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Question(s) / Instruction(s):

21. Merchandise inventory is classified as a current asset in a classified balance sheet.

22. Gain on sale of equipment and interest expense are reported under other revenues and gains in a multiple-step income statement.

23. The gross profit section for a merchandising company appears on both the multiple-step and single-step forms of an income statement.

24. In a multiple-step income statement, income from operations excludes other revenues and gains and other expenses and losses.

25. A single-step income statement reports all revenues, both operating and other revenues and gains, at the top of the statement.

26. If net sales are $1,000,000 and cost of goods sold is $600,000, the gross profit rate is 40%.

27. Gross profit represents the merchandising profit of a company.

28. Gross profit is a measure of the overall profitability of a company.

29. Gross profit rate is computed by dividing cost of goods sold by net sales.

a30. In a work sheet, cost of goods sold will be shown in the trial balance (Dr.), adjusted trial balance (Dr.) and income statement (Dr.) columns.

The following questions are from the Study Guide.

s31. Merchandise inventory is reported as a long-term asset on the balance sheet.

s32. Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

s33. The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first 10 days of the next month.

s34. Sales should be recorded in accordance with the matching principle.

s35. Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

s36. A merchandiser using a perpetual inventory system will usually need to make an adjusting entry to ensure that the recorded inventory agrees with physical inventory count.

s37. If a merchandiser sells land at more than its cost, the gain should be reported in the sales revenue section of the income statement.

s38. The major difference between the balance sheets of a service company and a merchandiser is inventory.

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