Question 1

Orange Co.sells merchandise on credit to Zea Co.in the amount of $9,000.The invoice is dated on September 15 with terms of 1/15,net 45.What is the amount of the discount,and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?

Accepted Answer

The answer of Orange Co.sells merchandise on credit to Zea...

Question 2

When purchases of merchandise are made for cash,under the perpetual inventory system,the transaction:

Accepted Answer

Under the perpetual inventory system, when purchases of merchandise are made for cash, it increases the Merchandise Inventory account (as more goods are being added to the inventory) and decreases the Cash account (as cash is being paid to the supplier). Therefore, option B is the correct choice.

Question 3

In recording the cost of merchandise sold for cash using a perpetual inventory system,the effect on the accounts is:

Accepted Answer

When merchandise is sold for cash using a perpetual inventory system, the cost of merchandise sold is recorded by debiting the Cost of Merchandise Sold account and crediting the Merchandise Inventory account. This reduces the value of the merchandise inventory available for sale, resulting in a decrease in the Merchandise Inventory account. Additionally, since the sale was for cash, this increases the Cash account. Therefore, the correct answer is B, which shows an increase in the Cost of Merchandise Sold account and a decrease in the Merchandise Inventory account.

Question 4

A sales invoice included the following information: merchandise price,$6,000; terms 2/10,n/eom.Assuming that a credit for merchandise returned of $600 is granted prior to payment,and that the invoice is paid within the discount period,what is the amount of cash received by the seller?

Accepted Answer

The answer of A sales invoice included the following information:...

Question 5

For the perpetual inventory system,which of the following effects does not occur upon the return from a customer of merchandise sold on account?

Accepted Answer

In a perpetual inventory system, when merchandise is returned by a customer, it affects Sales Returns and Allowances, Accounts Receivable, Cost of Merchandise Sold, and Merchandise Inventory. Purchase Returns and Allowances is related to returns to suppliers, not customer returns.

Question 6

Using a perpetual inventory system,the purchase of $30,000 of merchandise on account would include a(n):

Accepted Answer

When merchandise is purchased on account using a perpetual inventory system, it results in an increase in Merchandise Inventory. This is because the company now has more inventory on hand that they can sell to customers. There is no impact on Sales until the inventory is actually sold to customers.

Question 7

When merchandise is purchased to resell to customers,it is recorded in the account entitled:

Accepted Answer

Merchandise purchased with the intention of reselling is initially recorded in the Merchandise Inventory account. This account is an asset account and represents the cost of goods available for sale to customers. As goods are sold, the cost of those goods is transferred from Merchandise Inventory to Cost of Goods Sold, which represents the cost associated with the goods that were actually sold to customers.

Question 8

If merchandise sold on account is returned to the seller,the seller may inform the customer of the details by issuing a:

Accepted Answer

When merchandise sold on account is returned to the seller, it results in a reduction in the customer's account balance, as the seller now owes the customer money. Therefore, the seller issues a credit memorandum to inform the customer of the details of the return and to document the adjustment in the customer's account balance. A sales invoice is used for billing a customer for a sale, a purchase invoice is received by a buyer from a seller, and a debit memorandum is used by a customer to inform a seller of a return or allowance.

Question 9

Using a perpetual inventory system,the return of merchandise purchased on account includes a(n):

Accepted Answer

When merchandise is returned, it is no longer part of the inventory as it is no longer available for sale. Therefore, a return of merchandise purchased on account would result in a decrease in Merchandise Inventory.

Question 10

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller,the terms are:

Accepted Answer

FOB shipping point means that title to the merchandise passes from the seller to the buyer at the point of shipment.

Question 11

Merchandise subject to terms 1/10,n/30,FOB shipping point,is sold on account to a customer for $17,500.The seller issued a credit memorandum for $4,000 prior to payment.What is the amount of the cash discount allowable?

Accepted Answer

The answer of Merchandise subject to terms 1/10,n/30,FOB shipping point,is...

Question 12

If the seller is to pay the delivery expense of delivering merchandise,the delivery terms are stated as:

Accepted Answer

FOB destination means that the seller bears the cost of transportation of the goods to the buyer's location.

Question 13

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a(n):

Accepted Answer

Sales to customers using bank credit cards are recorded as an increase in Cash (since the bank credits the merchant's account), an increase in Credit Card Expense (due to fees charged by the credit card company), and an increase in Sales (reflecting the revenue from the sale).

Question 14

Merchandise subject to terms 2/10,n/30,FOB shipping point,is sold on account to a customer for $35,000.The seller issued a credit memorandum for $8,000 prior to payment.What is the amount of the cash discount allowable?

Accepted Answer

2/10, n/30 means the customer can take a 2% discount if they pay within 10 days, otherwise the full amount is due within 30 days.
FOB shipping point means the ownership and responsibility of the merchandise passes to the customer when it leaves the seller's shipping dock.
The selling price of $35,000 is not relevant in calculating the cash discount allowable.
The credit memorandum for $8,000 means that the customer will only owe $27,000 ($35,000 - $8,000) which is eligible for the cash discount.
The cash discount allowable is 2% of $27,000 which equals $540.

Question 15

When merchandise that was sold on account is returned,which accounts are affected?

Accepted Answer

When merchandise sold on account is returned, the sales returns account is credited, which decreases the revenue recognized from the original sale. The accounts receivable account is also credited because the customer is no longer responsible for paying for the returned merchandise. The merchandise inventory account is debited because the returned goods are no longer available for sale. Finally, the cost of goods sold account is credited, which reduces the cost of goods sold associated with the original sale. Therefore, option B is the correct answer.

Question 16

A sales invoice included the following information: merchandise price,$8,000; terms 2/10,n/eom.Assuming that a credit for merchandise returned of $1,000 is granted prior to payment,and that the invoice is paid within the discount period,what is the amount of cash received by the seller?

Accepted Answer

The customer is entitled to a discount of 2% of the merchandise price if payment is made within the discount period. The discount is calculated as follows: 
$8,000 x 2% = $160
After deducting the credit for the merchandise return, the amount owed by the customer is:
$8,000 - $1,000 = $7,000
If the customer takes advantage of the discount, the amount to be paid is:
$7,000 - $160 = $6,840
Therefore, the amount of cash received by the seller is $6,840.

Question 17

In credit terms of 1/10,n/30,the "10" represents the:

Accepted Answer

The "10" represents the number of days in the discount period, during which the buyer can take advantage of a 1% cash discount. The term "n/30" means that the entire amount is due within 30 days.

Question 18

The amount of the total cash paid to the seller for merchandise purchased would normally include:

Accepted Answer

The total cash paid to the seller for merchandise purchased would include both the list price (the price of the item itself) and the sales tax (an additional percentage added by the government). So the correct option is C, the list price plus the sales tax. Neither A (only the list price) nor D (the list price less the sales tax) represents the total amount of cash actually paid. B (only the sales tax) is also an incomplete answer as it does not include the actual price of the merchandise.

Question 19

Merchandise with an invoice price of $10,000 is purchased subject to terms of 2/10,n/30,FOB destination.Transportation costs paid by the seller totaled $300.What is the net cost of the merchandise?

Accepted Answer

The net cost of the merchandise is calculated by subtracting the discount from the invoice price and adding any additional costs. With terms of 2/10, n/30, a 2% discount is available if paid within 10 days. Thus, the discount is $10,000 * 2% = $200. The invoice price after discount is $10,000 - $200 = $9,800. Since the transportation costs are paid by the seller (FOB destination), they do not affect the buyer's net cost, making the net cost of the merchandise $9,800.

Question 20

If the buyer is to pay the delivery expense of delivering merchandise,delivery terms are stated as:

Accepted Answer

FOB shipping point means that the buyer is responsible for the delivery expense and assumes the risk of loss once the goods leave the seller's premises.

Quiz 4: Accounting for Merchandising Businesses