Question 1

The entry to record a sales return from a customer would require a(n)
A) decrease to Sales.
B) increase to Sales.
C) decrease to Sales Returns and Allowances.
D) increase to Sales Returns and Allowances.

Accepted Answer

Sales returns represent goods that were previously sold to a customer but were returned for various reasons. To record a sales return from a customer, a company would make an increase to the Sales Returns and Allowances account to reflect the returned goods. This account is typically a contra-revenue account, meaning it reduces the amount of revenue reported on the income statement. Therefore, there would be a decrease to Sales since the returned goods are no longer considered a sale.

Question 2

A sale on March 21 with terms of n/10 eom is due to be collected by
A) April 30.
B) March 31.
C) April 10.
D) April 1.

Accepted Answer

The terms "n/10 eom" mean that there is a discount of n% if the payment is made within 10 days of the end of the month. In this case, the end of the month is March, so 10 days from the end of March is April 10. Therefore, the best choice is C) April 10.

Question 3

Under the perpetual inventory system, in addition to making the entry to record a sale, a company would
A) record an increase in inventory corresponding to the amount of the sale.
B) record a decrease in inventory and an increase in cost of goods sold for the cost of the merchandise sold.
C) record an increase in inventory corresponding to the cost of the inventory.
D) make no additional entry until the end of the period.

Accepted Answer

Under the perpetual inventory system, the cost of goods sold is recorded at the time of sale along with the corresponding decrease in inventory. Therefore, for every sale, the company would record a decrease in inventory and an increase in cost of goods sold for the cost of the merchandise sold. This allows the company to have real-time inventory records and provides more accurate financial reporting.

Question 4

The entry to record a purchase of $6,000 in merchandise assuming terms of 2/10, n/30 and a periodic inventory system would include a(n)
A) increase to Accounts Payable for $6,000.
B) increase to Purchases Discounts for $120.
C) decrease to Purchases for $6,000.
D) decrease to Accounts Payable for $5,880.

Accepted Answer

The entry to record the purchase would include an increase to Accounts Payable for the full amount of $6,000, as the discount is not recorded until payment is made within the discount period.

Question 5

A discount that buyers take for early payment of merchandise is called a
A) customer discount.
B) purchases discount.
C) sales discount.
D) trade discount.

Accepted Answer

The discount that buyers take for early payment of merchandise is called a purchases discount. This is because the buyer is receiving a discount for paying for their purchases early, which is an incentive for them to continue making purchases from the seller. The other options are not accurate descriptions of this type of discount. A customer discount is a discount given to a customer for various reasons such as loyalty or good behavior. A sales discount is a discount given by the seller for various reasons such as seasonal sales or to reduce inventory. A trade discount is a discount applied to the list price of a product or service for specific groups such as wholesalers or retailers.

Question 6

A retailer accepted Visa charge sales totaling $500 and deposited the charge slips in the bank. Assuming a credit card discount expense of 4 percent, what would be the increase to Cash and the increase to Sales, respectively?
A) $500 and $480
B) $480 and $500
C) $480 and $480
D) $500 and $500

Accepted Answer

The increase to Sales is $500, as that is the total amount of sales made. The increase to Cash is $480, as the retailer receives $500 minus the 4% credit card discount ($20), resulting in $480.

Question 7

Merchandise inventory becomes part of cost of goods sold when a company
A) receives payment from the customer.
B) pays for the inventory.
C) purchases the inventory.
D) sells the inventory.

Accepted Answer

Merchandise inventory becomes part of cost of goods sold when a company sells the inventory.

Question 8

Under the perpetual inventory system, in addition to making the entry to record a sales return, a company would
A) increase Merchandise Inventory and decrease Cost of Goods Sold.
B) increase Cost of Goods Sold and decrease Purchases.
C) increase Cost of Goods Sold and decrease Merchandise Inventory.
D) make no additional entry until the end of the period.

Accepted Answer

When a company records a sales return under the perpetual inventory system, it increases Merchandise Inventory and decreases Cost of Goods Sold to reflect the return of goods to inventory and the reversal of the cost associated with the sale.

Question 9

Under the perpetual inventory system, the entry to record a purchase return would include a credit to which account?
A) Merchandise Inventory
B) Purchases Returns and Allowances
C) Accounts Payable
D) Sales

Accepted Answer

Under the perpetual inventory system, when a purchase return occurs, the Merchandise Inventory account is credited to reduce the inventory balance because the goods are no longer in inventory.

Question 10

Under the perpetual inventory system, which of the following accounts would not be used?
A) Cost of Goods Sold
B) Merchandise Inventory
C) Sales
D) Purchases

Accepted Answer

Under the perpetual inventory system, the "Purchases" account is not used. Instead, inventory purchases are directly recorded in the "Merchandise Inventory" account, which is continuously updated to reflect purchases and sales.

Question 11

A merchandising business will earn a net income of exactly $0 when
A) net sales equals cost of goods sold.
B) operating expenses equal net sales.
C) gross margin equals operating expenses.
D) cost of goods sold equals gross margin.

Accepted Answer

A merchandising business will earn a net income of exactly $0 when gross margin equals operating expenses, as this means all the profit from sales has been used to cover the operating expenses, leaving no net income.

Question 12

The entry to record a $750 sale with terms of 2/10, n/30 would include a(n)
A) decrease to Accounts Receivable for $750.
B) increase to Sales for $750.
C) increase to Sales Discounts for $15.
D) decrease to Sales for $735.

Accepted Answer

When recording a sale with terms of 2/10,n/30, we first account for the full amount of the sale as an increase to Sales for $750. We do not decrease Accounts Receivable until the payment is received, so option A is incorrect. Option C is also incorrect because the sale qualifies for a 2% discount ($750 x 0.02 = $15), but this amount would be recorded as a decrease to Accounts Receivable if the customer takes the discount. Option D is incorrect because it suggests a decrease to Sales, which is not accurate. Therefore, the correct answer is B, an increase to Sales for $750.

Question 13

The entry to record payment of a $1,500 purchase within the 2 percent discount period would include a(n)
A) decrease to Accounts Payable for $1,470.
B) increase to Purchases Discounts for $30.
C) increase to Accounts Payable for $1,500.
D) increase to Cash for $1,500.

Accepted Answer

The answer of The entry to record payment of a...

Question 14

The collection of a $400 account within the 2 percent discount period would result in a(n)
A) increase to Accounts Receivable for $392.
B) decrease to Cash for $392.
C) increase to Sales Discounts for $8.
D) decrease to Accounts Receivable for $392.

Accepted Answer

The answer of The collection of a $400 account within...

Question 15

The collection of a $1,000 account beyond the 2 percent discount period would result in a(n)
A) increase to Cash for $980.
B) decrease to Accounts Receivable for $1,000.
C) decrease to Cash for $1,000.
D) increase to Sales Discounts for $20.

Accepted Answer

When the account is collected beyond the discount period, the full amount of $1,000 is received, decreasing Accounts Receivable by $1,000.

Question 16

Chancellor Company purchased merchandize worth $900 on credit, terms n/30. What is the required journal entry to record the transaction under the perpetual inventory system?

Accepted Answer

The answer of Chancellor Company purchased merchandize worth $900 on...

Question 17

A tabulation of invoices at the end of the day showed $800 in MasterCard invoices, which were deposited into a bank account at full value, less a 5 percent discount. The entry to record the above events would include an increase in
A) Accounts Receivable for $760.
B) Cash for $800.
C) Sales for $760.
D) Credit Card Expense for $40.

Accepted Answer

The answer of A tabulation of invoices at the end...

Question 18

Goods totaling $7,000 purchased February 2 on terms of 2/10, n/30 and on which returns of $1,000 were made on February 10 would be subject to which of the following discounts if paid for on February 12?
A) $120
B) $140
C) $160
D) $20

Accepted Answer

The discount is calculated on the net amount after returns. The net purchase is $6,000 ($7,000 - $1,000). The discount is 2% of $6,000, which is $120.

Question 19

When freight-in is a relatively small amount, most companies include the cost in
A) operating expenses.
B) cost of goods sold.
C) administrative expenses.
D) merchandise inventory.

Accepted Answer

Freight-in is the cost of transporting goods purchased by a company. Since it is directly related to the cost of goods sold, it is typically included in the cost of goods sold account. This allows for the accurate calculation of the cost of goods sold and gross profit margins.

Question 20

A purchase on account with an invoice price of $750 has been made. The entry to record the payment after the 2 percent discount period would include a(n)
A) decrease to Accounts Payable for $750.
B) decrease to Purchases Discounts for $15.
C) increase to Accounts Payable for $735.
D) decrease to Cash for $735.

Accepted Answer

The entry to record the payment after the discount period would involve a decrease to Accounts Payable for the full invoice amount of $750, as the discount is no longer applicable.

Quiz 6: The Operating Cycle and Merchandising Operations

The entry to record a sales return from a customer would require a(n)

A sale on March 21 with terms of n/10 eom is due to be collected by

Under the perpetual inventory system, in addition to making the entry to record a sale, a company would

The entry to record a purchase of $6,000 in merchandise assuming terms of 2/10, n/30 and a periodic inventory system would include a(n)

A discount that buyers take for early payment of merchandise is called a

A retailer accepted Visa charge sales totaling $500 and deposited the charge slips in the bank. Assuming a credit card discount expense of 4 percent, what would be the increase to Cash and the increase to Sales, respectively?

Merchandise inventory becomes part of cost of goods sold when a company

Under the perpetual inventory system, in addition to making the entry to record a sales return, a company would

Under the perpetual inventory system, the entry to record a purchase return would include a credit to which account?

Under the perpetual inventory system, which of the following accounts would not be used?

A merchandising business will earn a net income of exactly $0 when

The entry to record a $750 sale with terms of 2/10, n/30 would include a(n)

The entry to record payment of a $1,500 purchase within the 2 percent discount period would include a(n)

The collection of a $400 account within the 2 percent discount period would result in a(n)

The collection of a $1,000 account beyond the 2 percent discount period would result in a(n)

Chancellor Company purchased merchandize worth $900 on credit, terms n/30. What is the required journal entry to record the transaction under the perpetual inventory system?

A tabulation of invoices at the end of the day showed $800 in MasterCard invoices, which were deposited into a bank account at full value, less a 5 percent discount. The entry to record the above events would include an increase in

Goods totaling $7,000 purchased February 2 on terms of 2/10, n/30 and on which returns of $1,000 were made on February 10 would be subject to which of the following discounts if paid for on February 12?

When freight-in is a relatively small amount, most companies include the cost in

A purchase on account with an invoice price of $750 has been made. The entry to record the payment after the 2 percent discount period would include a(n)