5 When the cost of goods sold will be more than the cost of

5. When the cost of goods sold will be more than the cost of purchases. a. there is no beginning merchandise inventory (first year of business) b. there is no ending merchandise inventory c. purchases are equal to net sales d. the beginning inventory values are greater than the ending inventory values 6. A perpetual inventory system a. eliminates the need for a year-end physical count. b. requires that a physical count be taken to determine the cost of goods sold. c. uses inventory records that are adjusted each time inventory is purchased or sold. d. uses a purchases account to record the purchase of inventory. 7. Net income plus operating expenses is equal to a. cost of merchandise sold b. cost of merchandise available for sale c. net sales d. gross profit 8. Which account is not classified as a selling expense? a. Sales Salaries b. Sales Commissions c. Sales Discounts d. Advertising Expense 9. Which of the following is NOT an administrative expense?

Solution

Solution:

5) The correct option is d. the beginning inventory values are greater than the ending inventory values

For Example:

Let Suppose,

Ending Inventory = $93,000

Beginning Inventory = $100,000 i.e. beginning inventory is higher than ending inventory

Current Year Purchases = $300,000

Here, Inventory Change is decrease of $7,000

Cost of Goods Sold = Purchases $300,000 + Change in Inventory decrease $7,000 = $307,000

Hence, when the beginning inventory values are greater than the ending inventory values, the cost of goods sold will be more than the cost of purchases.

6)

A perpetual inventory system uses inventory records that are adjusted each time inventory is purchased or sold.

Hence, the correct option is c.

7)

Net Income + Operating Expenses = Cost of Merchandise Sold

Hence, the correct option is a.

8)

Selling Expenses are the expenses related to selling department. For example sales commission, sales salaries, advertising expenses.

Hence, Sales Discounts not classified as a selling expense

The correct option is c. Sales Discount

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