Multiple Choice Questions
 

31. Operating income is: 
A. A measure of profitability after deducting cost of sales from net sales.
B. A measure of profitability after deducting cost of sales and all expenses incurred in operating the business from net sales.
C. A measure of liquidity after deducting cost of sales from net sales.
D. The equivalent of net sales.

32. Sales discounts and allowances: 
A. When properly recorded will reduce net profit.
B. When properly recorded will increase net profit.
C. Will not affect net profit.
D. Are always immaterial and need not be recorded.

33. Which account listed below is classified as a contra-revenue account? 
A. Cost of Goods Sold.
B. Gross profit.
C. Sales Discounts.
D. Purchases.

34. The Cost of Goods Sold account is closed by: 
A. Debiting Cost of Goods Sold and crediting Income Summary.
B. Debiting Cost of Goods Sold and crediting Retained Earnings.
C. Debiting Income Summary and crediting Cost of Goods Sold.
D. Debiting Retained Earnings and crediting Cost of Goods Sold.

35. Merchandising companies that are small and do not use a perpetual inventory system may elect to use: 
A. A physical inventory system.
B. A periodic inventory system.
C. An inventory shrinkage method.
D. An inventory subsidiary ledger system.

36. Which of the following would not tend to make a manufacturer choose a perpetual inventory system? 
A. Management wants information about quantities of specific products.
B. A low volume of sales transactions and a computerized accounting system.
C. A high volume of sales transactions and a manual accounting system.
D. Items in inventory with high per unit costs.

37. 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.

38. Which of the following factors would suggest the use of a perpetual inventory system? 
A. A small company.
B. A high volume of many different, low-cost items.
C. A desire to minimize record-keeping requirements.
D. Only annual reporting is required.

39. 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.

40. Which of the following companies would be more likely to use a periodic inventory system? 
A. IBM.
B. 1^st Bank of New York.
C. Sears.
D. A newspaper stand.