Accounting Chapter 4
The effect of a customer refund and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable. a. True b. False
a. True
The indirect method of preparing the statement of cash flows reconciles net income with net cash flows from operating activities. a. True b. False
a. True
Sales discounts is used in accounting for transactions with customers. a. True b. False
a. True
Gross profit percent is calculated by dividing gross profit by net sales. a. True b. False
True
The credit terms of a sale are normally indicated on a(n):
b. invoice.
Which of the following is not considered when figuring net purchases?
a. Cost of goods sold
For the perpetual inventory system, which of the following effects does not occur upon the return from a customer of merchandise sold on account?
C. Increases Purchase Returns and Allowances and decreases Merchandise Inventory
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the cash discount. a. True b. False
False
If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $52. a. True b. False
False
It is usual for the credit period to begin with the date the merchandise is received by the buyer. a. True b. False
False
Net sales is equal to sales plus cost of merchandise sold. a. True b. False
False
On the income statement, the merchandise inventory at the beginning of the period is added to sales to yield the cost of merchandise sold during the period. a. True b. False
False
Purchase discounts reduce sales. a. True b. False
False
Purchases discounts are discounts given to the seller. a. True b. False
False
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 10 days after the invoice date to take advantage of the cash discount. a. True b. False
True
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 10 days after the invoice date to take advantage of the cash discount. a. True b. False
True
Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer. a. True b. False
True
In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account. a. True b. False
True
The merchandise inventory account is found on the balance sheet. a. True b. False
True
Which of the following refers to the arrangements between buyers and sellers regarding the payments for merchandise?
a. Credit terms
Which of the following is true of the perpetual inventory system?
a. The amount of merchandise available for sale is continuously updated in the inventory records.
Which of the following statements is true?
a. The revenue activities of a service business involve providing services to customers.
Which of the following occurs when a seller pays a customer a refund?
a. The seller decreases the balance of the cash account and the customer refunds payable account.
Which of the following is the effect of purchasing merchandise for cash on a company's liquidity and profitability metrics?
a. There is no effect on liquidity and profitability.
Which of the following is the effect of purchasing merchandise on account with credit terms 2/10, n/30?
a. There is no effect on the liquidity and profitability metrics.
A criticism of the single-step income statement is that gross profit and income from operations are not readily available for analysis. a. True b. False
a. True
Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller. a. True b. False
a. True
Cost of Merchandise Sold is used in accounting for transactions by sellers of merchandise. a. True b. False
a. True
If cash dividends of $145,000 were declared during the year and the decrease in dividends payable from the beginning to the end of the year was $7,000, the statement of cash flows would report $152,000 in the financing activities section. a. True b. False
a. True
If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/eom. a. True b. False
a. True
In a multiple-step income statement, sales will be reduced by sales discounts and customer refunds and allowances to arrive at net sales. a. True b. False
a. True
There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method. a. True b. False
a. True
When someone purchases merchandise and incurs the cost of transportation, these costs of purchasing inventory are added to the cost of the inventory. a. True b. False
a. True
Merchandise which is not sold at the end of the year is reported on the balance sheet as _____.
a. accounts receivable
When merchandise that was sold on account is returned, which accounts are affected?
b. Customer refunds payable, accounts receivable, merchandise inventory, and estimated returns inventory
If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $48. a. True b. False
b. False
If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination. a. True b. False
b. False
In a transaction where purchased merchandise has been returned, the buyer will increase the Customer Refunds Payable account and the seller will increase the Purchases Returns and Allowances account. a. True b. False
b. False
Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the transaction is recorded in the buyer's accounts on November 18. The credit period begins with what date?
b. November 15
Merchandise subject to the credit terms 2/10, n/30, FOB shipping point, is sold to a customer on account for $20,125. The seller issued a credit memorandum for $4,600 prior to payment. What is the amount of the cash discount allowable if the payment is made within 10 days of the invoice date?
c. $310.50
A sales invoice included the following information: merchandise price, $8,000; terms 2/10, n/eom. Assuming that a credit for merchandise returned of $1,000 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?
c. $6,860
If Johnson, Inc. sold $800,000 worth of merchandise, had $100,000 returned, and then the balance paid during the 1% discount period, how much was Johnson's net sales?
c. $693,000
Surist, Inc. purchased merchandise for $300,000, received credit for purchase returns of $20,000, availed purchase discounts of $5,000, and paid transportation in of $12,000. Refer to Surist, Inc. If Surist, Inc. had $30,000 in beginning inventory, and sold goods costing $180,000, what is the ending inventory balance?
d. $137,000
On January 1, a company made a sale of $87,500, on credit. If the credit terms were 2/10, n/30, what would be the amount of the sales discount be if the payment is received on January 9?
d. $1750
Silver Co. sold merchandise to Copper Co. on account, $75,000, terms 2/10, net 30. The cost of the merchandise sold is $55,000. Silver Co. issued a credit memorandum for $10,000 for merchandise returned that originally cost $9,000. Copper Co. paid the invoice within the discount period. What is amount of net sales from the transactions?
d. $63,700
Which of the following is the formula to calculate gross profit percent?
d. (Sales - Cost of Goods Sold) / Sales
Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet?
d. As a current asset
Which of the following businesses is a retail business?
d. Kohl's
The cost of goods sold is subtracted from sales to arrive at _____.
d. gross profit
The difference between sales and cost of goods sold for a retail business is:
d. gross profit
In credit terms of 1/10, n/30, the "1" represents the:
d. percent of the cash discount.
Net income or loss may appear on the income statement of both a service business and a retail business. a. True b. False
True
Operating expenses are subtracted from fees earned for a service business and from gross profit for a merchandising business. a. True b. False
True
Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made. a. True b. False
True
When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period. a. True b. False
True
When the terms of sale are FOB shipping point, the buyer should pay the transportation charges. a. True b. False
True
In credit terms of 1/10, n/30, the "10" represents the:
a. number of days in the discount period.
Surist, Inc. purchased merchandise for $300,000, received credit for purchase returns of $20,000, availed purchase discounts of $5,000, and paid transportation in of $12,000. Refer to Surist, Inc. What is the total cost of merchandise purchased?
b. $287,000
Based on the following information, what would be recorded as purchases discount if the invoice is paid within the discount period? 1. $5,000 of merchandise inventory was ordered on April 2, 2016. 2. $2,000 of this merchandise was received on April 5, 2016. 3. On April 6, 2016, an invoice dated April 4, 2016, with terms of 2/10, net 30 for $2,150 which included a $150 prepaid freight cost, was received. 4. On April 10, 2016, $500 of the merchandise was returned to the seller.
b. $30
A sales invoice included the following information: merchandise price, $6,000; terms 2/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?
b. $5,292
Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $35,000. The seller issued a credit memorandum for $8,000 prior to payment. What is the amount of the cash discount allowable?
b. $540
Galaxy, Inc. had the following merchandise transactions in October: Purchases $80,000 Purchase returns 8,000 Purchase discounts 7,200 Transportation in 3,000 What is the total cost of merchandise purchased for Galaxy, Inc?
b. $67,800
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the cash discount. a. True b. False
b. False
A criticism of a single-step income statement is that net income is not available for analysis. a. True b. False
b. False
A sale of $600 on account subject to a sales tax of 5% would increase account receivable by $570. a. True b. False
b. False
Customer refunds and allowances is a contra-asset account. a. True b. False
b. False
Freight in is the amount paid by the seller to deliver merchandise sold to a customer. a. True b. False
b. False
Merchandise inventory shrinkage will increase Merchandise Inventory. a. True b. False
b. False
On the income statement, customer refunds and allowances and customer discounts are added to gross sales to yield net sales. a. True b. False
b. False
On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold. a. True b. False
b. False
Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows. a. True b. False
b. False
Sales discounts are granted by the seller to customers for payment at the end of the month. a. True b. False
b. False
Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales. a. True b. False
b. False
The document issued by the seller that informs the buyer of the details of customer refund is called a debit memorandum. a. True b. False
b. False
To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation. a. True b. False
b. False
When merchandise that was sold is returned, the seller decreases accounts payable. a. True b. False
b. False
Merchandise is ordered on November 12; the merchandise is shipped by the seller and the invoice is prepared, dated, and mailed by the seller on November 15; the merchandise is received by the buyer on November 17; the transaction is recorded in the seller's accounts on November 15. If the credit terms are 1/10, n/30, the discount period begins with what date?
b. November 15
Which of the following statements is true about a retail business?
b. The revenue activities of a retail business involve the buying and selling of merchandise.
Paying an invoice within the discount period _____.
b. has no effect on the profitability metric
In recording the cost of merchandise sold for cash using a perpetual inventory system, the effect on the accounts is:
b. increase Cost of Merchandise Sold; decrease Merchandise Inventory.
Using a perpetual inventory system, the purchase of $30,000 of merchandise on account would include a(n):
b. increase in Merchandise Inventory.
When purchases of merchandise are made for cash, under the perpetual inventory system, the transaction:
b. increases Merchandise Inventory; decreases Cash.
Net sales is calculated by _____.
b. subtracting customer refunds from total sales
In case of merchandise return, the inventory account is increased by the amount of cost of the goods returned, and:
b. the estimated returns inventory account is decreased by the same amount.
Merchandise with an invoice price of $10,000 is purchased subject to terms of 2/10, n/30, FOB destination. Transportation costs paid by the seller totaled $300. What is the net cost of the merchandise?
c. $9,800
Orange Co. sells merchandise on credit to Zea Co. in the amount of $9,000. The invoice is dated on September 15 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?
c. $90, September 30
Zilova Inc. issues a credit memo of $850 to a customer. What is the effect of this transaction on profitability and liquidity?
c. Both profitability and liquidity remain unchanged.
_____ is reported as a current asset on balance sheet.
c. Merchandise inventory
If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a:
c. credit memorandum.
Using a perpetual inventory system, the return of merchandise purchased on account includes a(n):
c. decrease in Merchandise Inventory.
Merchandise not sold at the end of the period is reported as:
c. merchandise inventory.
Sometimes a(n) _____ is offered to buyers as a means of encouraging them to pay before the end of the credit period.
c. sales discount
Merchandise purchased on account by a company has no effect on its working capital because:
a. inventory and accounts payable are increased by the same amount.
Credit memorandum is issued by the seller to customers for return of damaged or defective merchandise. a. True b. False
a. True
In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account. a. True b. False
a. True
Merchandise inventory shrinkage will decrease Retained Earnings. a. True b. False
a. True
Merchandise is sold for $2,500, terms FOB destination, 2/10, n/30, with transportation costs of $150. If $500 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $40. a. True b. False
a. True
On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues. a. True b. False
a. True
Purchases of merchandise increase the merchandise inventory account under the perpetual inventory system. a. True b. False
a. True
Revenue from sources other than the primary operating activity of a business is called other revenue. a. True b. False
a. True
The sales discount account is a contra account to Sales. a. True b. False
a. True