Price Trade Credit Terms Date Paid
Discount
(61) Oct. 16 ₱40,000 30%, 15%, 2/10, EOM Nov. 2
5%
(62) Sept. 2 ₱10,000 40%, 20% 2/10, n/30 Sept. 9
(63) Jul. 7 ₱24,000 20%, 10%, 2/10, 1/15, Jul. 18
5% n/30
(64) Apr. 16 ₱30,000 50%, 20% 2/10, n/30 April 22

For items 65 to 69, in each of the following cases, determine the missing amount.
a. ₱16,500 d. ₱697,500
b. ₱128,500 e. ₱120,000
c. ₱146,500
Case Sales Sales Net Beg. Net Ending Cost of Net
Return Sales Inventory Purchases Inventory Goods Profit
Sold (Loss)
A ₱126,000 ₱6,000 (65) ₱48,000 ₱145,000 ₱46,500 (68) (₱26,500)
B ₱714,000 (66) (67) ₱78,000 ₱284,000 (69) ₱233,500 ₱464,000

70. An item retailing for ₱50,000 subject to a trade discount of 15% is paid for within the
discount period on the terms 5/10, n/30. What is the amount of payment?
a. ₱40,375 c. ₱42,500
b. ₱57,500 d. ₱50,000
ANSWER KEY: 36. B
1. A 37. D
2. B 38. D
3. B 39. D
4. C 40. C
5. A 41. C
6. D 42. D
7. B 43. B
8. D 44. C
9. C 45. D
10. D 46. C
11. B 47. A
12. D 48. A
13. A 49. B
14. B 50. B
15. A 51. C
16. C 52. A
17. A 53. A
18. C 54. A
19. D 55. D
20. D 56. B
21. C 57. A
22. B 58. B
23. A 59. C
24. D 60. D
25. D 61. E
26. C 62. D
27. C 63. A
28. D 64. B
29. D
65. E
30. D
31. A 66. A
32. A 67. D
33. B 68. C
34. E 69. B
35. C 70. A