Question

1.The operating cycle of a manufacturer is longer and more complex than the operating cycle of a merchandiser.

Select one:

True

False

2.The income statement shows cost of goods sold separately from other expenses.

Select one:

True

False

3.Inventory shrinkage is unrecorded decreases in inventory due to breakage, shoplifting, and theft.

Select one:

True

False

4. Sales returns and allowances is an expense account and reduces net income.

Select one:

True

False

5.Which of the following businesses is likely to have the longest operating cycle?

Select one:

A. A food store.

B. A department store.

C. An art studio.

D. A car plant.

Answer 1

1) The statement is true, the operating cycle of a manufacturer is longer and more complex than the operating cycle of a merchandiser because operating cycle of merchandiser involves only purchase and sale of inventory whereas the operating cycle of manufacturer includes manufacturing of finished goods with the use of direct materials, labor and factory overhead. The unfinished goods are termed as Work in process. The processed goods are sold or transferred to next department in process costing.

2) The given statement is true. The income statement shows the computation of gross profit first by showing sales revenue and cost of goods sold. After that all other operating and non operating expenses are deducted from the gross profit to calculate the net profit.

3) The statement is true, Inventory shrinkage is the loss of inventory due to abnormal causes such as breakage, theft, shoplifting etc. Due to inventory shrinkage, physical inventory remains less than the inventory recorded in books.

4) The statement is true because sales returns and allowances are shown as a deduction from sales revenue and has a debit balance. It reduces the net income (as deducted from sales revenue).