Question 1

A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit, including GST, with terms of 2/10, n/30. Which of the following entries would be made to record the payment if it is made within 10 days?
A)$980 debit to Accounts payable, a $20 debit to Inventory and a $1 000 credit to Cash
B)$18.18 debit to Inventory, a $1.82 debit to GST Clearing, a $1 000 debit to Accounts payable and a $1 020 credit to Cash
C)$1 000 debit to Accounts payable and a $1 000 credit to Cash
D)$1 000 debit to Accounts payable, a $18.18 credit to Inventory, a $1.82 credit to GST Clearing and a $980 credit to Cash

Accepted Answer

The answer of A firm that uses the perpetual inventory...

Question 2

What is freight out?
A)Transportation costs to ship goods out of the warehouse
B)Costs that are not expensed
C)Inventory costs
D)Transportation costs to ship goods into the warehouse

Accepted Answer

Freight out refers to the transportation costs incurred to ship goods from the warehouse to the customer or another location.

Question 3

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

Accepted Answer

The answer of Freight out is an addition to the...

Question 4

A firm receives an invoice that indicates that title to the inventory will pass to the firm when they receive the goods. This situation is described as FOB destination.

Accepted Answer

The answer of A firm receives an invoice that indicates...

Question 5

A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit with terms of 2/10, n/30. Defective inventory of $200 is returned 2 days later and the accounts are appropriately adjusted. If the firm paid the vendor within 10 days, which of the following entries would be made to record the payment? All amounts include GST.
A)$800 debit to Accounts payable and an $800 credit to Cash
B)$14.55 debit to Inventory, a $1.45 debit to GST Clearing, an $800 debit to Accounts payable and an $816 credit to Cash
C)$800 debit to Accounts payable, a $14.55 credit to Inventory, a $1.45 debit to GST Clearing and a $784 credit to Cash
D)$784 debit to Accounts payable, a $14.55 debit to Inventory, a $1.45 debit to GST Clearing and an $800 credit to Cash

Accepted Answer

The firm originally purchased $1,000 of inventory but returned $200, leaving $800 payable. With a 2% discount for early payment, the discount is $16 ($800 x 2%). The payment is $784 ($800 - $16). The discount is recorded as a reduction in Inventory, and GST adjustments are made accordingly.

Question 6

In the credit terms of 2/10, n/30, what does the 2/10 mean?
A)The invoice was printed 2 days after the sale and is due in 10 days.
B)The invoice must be paid in 2 days or a 10% late charge will be assessed.
C)The goods shipped took 2 days to arrive and the charge was $10.00.
D)The purchaser may take a 2% discount if the invoice is paid in 10 days.

Accepted Answer

The term 2/10 means that the purchaser can take a 2% discount on the invoice amount if it is paid within 10 days.

Question 7

Freight in should be added to the inventory account if the firm uses the perpetual inventory method.

Accepted Answer

Freight in is the cost of shipping goods to the company and is added to the cost of goods purchased. In the perpetual inventory system, inventory accounts are updated in real-time, hence the cost of freight in is immediately added to the inventory account.

Question 8

If a firm, using a perpetual inventory system, purchases inventory on credit, and later returns $200 of goods to the vendor, including GST, what entry would be made to record the return of goods to the vendor?
A)$200 debit to Purchases and a $200 credit to Accounts payable
B)$200 debit to Accounts payable and a $200 credit to Purchases
C)$181.82 debit to Inventory, a $18.18 debit to GST Clearing and a $200 credit to Accounts payable
D)$200 debit to Accounts payable, a $181.82 credit to Inventory and a $18.18 credit to GST Clearing

Accepted Answer

The return of goods reduces the liability (Accounts payable) and also reduces the Inventory and GST Clearing accounts. The $200 includes GST, so the Inventory is reduced by $181.82 and GST Clearing by $18.18.

Question 9

In a perpetual inventory system, the entry to record the inventory purchased includes a credit to Cost of sales.

Accepted Answer

In a perpetual inventory system, the entry to record the inventory purchased includes a debit to Inventory and a credit to Accounts Payable or Cash. There is no entry made to Cost of Sales at the time of purchase.

Question 10

What is freight in?
A)Transportation costs to ship goods out of the warehouse
B)Costs that are expensed
C)Transportation costs that are not recorded
D)Transportation costs to ship goods into the warehouse

Accepted Answer

Freight in refers to the transportation costs incurred to bring goods into a warehouse or business location.

Question 11

A firm uses the perpetual inventory method. Which of the following entries would be made to record a purchase of inventory on credit?
A)The accounting entry would be a debit to Inventory and GST Clearing and a credit to Accounts payable.
B)The accounting entry would be a debit to Accounts payable and a credit to Purchases and GST Clearing.
C)The accounting entry would be a debit to Accounts payable and GST Clearing and a credit to Inventory.
D)The accounting entry would be a debit to Purchases and GST Clearing and a credit to Accounts payable.

Accepted Answer

In the perpetual inventory system, purchases of inventory are recorded directly in the Inventory account. Therefore, the correct entry is a debit to Inventory and GST Clearing and a credit to Accounts Payable.

Question 12

Purchase returns and allowances decrease the net amount of cash that will be paid for the inventory, and so they should reduce the cost of the inventory as recorded in the Inventory account.

Accepted Answer

Purchase returns and allowances refer to situations where the buyer returns inventory to the supplier or receives a reduction in the purchase price due to damaged goods or errors in the order. These situations result in a decrease in the net amount of cash that will be paid for the inventory, and therefore they should reduce the cost of the inventory as recorded in the Inventory account. This is consistent with the principle of conservatism, which requires that expenses be recognized as soon as possible to ensure that financial statements accurately reflect the company's financial position.

Question 13

A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit with terms of 2/10, n/30. Defective inventory of $200 is returned 2 days later and the accounts are appropriately adjusted. If the firm paid the vendor 25 days later, which of the following entries would be made to record the payment? All amounts include GST.
A)$800 debit to Accounts payable and an $800 credit to Cash
B)$14.55 debit to Inventory, a $1.45 debit to GST Clearing, an $800 debit to Accounts payable and an $816 credit to Cash
C)$800 debit to Accounts payable, a $16 credit to Inventory and a $784 credit to Cash
D)$784 debit to Accounts payable, a $14.55 debit to Inventory, a $1.45 debit to GST Clearing and an $800 credit to Cash

Accepted Answer

The answer of A firm that uses the perpetual inventory...

Question 14

When a firm is purchasing inventory, and pays early to take advantage of the purchase discount offered by the vendor, that amount is debited to the Inventory account.

Accepted Answer

When a firm takes advantage of a purchase discount, the amount of the discount is credited to the Purchases Discount account, not debited to the Inventory account.

Question 15

When a firm 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.

Accepted Answer

The correct accounting entry for returns or allowances for damaged goods is a debit to the Purchase returns and allowances account, not the Sales returns and allowances account.

Question 16

What is a purchase return?
A)A customer refund from the sale of inventory
B)A return of cash to the purchaser
C)A return of inventory that is defective or damaged
D)A price reduction

Accepted Answer

A purchase return refers to the return of inventory that is defective or damaged back to the supplier.

Question 17

Credit terms of 2/10, n/30 indicate that a 2% discount may be taken if the invoice is paid within 10 days, but the total invoice amount is due if paid on the 11th to the 30th day after the invoice date.

Accepted Answer

The credit terms "2/10, n/30" mean a 2% discount is available if payment is made within 10 days, otherwise, the net (full) amount is due within 30 days.

Question 18

A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit, including GST, with terms of 2/10, n/30. Which of the following entries would be made to record the payment if it is made 20 days later?
A)$1 000 debit to Accounts payable and a $1 000 credit to Cash
B)$1 000 debit to Accounts payable, a $18.18 credit to Inventory, a $1.82 credit to GST Clearing and a $980 credit to Cash
C)$980 debit to Accounts payable, a $20 debit to Inventory and a $1 000 credit to Cash
D)$20 debit to Inventory, a $1 000 debit to Accounts payable and a $1 020 credit to Cash

Accepted Answer

The answer of A firm that uses the perpetual inventory...

Question 19

Which of the following is TRUE about freight in?
A)Freight in is deducted from Accounts payable.
B)Freight in is added to the cost of inventory.
C)Freight in is a selling expense.
D)Freight in is an operating expense.

Accepted Answer

Freight in is added to the cost of inventory because it is a cost incurred in acquiring the inventory.

Question 20

A purchase return of goods purchased on credit is recorded by the purchasing firm as a debit to what account?
A)Inventory
B)Cost of sales
C)Accounts payable
D)Accounts receivable

Accepted Answer

A purchase return involves the returning of goods that were previously purchased on credit and recorded as accounts payable. Therefore, the purchasing firm would debit the accounts payable account to reflect the reduction in the amount owed to the vendor.

Quiz 5: Retailing Operations

A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit, including GST, with terms of 2/10, n/30. Which of the following entries would be made to record the payment if it is made within 10 days?

What is freight out?

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

A firm receives an invoice that indicates that title to the inventory will pass to the firm when they receive the goods. This situation is described as FOB destination.

In the credit terms of 2/10, n/30, what does the 2/10 mean?

Freight in should be added to the inventory account if the firm uses the perpetual inventory method.

If a firm, using a perpetual inventory system, purchases inventory on credit, and later returns $200 of goods to the vendor, including GST, what entry would be made to record the return of goods to the vendor?

In a perpetual inventory system, the entry to record the inventory purchased includes a credit to Cost of sales.

What is freight in?

A firm uses the perpetual inventory method. Which of the following entries would be made to record a purchase of inventory on credit?

Purchase returns and allowances decrease the net amount of cash that will be paid for the inventory, and so they should reduce the cost of the inventory as recorded in the Inventory account.

When a firm is purchasing inventory, and pays early to take advantage of the purchase discount offered by the vendor, that amount is debited to the Inventory account.

When a firm 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.

What is a purchase return?

Credit terms of 2/10, n/30 indicate that a 2% discount may be taken if the invoice is paid within 10 days, but the total invoice amount is due if paid on the 11th to the 30th day after the invoice date.

A firm that uses the perpetual inventory method purchases inventory of $1 000 on credit, including GST, with terms of 2/10, n/30. Which of the following entries would be made to record the payment if it is made 20 days later?

Which of the following is TRUE about freight in?

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