Question 1

Medeco bought goods for $150 on credit. Medeco returned $50 worth of goods. Terms of the sale were 2/10, n/30. If Medeco pays the amount owed within the discount period, what is the amount they should pay?

Accepted Answer

The first step is to calculate the net amount of the purchase, which is what Medeco would owe if they did not take the discount.

Net amount = Purchase price - Return

Net amount = $150 - $50

Net amount = $100

Next, we need to calculate the discount amount.

Discount amount = Net amount x Discount rate

Discount amount = $100 x 0.02 (since the discount rate is 2%)

Discount amount = $2

Finally, we subtract the discount amount from the net amount to get the amount Medeco should pay within the discount period.

Amount to pay = Net amount - Discount amount

Amount to pay = $100 - $2

Amount to pay = $98

Therefore, the best choice is C, $98.

Question 2

The seller's sales invoice is the buyer's purchase invoice.

Accepted Answer

When the seller issues a sales invoice, it is considered as a proof of sale and includes details of the goods or services sold and the amount due. The buyer receives this invoice as a purchase invoice, as it is evidence of a purchase made and acts as a receipt for payment made or to be made. So, both the invoices serve the same purpose and can be used interchangeably.

Question 3

Which account is the controlling account for the amounts owed to individual creditors?

Accepted Answer

Accounts Payable in the general ledger is the controlling account for the amounts owed to individual creditors. It summarizes the total amount owed to all creditors and is used to track and manage the company's outstanding obligations. Accounts Receivable in the general ledger and subsidiary ledger are used to track amounts owed to the company by customers. Accounts Payable in the subsidiary ledger tracks individual creditor balances, but it is not the controlling account.

Question 4

The purchasing department issues purchase orders.

Accepted Answer

The purchasing department is responsible for issuing purchase orders to suppliers for the requested items or services.

Question 5

An entry to record the payment to a vendor was correctly recorded and posted to the general ledger but was not posted to the subsidiary ledger. This error will cause

Accepted Answer

Since the payment was not recorded in the subsidiary ledger, the balance in the accounts payable control account in the general ledger will not agree with the total of the balances in the individual vendor accounts in the subsidiary ledger. This will cause a discrepancy between the control account and the subsidiary ledger, making option C the best choice. The payment not being recorded in the subsidiary ledger will not affect net income, so options A and B are incorrect. Option D is also incorrect since the scenario described in the question references a payment to a vendor, not a receipt from a customer.

Question 6

Defend the proposition that it is more important for a company to pay attention to its accounts receivable than to its accounts payable.

Accepted Answer

The answer of Defend the proposition that it is more...

Question 7

A receiving report is used to notify the company of the quantity and condition of the goods received.

Accepted Answer

A receiving report serves as a confirmation of receipt of the goods and provides information on the quantity, condition, and any discrepancies found during the inspection process.

Question 8

Explain the difference between F.O.B. shipping point and F.O.B. destination.

Accepted Answer

The answer of Explain the difference between F.O.B. shipping point...

Question 9

A list of creditors with balances owed is called

Accepted Answer

A list of creditors with balances owed is called a schedule of accounts payable. A schedule of accounts receivable is a list of customers who owe the company money. The other two options, a list of suppliers and a trade list, do not specifically refer to the balances owed to these parties.

Question 10

FOB is short for Free On Board.

Accepted Answer

FOB is indeed short for Free On Board, indicating that the seller is responsible for the goods until they are loaded onto the shipping vessel, after which point the buyer assumes responsibility.

Question 11

When the terms are F.O.B. shipping point, the purchaser is responsible for the cost of shipping from the seller's shipping point to the purchaser's location.

Accepted Answer

F.O.B. (Free On Board) shipping point means that the ownership of goods transfers from the seller to the buyer at the seller's shipping point. Therefore, the purchaser is responsible for the cost of shipping from the seller's location to their own.

Question 12

To prove the subsidiary ledger agrees with the Accounts Payable controlling account balance, complete a

Accepted Answer

A schedule of accounts payable lists all the individual balances in the subsidiary ledger, and if the total matches the balance in the Accounts Payable controlling account, this provides evidence that the subsidiary ledger agrees with the controlling account balance. A debit memorandum is a document used to inform a customer of a debit to their account, and is not relevant for this purpose. A purchase order is a document used to request goods or services, and is not relevant for this purpose. A schedule of accounts receivable is used to list the individual balances in the subsidiary ledger for Accounts Receivable, which is a related but different account from Accounts Payable.

Question 13

A purchase requisition form is completed by the accounts payable clerical staff.

Accepted Answer

A purchase requisition form is typically completed by an employee or department that needs to make a purchase, such as a manager or department head, and then sent to the accounts payable department for processing.

Question 14

The entry to record a payment on a $500 account within the 2% discount period would include a

Accepted Answer

The correct entry would be a debit to Accounts Payable for $500, as this is the original amount owed. The discount is accounted for separately, typically by crediting a Discounts Received account for $10 and crediting Cash for $490.

Question 15

Jackson purchased $400 of goods and received credit terms of 2/10, n/30. How much did he pay if payment was made during the discount period?

Accepted Answer

Jackson received a 2% discount for paying within 10 days. The discount on $400 is $8 (2% of $400), so he paid $400 - $8 = $392.

Question 16

Credit terms of 3/10, Net 30 permit a purchaser to deduct 3% of the invoice total if payment is made within 10 days.

Accepted Answer

Credit terms of 3/10, Net 30 means that a purchaser can take a 3% discount if payment is made within 10 days, otherwise the full amount is due within 30 days.

Question 17

An invoice approval form is used by accounting to check the invoice before approving it for payment.

Accepted Answer

An invoice approval form is typically used by accounting departments to review and verify that the invoice is accurate and matches the purchase order or contract terms before approving it for payment.

Question 18

Purchases discounts are usually an incentive for the customer to pay early.

Accepted Answer

Purchases discounts are a common tactic used by businesses to encourage customers to pay their bills early. By offering a discount for early payment, businesses can improve their cash flow and reduce the risk of late or missed payments. Customers benefit by saving money on their purchases, making purchases discounts a win-win strategy for both parties involved.

Question 19

Medeco bought goods for $150 on credit. Medeco returned $50 worth of goods. Terms of the sale were 2/10, n/30. If Medeco pays the amount owed after the discount period, what is the amount they should pay?

Accepted Answer

After returning $50 worth of goods, the amount owed is $100, as the discount period has passed, no discount applies.

Question 20

Jackson purchased $400 of goods on Feb 8 and received credit terms of 2/10, n/30. How much did he pay if payment was made on Feb 21?

Accepted Answer

Since the payment was made after the discount period (which ended on Feb 18, 10 days after Feb 8), Jackson would pay the full invoice amount of $400.

Quiz 7: Special Journals and Subsidiary Ledgers: the Basics: Purchases and Cash Payments Journals