41.The average gross profit margin is a measure of relative profitability. 
 
 

 

 

 

Multiple Choice Questions
 

42.The operating cycle: 
 
 

A.Is repeated once per year for manufacturers and merchandisers.

 

B.Has seven steps.

 

C.Starts with using cash to purchase merchandise and ends with collecting the cash back from customers.

 

D.Is longer for a retailer than for a manufacturer.

 

 

 

 

43.Which of the following businesses is likely to have the shortest operating cycle? 
 
 

A.A food store.

 

B.A department store.

 

C.An art store.

 

D.A car store.

 

 

 

 

44.Merchandising companies: 
 
 

A.Include both wholesalers and retailers.

 

B.Do not sell directly to the public.

 

C.Manufacture their own products and then sell them to the public.

 

D.Include companies such as General Motors, IBM, and Boeing Aircraft.

 

 

 

 

45.Sales revenue is recognized in the period in which: 
 
 

A.Merchandise is delivered to the customer.

 

B.The customer orders the merchandise.

 

C.Cash payment is received by the seller.

 

D.Purchases are made to replace the merchandise sold.

 

 

 

 

46.Gross profit is the difference between: 
 
 

A.Net sales and the cost of goods sold.

 

B.The cost of merchandise purchased and the cost of merchandise sold.

 

C.Net sales and net income.

 

D.Net sales and all expenses.

 

 

 

 

47.The basic purpose of a subsidiary ledger is to: 
 
 

A.Provide a chronological record of all business transactions.

 

B.Provide details about the individual items comprising the balance of a general ledger account.

 

C.Enable accountants to prepare financial statements.

 

D.Provide persons outside of the organization with detailed information about the company's operations.

 

 

 

 

48.Parkside Pool reports net sales of $625,000, gross profit of $275,000, and net income of $15,000. The company's cost of goods sold is: 
 
 

A.$335,000.

 

B.$350,000.

 

C.$340,000.

 

D.$325,000.

$625,000 – $275,000 = $350,000

 

 

 

49.Berg Tooling reports net sales of $325,000, gross profit of $175,000, and net income of $15,000. The company's cost of goods sold is: 
 
 

A.$135,000.

 

B.$150,000.

 

C.$140,000.

 

D.$125,000.

$325,000 – $175,000 = $150,000

 

 

 

50.Which of the following should not be classified as inventory in the balance sheet of a large automobile dealership? 
 
 

A.Pickup trucks offered for sale.

 

B.Used cars taken in trade and offered for sale on the company's used-car lot.

 

C.Spark plugs, oil filters, and other parts which are intended for use by the service department in repairing and servicing customers' cars.

 

D.”Company cars” provided to specific company executives for their personal use.