1.   A sales return is recorded with a credit to Inventory.

        True 

        False   

2.  Merchandising consists of:

        manufacturing products.

        providing a service.

        buying and selling products.

        purchasing raw materials.

3.   Michelin Jewelers completed the following transactions. Michelin Jewelers uses the perpetual inventory system. On April 2, Michelin sold $9,000 of merchandise to a customer on account with terms of 3/15, n/30. Michelin’s cost of the merchandise sold was $5,500. On April 4, the customer reported damaged goods and Michelin granted a $1,000 sales allowance. On April 10, Michelin received payment from the customer. How much cash was received from the customer? 

        $8,000

        $8,730

        $7,760   

        $2,260

        None of these is correct

4.   Which of the following assets does a merchandising company—but NOT a service company—need? 

        Accounts receivable

        Prepaid insurance

        Merchandise inventory

        Equipment

5.   A purchase return of goods purchased on credit is recorded by the purchasing company as a debit to what account? 

        Accounts receivable

        Inventory

        Cost of goods sold

        Accounts payable

6.   Freight out is an addition to the Inventory account if the company uses the perpetual inventory method.  

        True 

        False    

7.   When a company is purchasing inventory, and there are either returns or allowances for damaged goods, those amounts are recorded as a debit to the Sales returns and allowances account.  

        True 

        False   explanation: either accounts payable or cash for refund is the debit

8. Under Last-In, First-Out, the Cost of goods sold is based on the oldest purchases.  

        True 

        False     

9.   When a company uses the perpetual inventory method, the inventory account should stay current at all times.  

        True     

        False 

10.   A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses the Last-In, First-Out inventory costing method, what is the amount of Cost of goods sold on the December 31 income statement?  

        $4,000    

        $3,750

        $6,750

        $3,500

        None of these is correct