Question 1

When a company collects from a customer who pays within the discount period, the company:

Accepted Answer

The answer of When a company collects from a customer...

Question 2

Your company purchases $50,000 of inventory from a wholesaler who allows you 45 days to pay. In addition, the wholesaler offers a 3% discount if payment is made within 12 days. These payment terms would be expressed as:

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The answer of Your company purchases $50,000 of inventory from...

Question 3

Central Company sold goods for $5,000 to Western Company on March 12 on credit. Terms of the sale were 2/10, n/30. At the time of the sale, Central recorded the transaction by debiting accounts receivable for $5,000 and crediting sales revenue for $5,000. Western paid the balance due, less the discount, on March 21. To record the March 21 transaction, Central would debit:

Accepted Answer

Since Western paid the balance due less the discount, they paid $5,000 - $100 = $4,900. Therefore, Central would debit cash for $4,900 to record the payment. The accounts receivable has already been recorded at the time of the sale.

Question 4

On December 31, 2011, you count 300 tie clips in inventory. During the next quarter, you carefully record the effect of each purchase and sale transaction on inventory. You buy 128 tie clips during the next quarter. On March 31, 2012, you count 288 tie clips in inventory. Which of the following is not true?

Accepted Answer

It is not certain that no shrinkage or theft has occurred, as a physical count has not been taken to verify the inventory on hand. This statement is false and therefore, option D is not true. The other options are true, as ending inventory on March 31, 2012 should be 288 tie clips, the company uses the perpetual inventory method, and the company's records would show that 140 tie clips were sold during the quarter.

Question 5

B-Mart sells $5,000 of blue jeans. The customer later tells B-Mart that $200 of them are defective. The sale of the $5,000 of blue jeans on account has already been recorded. The customer agrees to keep the blue jeans and B-Mart agrees to a $100 allowance. B-Mart will:

Accepted Answer

B-Mart will debit Sales Returns & Allowances for $200 to account for the defective jeans and credit Accounts Receivable for $200 to reflect the allowance given to the customer.

Question 6

BetterBuy sells a computer from inventory for $599 on credit. BetterBuy originally bought the computer from IBM for $395 and uses the perpetual inventory system. How is the sale recorded in Bet terBuy's journal entries?

Accepted Answer

The sale is recorded as a debit to Accounts Receivable (asset) for $599 and a credit to Sales (revenue) for $599. The cost of the sold item is recorded as a debit to Cost of Goods Sold (expense) for $395 and a credit to Inventory (asset) for $395. This reflects the decrease in inventory and the cost of the item sold.

Question 7

Thirty years ago, most companies relied mainly upon periodic inventory systems. Why?

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Question 8

BetterBuy sells $50,000 of TVs to a customer. The credit terms state a 2% discount if paid in 7 days and a 1% discount if paid in 8-14 days. The customer pays in 12 days. How would BetterBuy record the customer's payment?

Accepted Answer

When the customer pays in 12 days, BetterBuy would record a debit to Cash for $49,500 (which is the $50,000 amount minus the 1% discount of $500), a credit to Accounts Receivable for $50,000 (the full amount of the sale), and a debit to Sales Discounts for $500 (the amount of the discount given). Therefore, the correct answer is option C.

Question 9

When you identify outstanding checks in performing a bank reconciliation, you must:

Accepted Answer

Outstanding checks are checks that have been issued but not yet cleared by the bank. Therefore, the bank balance has not yet been reduced by the amount of the outstanding checks. To reconcile the bank statement, the balance per books needs to be adjusted to reflect the correct balance. Deducting the amount of the outstanding checks from the balance per bank will result in the correct balance per books.

Question 10

A company sells goods at a selling price of $20,000. The cost of the goods is $15,000 Under a perpetual inventory system the journal entries to record the sale will include:

Accepted Answer

Under a perpetual inventory system, the journal entry to record the sale of goods includes debiting the Cost of Goods Sold account for the cost of goods sold ($15,000) and crediting the Inventory account for the same amount ($15,000). This entry reflects the removal of the sold goods from inventory and the corresponding cost of those goods that are now expensed as cost of goods sold. There is no involvement of Accounts Payable or Sales accounts for this journal entry.

Question 11

Merchandise was sold on credit for $3,000, terms 1/10, n/30. How should the seller record the cash collection?

Accepted Answer

The answer of Merchandise was sold on credit for $3,000,...

Question 12

When you identify interest received from the bank in performing a bank reconciliation, you must:

Accepted Answer

Interest received from the bank increases the company's account balance, but this increase may not yet be recorded in the company's books. Therefore, to reconcile the bank statement with the company's records, the amount of interest received should be added to the balance per books.

Question 13

The Tuck Shop began the current month with inventory costing $10,000, then purchased inventory at a cost of $35,000. The perpetual inventory system indicates that inventory costing $30,000 was sold during the month for $40,000. If an inventory count shows that inventory costing $14,500 is actually on hand at month-end, what amount of shrinkage occurred during the month?

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Question 14

On June 15, Oakley Inc. sells merchandise on account to Sunglass Hut (SH) for $1,000, terms 2/10, n/30. On June 20, SH returns to Oakley merchandise that SH had purchased for $300. On June 24, SH completely fulfills its obligation to Oakley by making a cash payment. What is the amount of cash paid by SH to Oakley?

Accepted Answer

The net amount owed by SH to Oakley is calculated as follows:

Original purchase price = $1,000
Less: Return = $300
Net amount owed = $700

This net amount is subject to the discount offered by Oakley. If SH pays within the discount period (by June 25), they can take 2% off of the net amount:

Net amount owed = $700
Less: 2% discount = $14
Amount owed if paid by June 25 = $686

Since SH paid in full on June 24, they paid $686. Therefore, the correct answer is B.

Question 15

If a company returns an item to a supplier, the supplier will record the return as:

Accepted Answer

The answer of If a company returns an item to...

Question 16

In order to calculate shrinkage:

Accepted Answer

In a perpetual inventory system, the inventory levels are continuously monitored and updated, which can help identify and measure shrinkage more frequently. However, an occasional count of actual inventory is still needed to ensure accuracy and account for any discrepancies.

Question 17

The perpetual inventory method of tracking inventory is considered superior to the periodic method because the perpetual method:

Accepted Answer

The perpetual method allows companies to have a real-time view of their inventory levels and location, which is helpful for managing stock and meeting customer demands. It is also more accurate and efficient than periodic method, as it involves continuous updates rather than periodic counting.

Question 18

A company sells goods on account at a selling price of $20,000. The cost of the goods is $15,000 .Under a perpetual inventory system the journal entries to record the sale will include:

Accepted Answer

When goods are sold on account, the sale is recorded by debiting Accounts Receivable and crediting Sales. The cost of goods sold is also recorded with a debit to Cost of Goods Sold and a credit to Inventory. Since this is a perpetual inventory system, the inventory balance is adjusted at the time of the sale. Therefore, options A and B are incorrect. Option C incorrectly credits the sales amount to Inventory instead of Accounts Receivable. Option D is the correct entry as it follows the general rule of debiting Accounts Receivable and crediting Sales.

Question 19

Which of the following statements regarding periodic versus perpetual inventory systems is true?

Accepted Answer

Perpetual inventory systems constantly track inventory levels, making it easier to identify discrepancies and potential instances of shrinkage. Periodic inventory systems, on the other hand, only update inventory levels periodically and may not catch such issues as quickly. A, B, and D are false statements.

Question 20

Companies using a perpetual inventory system:

Accepted Answer

Even with a perpetual inventory system, companies still need to physically count inventory at the end of the period to verify the accuracy of their records and account for any discrepancies such as theft, loss, or damage.

Quiz 6: Internal Control and Financial Reporting for Cash and Merchandise Sales