Accounting Test CH7+8

The entry to record a purchase allowance granted on a credit memorandum includes:

a debit to Accounts Payable and a credit to Purchases Returns and Allowances. Explanation: A purchase allowance granted on a credit memorandum is debited to the accounts payable account, and credited to the purchases returns and allowances account.

If Gordon Company purchases merchandise on account and the invoice includes freight and the price of goods, the journal entry to record this will affect how many accounts?

Three Explanation: Three accounts (Purchases, Freight In, and Accounts Payable) will be used to record this transaction, as Purchases and Freight In will be debited while Accounts Payable will be credited.

Which of the following is an objective of internal control of purchases?

To ensure that different people are involved in the process of buying goods, receiving goods, and making payments. Explanation: A business should ensure its control process includes sufficient safeguards to create written proof that purchases and payments are authorized, as well as to ensure that different people are involved in the process of buying goods, receiving goods, and making payments.

A balance with parentheses ( ) around the amount indicates:

a non-normal or negative balance. Explanation: One way to indicate that an account amount does not have a normal balance or is negative is to place parentheses ( ) around the amount.

If Morgan Industries issued a Credit Memorandum on January 20 for a return of $1,100 of merchandise purchased on account by Doug Bowen, plus 6 percent sales tax, the credit memorandum total would be:

$1,166. Explanation: The credit memorandum would total $1,166, based on $1,100 plus $66 sales tax previously billed to Doug Bowen (calculated as 6% x $1,100).

Merchandise is sold on credit for $900 plus 7 percent sales tax. The entry in the general journal will include a debit to Accounts Receivable for:

$963.00. Explanation: The correct entry includes a debit to accounts receivable for $963 (7% sales tax rate x $900 sale = $63 sales tax; $900 sale + $63 sales tax = $963 debit to Accounts Receivable).

What term is used to describe the Accounts Receivable account in the general ledger?

Control account

The net delivered cost of purchases is calculated as follows:

Purchases plus Freight In less Purchases Returns and Allowances less Purchases Discounts. Explanation: The net delivered cost of purchases is calculated as follows: Purchases plus Freight In less Purchases Returns and Allowances less Purchases Discounts.

The Purchases Discounts account is a(n):

contra expense account. Explanation: The Purchases Discounts account is a contra expense account used to record cash discounts taken for early payments to the seller by the buyer.

The Sales Returns and Allowances account is classified as a(an):

contra revenue account. Explanation: The Sales Returns and Allowances account is a contra revenue account, because it has a debit balance, which is contrary, or the opposite of, the normal balance for revenue accounts.

What type of account is Freight In?

expense Explanation: Freight In is an expense account that has a normal debit balance and is used to record payment of transportation costs on merchandise inventory purchased.

After all postings have been made, the total of the schedule of accounts receivable should equal:

the balance of the Accounts Receivable account in the general ledger. Explanation: The accounts receivable account serves as the link between the subsidiary ledger and the general ledger. The balance is a summary of the balances in the related individual customers' accounts.

What are the net sales for a business that has cash sales of $42,000, credit sales of $88,000, sales returns and allowances of $6,300, sales discounts of $1,400, and sales tax payable of $10,400?

$122,300 Explanation: Net sales in this instance are calculated as $42,000 cash sales + $88,000 credit sales − $6,300 sales returns and allowances − $1,400 sales discounts = $122,300 net sales. Sales tax payable does not impact the calculation of net sales.

Billy's Bobcat Sales Co. owes Machinery Supply House $7,300 as of April 1. During April, Billy's Bobcats purchased merchandise from Machinery Supply House totaling $13,600 and owes Machinery Supply House $4,300 on April 30. The total payments made by Billy's Bobcat to Machinery Supply House during April were:

$16,600 Explanation: The total payments made are calculated as $7,300 beginning balance + $13,600 purchases - $4,300 ending balance = $16,600 cash payments.

Suppose the list price of goods is $1,000 and the trade discount is 20 percent. What is the amount of the discount and what is the net price the wholesaler records as sales?

$200; $800 Explanation: The amount of the discount is $200 ($1,000 x 20%) and the net price to be shown on the invoice and recorded as sales is $800 ($1,000 - $200).

Assuming that no sales tax is collected, a business credit card sale is recorded as a:

debit to Accounts Receivable and a credit to Sales. Explanation: Business credit card sales are similar to open-account credit sales. A business with credit card sales records them as debits to Accounts Receivable and credits to Sales.

Which of the following may result from a credit policy that is too lenient?

increased sales volume accompanied by a high level of losses Explanation: A credit policy that is too lenient may result in increased sales volume accompanied by a high level of losses, while a credit policy that is too tight results in a low level of losses at the expense of increases in sales volume.

Which of the following parties of a distribution channel would have first contact with the product?

manufacturer Explanation: The distribution channel is the means that manufacturers of products use to sell their products to consumers. A common example of the distribution channel is: Manufacturer sells to Wholesaler who sells to Retailer who sells to Consumer.

The total of the individual creditor accounts on the schedule of accounts payable must equal which of the following?

The balance of the Accounts Payable control account in the general ledger. Explanation: The total of the individual creditor accounts on the schedule of accounts payable must equal the balance of the Accounts Payable control account in the general ledger.

Which of the following statements is correct?

The credit terms, 2/10, n/30, allow the customer to take a 2 percent discount if payment is made within 10 days. Explanation: The credit terms, 2/10, n/30, allow the customer to take a 2 percent discount if payment is made within 10 days. If payment is not made within 10 days, the full amount of the invoice is due within 30 days.