Question 1

On October 30, goods with a list price of $10,500 are sold, subject to a trade discount of 25 percent with terms of 2/10, n/30. Payment is received from the customer on November 5. The amount recorded in the Sales Credit column on October 30 is

Accepted Answer

The amount recorded in the Sales Credit column on October 30 is the price after the trade discount but before any cash discounts. The trade discount is 25% of $10,500, which is $2,625. Therefore, the amount after the trade discount is $10,500 - $2,625 = $7,875. Cash discounts (like the 2/10, n/30 terms) apply only when payment is made, not at the time of sale.

Question 2

The reductions from the list prices that are not journalized are called:

Accepted Answer

Trade discounts are reductions from list prices that are offered to customers as an incentive to purchase in bulk or as repeat customers. These discounts are not usually journalized and are not considered a part of the operating revenue of the business.

Question 3

Tyler Corporation bought office supplies for $125 cash. In what journal would this transaction be recorded?

Accepted Answer

The transaction involves cash payment, therefore it would be recorded in the Cash Payment Journal.

Question 4

Which of the following accounts are considered contra accounts?

Accepted Answer

Contra accounts are accounts that have a balance opposite to the normal balance of their related accounts. Sales Discounts, Purchase Returns & Allowances, and Sales Returns & Allowances all reduce the value of their related accounts (Sales, Purchases, and Sales, respectively), making them contra accounts.

Question 5

Which of the following is the correct classification of Sales Discount account?

Accepted Answer

Sales Discount is a contra revenue account because it reduces the total revenues reported on the income statement. Revenue accounts have a normal credit balance, and since sales discounts decrease the amount of revenue, they are recorded as a debit, opposite to the normal revenue account balance.

Question 6

Tyler Floor Company sold flooring for $1,275 cash. The sales tax for the customer using a bank credit card was 6%. Tyler Floor Company will debit Cash for what amount?

Accepted Answer

The amount of sales tax is 6% of $1,275 which is: 
(6/100) x $1,275 = $76.50 
Therefore, the total amount paid by the customer is: 
$1,275 + $76.50 = $1,351.50 
Since the customer paid in cash, Tyler Floor Company will debit its Cash account for $1,351.50.

Question 7

Stryker Company issued a check for June rent in the amount of $650. In what journal would this transaction be recorded.

Accepted Answer

The transaction represents a payment made by the company, so it would be recorded in the Cash Payment Journal.

Question 8

On October 30, goods with a list price of $9,200 are sold, subject to a trade discount of 25 percent with terms of 2/10, n/30. Payment is received from the customer on November 5. The amount of cash received on November 5 is

Accepted Answer

The trade discount of 25% means that the customer pays only 75% of the list price:
$9,200 x 0.75 = $6,900
The terms of 2/10, n/30 mean that the customer can take a 2% discount if payment is made within 10 days. Since the payment was received on November 5, which is 6 days after the sale, the customer did not take the discount. Therefore, the cash received is the full amount of $6,900.

Question 9

The time the seller allows the buyer to make a full payment is the

Accepted Answer

The time given by the seller to the buyer to make full payment is known as the Credit Period. This is the time during which the buyer can make the payment of the goods or services bought on credit. Option A, Credit Discount, refers to the reduction in the price that the seller offers to the buyer if they pay the invoice early. Option B, Payment Period, is a vague term and not specifically related to credit transactions. Option D, None of the above, is incorrect as the correct answer is option C.

Question 10

A cash discount of 1/15, n/30 included in the credit terms of a sale indicates that the buyer should make payment:

Accepted Answer

The terms "1/15, n/30" mean that the buyer can take a 1% discount on the invoice amount if the payment is made within 15 days; otherwise, the net (full) amount is due within 30 days.

Question 11

What is the journal entry to record the receipt of payment on June 15th for the following: June 1st, merchandise sold on account in the amount of $525, credit terms 1/10, n/30.

Accepted Answer

The answer of What is the journal entry to record...

Question 12

What does the "2" in 2/10, n/30 mean?

Accepted Answer

The "2" represents the discount percentage that can be taken if the invoice is paid within 10 days. The "10" represents the number of days within which the payment must be made to qualify for the discount. The "n" represents the net payment amount that is due within 30 days. Therefore, option B is the correct answer as it accurately describes what the "2" in "2/10, n/30" means.

Question 13

On October 30, goods with a list price of $9,500 are sold, subject to a trade discount of 25 percent with terms of 2/10, n/30. Payment is received from the customer on November 5. The amount recorded in the Sales Discounts Debit column on November 5 is

Accepted Answer

The trade discount given is 25%, which means that the customer pays only 75% of the list price. Therefore, the amount actually received is:
$9,500 x 0.75 = $7,125
The terms are 2/10, n/30, which means that the customer can take a 2% discount if payment is made within 10 days, otherwise the full amount is due within 30 days.
Since payment is made on November 5, which is within 10 days, the customer is entitled to take the discount. The discount amount is:
$7,125 x 0.02 = $142.50
Therefore, the amount recorded in the Sales Discounts Debit column on November 5 is $142.50.

Question 14

Sales Discounts and Sales Returns and Allowances have the following characteristics in common:

Accepted Answer

Both Sales Discounts and Sales Returns and Allowances are contra-revenue accounts, which means they are used to reduce the total revenue. They have a normal debit balance (DR).

Question 15

What is the journal entry to record the receipt of payment on February 10th for the following: February 2nd, merchandise sold on account in the amount of $475. Credit terms 2/10, n/30.

Accepted Answer

The correct entry is C because it reflects the receipt of payment within the discount period, applying a 2% discount ($9.50) on the $475, resulting in a cash receipt of $465.50 and reducing the accounts receivable by the full invoice amount of $475.

Question 16

On October 30, goods with a list price of $9,200 are sold, subject to a trade discount of 25 percent with terms of 2/10, n/30. Payment is received from the customer on December 11. The amount of cash received on December 11 is

Accepted Answer

The trade discount reduces the price to $6,900 ($9,200 - 25% of $9,200). Since payment was not made within the 10-day discount period, no additional cash discount is applied.

Question 17

The amount a customer can deduct if the bill is paid within a specific period of time is called a

Accepted Answer

A cash discount is a reduction in the amount owed by a customer if the bill is paid within a specified period of time. This is different from a trade discount, which is a reduction in the listed price of goods or services provided by the vendor, and a credit period, which is the amount of time a customer has to pay their bill without incurring any additional charges. While a credit discount is not a common term in business, it may sometimes refer to a reduction in the balance owed by a customer due to a credit balance on their account.

Question 18

Which of the following statements is NOT true?

Accepted Answer

Freight costs are not included when determining discounts. Discounts are generally applied to the net amount of the sale (the sale amount minus any returns or allowances) before adding on any additional costs such as freight.

Question 19

You will never find the following combination of accounts in a journal entry except

Accepted Answer

The answer of You will never find the following combination...

Question 20

Most computer accounting software packages allow businesses to

Accepted Answer

Most computer accounting software packages provide a way to post cash receipts for sales and apply discounts to the sales amount. This simplifies the accounting process for businesses as it automatically updates the financial records and reduces the likelihood of errors. Therefore, both options A and B are correct.

Quiz 10: Cash Receipts and Cash Payments