Accounting 2 Test

A cash discount can be summarized as a discount given to (1. ?) (buyers/creditors/sellers) to encourage them to pay (2. ?) (earlier/later/less/more).

1. buyers 2. earlier

Show your understanding of a merchandiser by completing the following statement. Merchandisers earn net income by (buying/manufacturing) (1. ?) and (selling/purchasing) (2. ?) merchandise.

1. buying 2. selling

The discount period is the time (1. ?) (before/between) the invoice date and a specified date on which the payment amount owed can be (2. ?) (increased/reduced) because of early payment.

1. between 2. reduced

A purchase return refers to merchandise a (1. ?) (buyer/seller/creditor) purchased, but then returns to the (2. ?) (buyer/seller/creditor) for a refund of the purchase price or reduction in the amount owed.

1. buyer 2. seller

A sales return refers to merchandise that (1. ?) (customers/sellers/creditors) return to the (2. ?) (customer/seller/creditor) after a sale for a refund of the purchase price or reduction in the amount owed.

1. customers 2. seller

Show your understanding of what merchandise is by completing the following sentence. Merchandise consists of (1. ?) that a company acquires to resell to (2. ?).

1. products, goods, items, inventory, or assets 2. customers, consumers, or buyers

Review the following credit terms and identify the one that states that the buyer will receive a 3% discount if the payment is made within 15 days. Otherwise, full payment is expected within 45 days of the invoice date.

3/15,n/45

A sales allowance can be described as:

a reduction in the selling price of defective or unacceptable merchandise sold to customers

Sales Discounts is a ______ account.

contra revenue

Determine which statements below are correct regarding merchandise available for sale during a period.(Check all that apply.)

Ending inventory + Cost of goods sold = Merchandise available for sale

If the seller is responsible for the shipping costs of merchandise sold, the shipping terms will be specified as:

FOB destination

Sales is a(n) ______ account.

revenue

Determine which of the following statements below regarding a merchandiser are correct.

1) Merchandisers are often identified as retailers. 2) A merchandiser earns net income by buying and selling merchandise. 3) Merchandisers are also identified as wholesalers.

Sales is a(n) (1. ?) (expense/revenue/asset) account and is reported on the (2. ?) (income/balance) (3. ?) (statement/sheet).

1) revenue 2) income 3) statement

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the (1. ?) (Merchandise Inventory/Accounts Payable/Cash) account and credit the (2. ?) (Cash/Merchandise Inventory/Accounts Payable) account.

1. Merchandise Inventory 2. Cash

Sales Discounts is a contra (1. ?) (expense/revenue/asset) account and is increased with a (2. ?) (debit/credit).

1. revenue 2. debit

Gross profit is calculated by taking the net (1. ?) (sales/costs) of a product and (2. ?) (adding/subtracting) the cost of the goods sold.

1. sales 2. subtracting

X-Mart purchased $300 of merchandise and paid immediately. Demonstrate the journal entry to record this transaction, assuming the perpetual inventory system is used.

Debit Merchandise Inventory $300; credit Cash $300.

Gross profit is computed as net (?) minus cost of goods sold.

sales or revenue

On June 5, Jo's Market sold $1,000 of goods on credit with terms of 2/10,n/30. The required journal entry to record Jo's Market customer's payment on July 6 would be:

debit Cash $1,000; credit Accounts Receivable $1,000

A ------ discount benefits a seller through earlier cash receipts and reduced collection efforts.

sales or cash

gross profit.

The difference between net sales and the cost of the goods sold

On May 14, X-Mart purchased $500 of merchandise with terms of 3/15,n/40. If payment is made on May 28, calculate the purchase discount that may be taken by X-Mart.

$15 Reason: $500x.03=$15

Calculate the total cost of merchandise purchased using the information in the following table: Invoice cost of merchandise purchases $40,000 Purchase discounts received $ 3,000 Cost of transportation-in (shipping) $ 500 Costs of purchase returns and allowances $ 100

$37,400 Reason: $40,000 - $3,000 - $100 + $500 = $37,400.

Jerry's Flowers had the following cost information related to its purchases of merchandise. Calculate the total cost of merchandise purchased using the information below: Invoice cost of merchandise purchases $100,000 Purchase discounts received $ 9,000 Cost of transportation-in (shipping) $ 500 Costs of purchase returns and allowances $ 400

$91,100 Reason: $100,000 - $9,000 - $400 + $500 = $91,100.

Identify the statements below which summarize what cash discounts are. (Check all that apply.)

- A buyer views a cash discount as a purchase discount. - A seller views a cash discount as a sales discount. - A reduced payment applies to the discount period. - Sellers can grant a cash discount to encourage buyers to pay earlier. - Cash discounts are described in the credit terms.

LOL Music Store uses the perpetual inventory system to account for its merchandise. On November 17, it purchased $1,000 of merchandise with terms of 2/5,n/60. If payment is made on December 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below. (Check all that apply.)

- Debit Accounts Payable $1,000. - Credit Cash $1,000.

What is a purchase return?

A purchase return refers to merchandise a buyer acquires, but then returns to the seller.

What is a sales return?

A sales return refers to merchandise that customers return to the seller after a sale.

Explain how to determine gross profit on an income statement by selecting the correct statement below.

Cost of goods sold is subtracted from net sales.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 30, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $1,000.

On Dec. 7, Toys R Fun purchased $1,000 of merchandise with terms of 2/10,n/30. If payment is made on December 16, demonstrate the required journal entry for Toys R Fun to record the payment under the perpetual inventory system.

Debit Accounts Payable $1,000; credit Cash $980; credit Merchandise Inventory $20.

On Dec. 20, X-Mart received a $100 allowance because the merchandise it purchased on account, earlier in the month, was of poor quality. Demonstrate the required journal entry on X-Mart's books for the allowance assuming the perpetual inventory method.

Debit Accounts Payable $100; credit Merchandise Inventory $100.

On Jan 5, a customer returned merchandise that had been purchased earlier on credit. The original sale was for $500, and the cost to the seller was $150. Demonstrate the required journal entry to record the return on the books of the seller, assuming the goods can be sold to another customer.

Debit Sales Returns and Allowances $500; debit Merchandise Inventory $150; credit Accounts Receivable $500; and credit Cost of Goods Sold $150.

Credit terms of 1/10, net 30 means.

The buyer will receive a 1% discount if they pay within 10 days of the date of the invoice.

Credit terms of n/15 were printed on an invoice. Explain what this means.

The credit terms stand for net 15 days.

discount period

The discount period is the time period in which a discount may be taken by the buyer.

Review the statements below and select the one that explains the purpose of a sales discount.

They decrease the time that the seller has to wait for payment.

merchandise inventory

an asset reported on the balance sheet and contains the cost of products purchased for sale.

Merchandise inventory that is still available for sale is considered a(n

asset

Jello's Market purchased $1,000 of goods on account with terms of 2/10,n/30. They returned $200 of the goods due to defect the next day. If Jello pays for the purchase within the discount period and uses the perpetual inventory system, the required journal entry to record the payment would:

debit Accounts Payable $800; credit Merchandise Inventory $16; and credit Cash $784

Jo's Market makes a credit sale for $1,000 with terms of 2/10,n/30. The cost of the merchandise is $400. The required journal entry to record the sale and cost of the sale is:

debit Accounts Receivable $1,000; credit Sales $1,000; debit Cost of Goods Sold $400; and credit Merchandise Inventory $400

Jan's Jams makes a credit sale for $300 with terms of 2/10,n/30. The cost of the merchandise is $200. The required journal entry to record the sale and the cost of the sale is:

debit Accounts Receivable $300; credit Sales $300; debit Cost of Goods Sold $200; and credit Merchandise Inventory $200

merchandise that is sold during the period is considered a(n)se that is sold during the period is considered a(n)

expense

merchandise that is sold during the period reported on the

income statement

cost of goods sold?

the expense of buying and preparing merchandise.

On June 5, X-Mart purchased $400 of merchandise with terms of 2/10,n/30. If payment is made on June 11, calculate the purchase discount that may be taken by X-Mart.

$8 Reason: $400 x .02 =$8.

Cost of goods sold is characterized by which of the following statements?

- Cost of goods sold is an expense reported on the income statement. - Cost of goods sold includes the expenses of buying and preparing an item for sale. - Cost of goods sold is also called cost of sales. - Cost of goods sold is used to figure gross profit.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit with terms of 1/10,n/40. Demonstrate the required journal entry to record the receipt of payment on May 25 by selecting all of the correct actions below. (Check all that apply.)

- Credit Accounts Receivable $1,400. - Debit Cash $1,400.

Dogs R US uses the perpetual inventory system to account for its merchandise. A customer returned merchandise. Assuming that the purchase was originally bought on credit for $400 with a cost to Dogs R US of $100, demonstrate required journal entry of Dogs R US to record the return by selecting all of the correct actions below. (Check all that apply.)

- Credit Accounts Receivable $400. - Credit Cost of Goods Sold $100. - Debit Merchandise Inventory $100. - Debit Sales Returns and Allowances $400.

X-Mart uses the perpetual inventory system to account for its merchandise. A customer who purchased merchandise on account requested an allowance on a merchandise purchase due to its poor quality, but he did not return the goods back to X-Mart. Assuming that X-mart gives an allowance of $50 on the merchandise, demonstrate the required journal entry on X-Mart's books to record the allowance by selecting all of the correct actions below. (Check all that apply.)

- Credit Accounts Receivable $50. - Debit Sales Returns and Allowances $50.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it purchased $400 of merchandise on account with terms of 2/15, n/40. On May 3, X-Mart returned $50 of merchandise due to defect. Assuming that the purchase was paid for within the discount period, demonstrate the required journal entry for X-Mart to record the payment by selecting all of the correct actions below. (Check all that apply.)

- Credit Cash $343. - Debit Accounts Payable $350. - Credit Merchandise Inventory $7.

Dogs R US uses the perpetual inventory system to account for its merchandise. On May 1, it returned $50 of merchandise due to a defect. Assuming that the purchase was originally bought on credit, demonstrate the required journal entry to record the return by selecting all of the correct actions below. (Check all that apply.)

- Credit Merchandise Inventory $50. - Debit Accounts Payable $50.

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

- Credit Merchandise Inventory $500. - Credit Sales $1,400. - Debit Cost of Goods Sold $500. - Debit Cash $1,400.

X-Mart uses the perpetual inventory system to account for its merchandise. On June 1, it sold $7,000 of merchandise for cash. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

- Credit Merchandise Inventory $500. - Credit Sales $7,000. - Debit Cost of Goods Sold $500. - Debit Cash $7,000.

A journal entry for a sale of merchandise on account will result in all of the following: (Check all that apply).

- Credit to Sales - Debit to Accounts Receivable - Credit to Merchandise Inventory - Debit to Cost of Goods Sold

X-Mart uses the perpetual inventory system to account for its merchandise. On May 1, it sold $1,400 of merchandise on credit. The original cost of the merchandise to X-Mart was $500. Demonstrate the required journal entry to record the sale and the cost of the sale by selecting all of the correct actions below. (Check all that apply.)

- Debit Accounts Receivable $1,400. - Credit Merchandise Inventory $500. - Debit Cost of Goods Sold $500. - Credit Sales $1,400.

Sally Beauty Warehouse uses the perpetual inventory system to account for its merchandise. On Nov 2, it sold $700 of merchandise on credit with terms of 2/15,n/30. Demonstrate the required journal entry to record the receipt of payment from the customer on Nov 13, by selecting all of the correct actions below. (Check all that apply.)

- Debit Sales Discounts $14. - Debit Cash $686. - Credit Accounts Receivable $700.

Which of the statements below summarize why a seller would give a sales allowance? (Check all that apply.)

- In order to entice a customer to keep damaged or defective merchandise, the seller is willing to decrease the selling price. - Sold merchandise was defective or unacceptable. - The seller wants to keep a customer happy.

Describe good cash management practices involving inventory purchases. (Check all that apply.)

- Invoices should be paid on the last day of the discount period. - Buyers should take advantage of early payment discounts.

The buyer and seller of merchandise must agree on who is responsible for paying freight terms. Show your understanding of freight terms by selecting all of the correct statements below. (Check all that apply.)

- Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination. - Terms FOB destination means that the seller is responsible for shipping costs. - Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller's place of business. - When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.

Explain what the credit terms of 2/10,n/30 mean. (Check all that apply.)

- The full payment is due within a 30-day credit period. - The buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date.

Merchandise inventory can be described as: (Check all that apply.)

- an account increased with a debit. - an account appearing on a balance sheet of a merchandiser. - products that a company owns and intends to sell. - an asset account.

Complete the following statement. Merchandise inventory that is still available for sale is considered a(n) ________ (asset/expense/revenue) and is reported on the ____________ (balance sheet/income statement) and merchandise that is sold during the period is considered a(n) _______ (asset/expense/liability) and reported on the ____________ (balance sheet/income statement).

asset -> balance sheet -> expense -> income statement

Merchandise inventory that is still available for sale is reported on the

balance sheet