Question 1

Your company purchases $50,000 of inventory from a wholesaler that 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:
A).03/12,n/45.
B)n/45,3/12.
C)n/45,.03/12.
D)3/12,n/45.

Accepted Answer

The payment terms are expressed as 3/12, n/45. The 3/12 means that if payment is made within 12 days, a 3% discount will be given. The n/45 means that the full payment is due within 45 days. Therefore, option D correctly represents these terms.

Question 2

Which of the following is not an advantage of perpetual inventory system?
A)It helps reduce expenses and costs.
B)It helps increase productivity of the economy.
C)It is simple and less costly to maintain.
D)It provides up to date information on inventory and cost of goods sold instantly.

Accepted Answer

Perpetual inventory system requires the use of technology such as scanning equipment and inventory software which can be costly to set up and maintain. Therefore, it is not less costly to maintain.

Question 3

Sales discounts where a company offers to give a discount on price if the customer pays earlier are usually given in following types of transactions:
A)Business to Business (B2B)
B)Business to consumers
C)To retail customers
D)To long and frequent customers

Accepted Answer

Sales discounts for early payment are more common in business-to-business (B2B) transactions. In this type of transaction, the buyer is usually another company, and offering a discount for early payment is a common practice to encourage faster payment and improve cash flow. While it is possible to offer sales discounts to other types of customers, it is less common.

Question 4

Contra-revenue accounts:
A)are liabilities.
B)are recorded with a credit.
C)are recorded with a debit.
D)are expenses.

Accepted Answer

Contra-revenue accounts are recorded with a debit to reduce the total revenue figures on the income statement. They are not liabilities, not recorded with a credit, and are not expenses, but rather adjustments to revenue.

Question 5

Which of the following is a true statement for a company using a perpetual inventory system?
A)Purchase returns and allowances is a contra-account to revenue.
B)Sales returns and allowances is a contra-account to revenue.
C)Purchase returns and allowances is a contra-account to accounts receivable.
D)Sales returns and allowances is a contra-account to inventory.

Accepted Answer

Sales returns and allowances is a contra-revenue account, which means it is used to record the sales that were either returned by customers or allowed a reduction in price, thereby reducing the total revenue from sales.

Question 6

If a customer returns an item to the retailer,the retailer will record the return as:
A)sales returns and allowances.
B)shrinkage.
C)sales discounts.
D)purchase returns and allowances.

Accepted Answer

Sales returns and allowances is the proper accounting entry for items returned by customers. This account is used to reduce the amount of sales revenue and reflects a reduction in the company's net sales. Shrinkage and sales discounts are not applicable in this scenario, and purchase returns and allowances would only be used for returns to a supplier, not to a retailer.

Question 7

Merchandise was sold on credit for $3,000,terms 1/10,n/30.The correct entry to record the cash collection should be:
A)Debit Cash,$3,000,and credit Accounts Receivable,$3,000,if collected within the discount period.
B)Debit Cash,$3,000,and credit Accounts Receivable,$2,970,and Sales Discount,$30,if collected within the discount period.
C)Debit Cash,$3,000,and credit Accounts Receivable,$2,970,and Sales Discount,$30,if collected after the discount period.
D)Debit Cash,$3,000,and credit Accounts Receivable,$3,000,if collected after the discount period.
E)Sales Discounts is 1% discount ($3,000*.01 = $30)will be debited when payment is received within the discounted period.If payment is received after the discount period,the gross sales amount ($3,000)is collected.

Accepted Answer

If the payment is collected after the discount period, the full amount of $3,000 is collected, so Cash is debited and Accounts Receivable is credited for $3,000.

Question 8

A company had the following partial list of account balances at year-end: The amount of net sales reported on the income statement would be:
A)$57,200.
B)$64,200.
C)$56,000.
D)$55,700.

Accepted Answer

The amount of net sales reported on the income statement can be calculated as follows:

Net Sales = Sales Revenue - Sales Returns and Allowances - Sales Discounts
Net Sales = $56,000 - $800 - $200
Net Sales = $55,000

Therefore, the correct answer is C.

Question 9

Purrfect Pets announces that its gross profit rose 5% and its net income fell.Which of the following statements is true?
A)This is not possible given that net income is determined by gross profit.
B)This must mean that other expenses have risen more than 5%.
C)This must mean that other expenses fell.
D)This must mean that sales revenue fell.

Accepted Answer

It is possible for gross profit to increase while net income falls if other expenses, such as operating expenses or interest expenses, rise more than the increase in gross profit. Therefore, choice B is the correct answer.

Question 10

and sells it for $4 a half litre.Which of the following statements is true?
A)Your gross profit per half litre is $2.50.
B)Your gross profit per half litre is $1.75.
C)$2.50 is recorded in an account titled Gross Profit.
D)$1.75 is recorded in an account titled Gross Profit.

Accepted Answer

Your gross profit per half litre is $2.50.

Question 11

An electronics retailer purchases $20,000 of computers for resale.The retailer spends $500 in transportation cost,$2,000 in labour and parts to upgrade the computers,and $300 to advertise them.At this point,what amount should appear in the Inventory account for these computers?
A)$20,000
B)$20,500
C)$22,500
D)$22,800

Accepted Answer

The cost of the computers includes the purchase price, transportation cost, labor and parts for upgrades, and advertising costs. Therefore, the amount that should appear in the Inventory account is $20,000 + $500 + $2,000 + $300 = $22,500.

Question 12

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:
A)Cash for $4,900.
B)Accounts Receivable for $4,900.
C)Cash for $5,000.
D)Accounts Receivable for $5,000.
E)If received within the discount period the new amount is 98% of the invoice amount.$5,000(.98)= $4,900.

Accepted Answer

Central would debit Cash for $4,900 because Western Company paid within the discount period, taking advantage of the 2% discount on the $5,000 invoice, resulting in a payment of $4,900.

Question 13

When goods are sold to a customer with credit terms of 2/15,n/30,the customer will:
A)receive a 15% discount if they pay within 2 days.
B)receive a 2% discount if they pay 15% of the amount due within 30 days.
C)receive a 15% discount if they pay within 30 days.
D)receive a 2% discount if they pay within 15 days.

Accepted Answer

The credit terms of 2/15, n/30 mean that the customer can receive a 2% discount if they pay within 15 days but must pay the full amount within 30 days. There is no mention of a 15% discount or partial payment amount in the given terms, so options A and C are incorrect. Option B is also incorrect as it states that the customer must pay 15% of the amount due within 30 days, which is not part of the given credit terms.

Question 14

BetterBuy sells $50,000 of TVs to a customer.The terms include a 2% discount if paid in 7 days and a 1% discount if paid in 8-14 days.BetterBuy receives the money in 12 days.How would the transaction be recorded by BetterBuy?
A)Debit Inventory for $500 and credit Accounts Payable for $500.
B)Debit Cash for $49,500,credit Accounts receivable for $50,000,and debit sales discounts for $500.
C)Debit Accounts receivable for $50,000,credit Cash for $49,500,and credit sales discounts for $500.
D)Debit Accounts Payable for $500 and credit Inventory for $500.
E)The discount would be $500 (.01*50,000).The customer would pay $49,500 in cash.The discount is debited to Sales Discount and Account Receivable is credited for $50,000 (the original amount of the sale).

Accepted Answer

BetterBuy receives the payment within 8-14 days, qualifying for a 1% discount. The discount is $500 (1% of $50,000), so the cash received is $49,500. The entry debits Cash for $49,500, credits Accounts Receivable for $50,000, and debits Sales Discounts for $500.

Question 15

When sales discounts in the current year exceed sales discounts in the prior year,assuming all else remains unchanged,what is the effect on the gross profit percentage?
A)The percentage will not change.
B)The percentage will increase.
C)The percentage will decrease.
D)Either (A)or (B).

Accepted Answer

When sales discounts increase in the current year, it means that customers are taking advantage of discounts more frequently or the company is offering more discounts, which can lower the gross profit percentage. Therefore, the percentage will decrease.

Question 16

Which of the following is a true statement for a company using a perpetual inventory system?
A)Sales discounts is a contra-account to revenue.
B)Purchase discounts is a contra-account to revenue.
C)Purchase discounts is a contra-account to accounts receivable
D)Sales discounts is a contra-account to inventory.

Accepted Answer

Sales discounts reduce the amount of revenue recognized from sales, acting as a contra-revenue account, which is correct for a company using a perpetual inventory system.

Question 17

Which of the following principle of internal control requires application of need basis?
A)Establish responsibility.
B)Segregate duties.
C)Restrict access.
D)Document procedures.

Accepted Answer

The principle of internal control that requires application of need basis is to restrict access. Access to resources or sensitive information should only be granted to individuals who have a legitimate business need for such access. This helps to prevent misuse, theft, or unauthorized disclosure of information. Establishing responsibility, segregating duties, and documenting procedures are other internal control principles that help to enhance the effectiveness and efficiency of an organization's operations.

Question 18

A retailer sells plasma TVs at a selling price of $5,000 each.The total sale on account is for $20,000 Under a perpetual inventory system the journal entries to record the sale will include:
A)$20,000 will be debited to Inventory and $20,000 will be credited to Accounts Payable.
B)$20,000 will be debited to Costs of goods sold and $20,000 will be credited to Inventory.
C)$20,000 will be credited to Inventory and $20,000 will be credited to sales revenue.
D)$20,000 will be debited to costs of goods sold and $20,000 will be credited to Accounts receivable.

Accepted Answer

The answer of A retailer sells plasma TVs at a...

Question 19

BetterBuy sells a computer from inventory for $599 on credit.BetterBuy originally bought the computer from IBM for $395.What are the journal entries Betterbuy would record?
A)Debit Cash for $599,credit Sales for $599; debit Inventory for $395 and credit Cost of Goods Sold for $395.
B)Debit Accounts Receivable for $599,credit Inventory for $395,and credit Retained Earnings for $204.
C)Debit Accounts Receivable for $599,credit Sales for $599; debit Cost of Goods Sold for $395 and credit Inventory for $395.
D)Debit Inventory for $395,debit Cost of Goods Sold for $204,and credit Accounts Receivable for $599.

Accepted Answer

The first entry records the sale, which involves debiting Accounts Receivable and crediting Sales for the amount of the sale ($599). 
The second entry records the cost of the sold computer, which involves debiting Cost of Goods Sold and crediting Inventory for the original cost of the computer ($395).

Question 20

When a company makes a sale and accepts a credit card payment from a customer,the company:
A)debits Cash.
B)credits Accounts Receivable.
C)credits Cash.
D)debits Accounts Receivable.

Accepted Answer

The answer of When a company makes a sale and...

Quiz 6: Merchandising Operations and the Multistep Income Statement

Your company purchases $50,000 of inventory from a wholesaler that 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:

Which of the following is not an advantage of perpetual inventory system?

Sales discounts where a company offers to give a discount on price if the customer pays earlier are usually given in following types of transactions:

Contra-revenue accounts:

Which of the following is a true statement for a company using a perpetual inventory system?

If a customer returns an item to the retailer,the retailer will record the return as:

Merchandise was sold on credit for $3,000,terms 1/10,n/30.The correct entry to record the cash collection should be:

A company had the following partial list of account balances at year-end: The amount of net sales reported on the income statement would be:

Purrfect Pets announces that its gross profit rose 5% and its net income fell.Which of the following statements is true?

and sells it for $4 a half litre.Which of the following statements is true?

An electronics retailer purchases $20,000 of computers for resale.The retailer spends $500 in transportation cost,$2,000 in labour and parts to upgrade the computers,and $300 to advertise them.At this point,what amount should appear in the Inventory account for these computers?

When goods are sold to a customer with credit terms of 2/15,n/30,the customer will:

BetterBuy sells $50,000 of TVs to a customer.The terms include a 2% discount if paid in 7 days and a 1% discount if paid in 8-14 days.BetterBuy receives the money in 12 days.How would the transaction be recorded by BetterBuy?

When sales discounts in the current year exceed sales discounts in the prior year,assuming all else remains unchanged,what is the effect on the gross profit percentage?

Which of the following is a true statement for a company using a perpetual inventory system?

Which of the following principle of internal control requires application of need basis?

A retailer sells plasma TVs at a selling price of $5,000 each.The total sale on account is for $20,000 Under a perpetual inventory system the journal entries to record the sale will include:

BetterBuy sells a computer from inventory for $599 on credit.BetterBuy originally bought the computer from IBM for $395.What are the journal entries Betterbuy would record?

When a company makes a sale and accepts a credit card payment from a customer,the company: