Accounting Chapter 5B

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.

The discount period is the time between the invoice date and a specified date on which the payment amount owed can be ____ because of early payment.

reduced

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.

$400 x .02 =$8. Terms are 2/10 which means that they have 10 days in order to take the discount.

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.

$500x.03=$15

Toys R Fun purchased $4,000 of merchandise and paid immediately. To record this transaction, Toys R Fun's accountant would debit the ____ account and credit the ____ account.

- Merchandise Inventory - cash

Identify the statements below which summarize what cash discounts are.

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

Which of the statements below summarize why a buyer would desire a purchase allowance?

- Purchased merchandise was defective or unacceptable. - In order to keep defective, but still marketable merchandise, the buyer would need a reduction in the purchase price.

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.

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

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

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.

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

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 November 21, demonstrate the required journal entry to record the payment by selecting all of the correct actions below.

- Debit Accounts Payable $1,000. - Credit Merchandise Inventory $20. - Credit Cash $980.

Describe good cash management practices involving inventory purchases.

- 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.

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

Which of the following costs are included in merchandise inventory?

- Taxes assessed on the merchandise - Shipping fees charged by the vendor - Costs necessary to ready the merchandise for sale - Purchase costs

Explain what the credit terms of 2/10, n/30 mean.

- 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.

A purchase return refers to merchandise a ____purchased, but then returns to the ____ for a refund of the purchase price or reduction in the amount owed.

- buyer - seller

A cash discount can be summarized as a discount given to ____ to encourage them to pay ____

- buyers - earlier

An invoice is referred to as a ____ invoice for a buyer and as a ____ invoice for the seller.

- purchase - sales

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

What is a purchase return?

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

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.

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

Debit Merchandise Inventory $300; credit Accounts Payable $300.

Jerry's Flowers sold and shipped merchandise across the country to a buyer. The terms were FOB destination. Assuming it paid the bill immediately, demonstrate the journal entry required by Jerry's Flowers under the perpetual inventory system to record the freight charges.

Debit Delivery Expense; credit Cash.

ABC Mart received a $20 freight bill for merchandise it purchased with freight terms of FOB shipping point. ABC Mart uses a perpetual inventory system. Assuming it paid the bill immediately, demonstrate the journal entry required to record the freight charges.

Debit Merchandise Inventory $20; credit Cash $20.

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

FOB destination

Credit terms of 1/10, n/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/60 were printed on an invoice. Explain what this means.

The credit terms stand for net 60 days.

Review the following statements and select the one that best describes a discount period.

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

A purchase allowance can be described as:

a reduction in the cost of defective or unacceptable merchandise that a buyer acquires

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.

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