Question 1

Which of the following accounts will only be found in the chart of accounts of a merchandising company?

Accepted Answer

Inventory is a specific account that is necessary for a merchandising company because it represents the goods that are being held for sale. The other accounts listed (Sales, Accounts Receivable, and Accounts Payable) could also be found in the chart of accounts of a service company.

Question 2

A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom; FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

Accepted Answer

Cash received = Sales - Sales discount + Prepaid freight - Cost of merchandise returned = $12,000 - (1% × $12,000) + $900 - [$500 - (1% × $500)] = $12,000 - $120 + $900 - ($500 - $5) = $12,780 - $495 = $12,285

Question 3

Kaden Co. sells merchandise on credit to Jase Co. for $9,600. The invoice is dated July 15 with terms of 1/15, net 45. If Jase Co. chooses not to take the discount, by when should the payment be made?

Accepted Answer

Credit terms of 1/15, n/45, provides a 1% sales discount if the invoice is paid within 15 days. If not paid within 15 days, the total invoice amount is due within 45 days.Credit period of 45 days = 16 days of July (31 - 15) + 29 days of August (45 - 16) Final due date is August 29

Question 4

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

Accepted Answer

FOB destination means that the seller is responsible for the freight costs to deliver the merchandise to the buyer's designated location.

Question 5

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

Accepted Answer

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

Question 6

Jacob Co. sells merchandise on credit to Isaiah Co. for $9,700. The invoice is dated May 1 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

Amount of discount = Sale price × 1% = $9,700 × 1% = $97
The last day of the discount period = Invoice date of May 1 plus 15 days = May 16

Question 7

Who is responsible for the freight costs when the terms are FOB shipping point?

Accepted Answer

When the terms are FOB shipping point, the buyer is responsible for the freight costs because ownership and liability transfer from the seller to the buyer once the goods are loaded onto the carrier at the shipping point.

Question 8

Which of the following accounts usually has a debit balance?

Accepted Answer

Inventory is an asset account and typically has a debit balance. Accounts Payable and Sales Tax Payable are liability accounts, and Sales is a revenue account, all of which typically have a credit balance.

Question 9

A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade discount and has credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount period?

Accepted Answer

Price after trade discount = Catalog price - Trade discount = $30,000 - (15% × $30,000) = $30,000 - $4,500 = $25,500
Cash required to pay the invoice = Price after trade discount - Purchase discount = $25,500 - (2% × $25,500) = $25,500 - $510 = $24,990

Question 10

Emma Co. sold to Isabella Co. merchandise on account FOB shipping point, 2/10, net 30, for $15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella Co. make to record the payment for the merchandise if Isabella Co. pays within the discount period?

Accepted Answer

Accounts Payable = Cost of merchandise - Purchase discount + Shipping charges = $15,000 - (2% × $15,000) + $750 = $15,000 - $300 + $750 = $15,450
Journal entry: Accounts Payable-Emma Co., debit $15,450; Cash, credit $15,450

Question 11

Taking advantage of a 2/10, n/30 purchases discount is equal to a yearly savings rate of approximately

Accepted Answer

The answer of Taking advantage of a 2/10, n/30 purchases...

Question 12

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 13

Who is responsible for the freight cost when the terms are FOB destination?

Accepted Answer

FOB destination means that the seller is responsible for paying for the freight cost to get the product to the buyer's specified location.

Question 14

Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?

Accepted Answer

Under perpetual inventory system, when merchandise is sold, two entries are made - one to recognize the sale revenue and the other to recognize the cost of goods sold.

Debit Cash, $2,000 - To record the cash received from Hancock Co.
Credit Sales, $2,000 - To recognize the sale revenue.
Debit Cost of Goods Sold, $1,250 - To recognize the cost of goods sold.
Credit Inventory, $1,250 - To reduce inventory by its cost.

Therefore, option B is the correct answer.

Question 15

When goods are shipped FOB destination and the seller pays the freight charges, the buyer

Accepted Answer

When goods are shipped FOB (Free On Board) destination, the seller owns the goods during transit and is responsible for the freight charges. The buyer does not need to make any journal entry for the freight because the seller bears the shipping costs.

Question 16

What type of company would normally offer trade discounts to its customers?

Accepted Answer

Wholesalers typically offer trade discounts to their customers, who are usually retailers or other businesses that purchase products in bulk. This helps incentivize larger orders and encourages repeat business. Service companies and online retailers may offer other types of discounts or promotions, but trade discounts are less common in those industries.

Question 17

To encourage a buyer to pay before the end of the credit period, the seller may offer a

Accepted Answer

The answer of To encourage a buyer to pay before...

Question 18

Merchandise is sold for cash. The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include a credit to

Accepted Answer

Sales tax payable = Selling price × 7% state sales tax = $6,000 × 7% = $420
The journal entry to record the sale would include a credit to Sales Tax Payable for $420.?

Question 19

Pierce Company sold to Stanton Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Pierce prepaid the $500 shipping charge. Which of the following entries does Pierce make to record this sale?

Accepted Answer

Amount of sales = Invoice amount - Sales discount = $20,000 - (2% × $20,000) = $20,000 - $400 = $19,600. Journal entry: Accounts Receivable-Stanton, debit $19,600; Sales, credit $19,600, and Accounts Receivable-Stanton, debit $500; Cash, credit $500

Question 20

A chart of accounts for a merchandising business

Accepted Answer

A merchandising business typically requires accounts to track inventory, cost of goods sold, and sales revenue by product or department, which results in a larger chart of accounts compared to a service business. The FASB does not standardize the chart of accounts for any specific type of business, and a three-digit numbering system is not always used.

Quiz 5: Accounting for Retail Businesses