CHAPTER 5

Bramble Company reported the following balances at June 30, 2022: Sales Revenue $17700 Sales Returns and Allowances 500 Sales Discounts 330 Cost of Goods Sold 7300 Net sales for the month is $17200. $7630. $17700. $16870.

16870

Swifty Company sells $2000 of merchandise on account to Blossom Company with credit terms of 1/15, n/30. If Blossom Company remits a check taking advantage of the discount offered, what is the amount of Blossom's Company check? • $1980 • $1800 • $1700 $1709

1980

Marigold Co. returned defective goods costing $4200 to Ivanhoe Company on April 19, for credit. The goods were purchased April 10, on credit, terms 2/10, n/30. The entry by Marigold Co. on April 19, in receiving full credit is: •Accounts Payable Inventory Cash 4200 54 4116 •Accounts Payable Inventory 4200 4200 • Accounts Payable Purchase Discounts Inventory 4200 54 4116 • Accounts Payable Inventory Cash 4200 84 4284

2

Waterway Company made a purchase of merchandise on credit from Pharoah Company on August 8, for $10500, terms 2/10, n/30. On August 17, Waterway makes payment to Pharoah. Waterway Company uses a perpetual inventory system. The entry on August 17 for Waterway Company is: 1 Accounts Payable Cash 10500 10500 2 accounts payable 4200 Inventory 4200 3 accounts payable 4200 Purchase discount 54 Inventory 4116 4 account payable 4200 Inventory 84 Cash 4284

2

A credit sale of $2600 is made on July 15, terms 1/10, n/30, on which a return of $300 is granted on July 18. What amount is received as payment in full on July 24? • $2574 • $2277 • $2274 •$2600

2277

A credit sale of $3000 is made on April 25, terms 2/10, n/30, on which a return of $250 is granted on April 28. What amount is received as payment in full on May 4? • $2695 $3000 $2940 • $2750

2695

Crane Company sells merchandise on account for $4000 to Blossom Company with credit terms of 1/10, n/30. Blossom Company returns $1000 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? $3960 $3000 $3970 • $2970

2970

Marigold Company sells $3600 of merchandise on account to Cullumber Company with credit terms of 1/10, n/30. If Cullumber Company remits a check taking advantage of the discount offered, what is the amount of Cullumber's Company check? $2850 $3350 • $3564 • $3100

3565

Coronado Company sells merchandise on account for $6600 to Wildhorse Company with credit terms of 2/10, n/30. Wildhorse Company returns $1500 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? • $4998 • $6498 • $6468 $5100

4998

Bramble Company purchased merchandise inventory with an invoice price of $7200 and credit terms of 5/10, n/30. What is the net cost of the goods if Bramble Company pays within the discount period? $6840 $5760 $6480 $7200

6840

Vaughn's Market recorded the following events involving a recent purchase of merchandise: Received goods for $73000, terms 2/10, n/30. Returned $1400 of the shipment for credit. Paid $400 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's inventory increased by •$70568. •$71940. •$72000. • $71208.

70568.

Hale Company sells merchandise on account for $1,000 to Long Company with credit terms of 2/10, n/30. Long Company returns $200 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check? • $780 • $800 • $784 • $980

784 First, payment is received within the 10-day discount period, thus the 2% cash discount is to be applied to the final payment. Cash discount = [Gross invoice price ($1,000) - return and allowances ($200)] × Cash Discount (2%) = $16. The amount of the payment = Gross invoice price ($1,000) - returns and allowances ($200) - cash discount ($16) = $784.

Company A purchases $1.200 of merchandise from Company B on July 1 with credit terms 2/10, n/30. Company A returns $200 of the merchandise on July 5. On July 11, Company B received full payment from Company A. The amount of the payment on July 11 is • $20. $1,000. • $1,176. • $980.

980 First, payment is made within the 10-day discount period, thus the 2% cash discount is to be applied to the final payment. Cash discount = [Gross invoice price ($1,200) - return and allowances ($200)] × Cash Discount (2%) = $20. The amount of the payment = Gross invoice price ($1,200) - returns and allowances ($200) - cash discount ($20) = $980.

On a classified balance sheet, inventory is classified as property, plant, and equipment. • a long-term investment. • a current asset. • an intangible asset.

A current asset

Oriole Company uses a perpetual inventory system and made a purchase of merchandise on credit from Sandhill Enterprises on August 3, for $9300, terms 3/10, n/45. On August 10, Oriole makes the appropriate payment to Sandhill. The entry on August 10 t Oriole Company is

Accounts Payable Inventory Cash 9300 279 9021

When a seller grants credit for returned goods, the account that is credited is Accounts Receivable. Inventory. Sales Revenue. • Sales Returns and Allowances.

Accounts Receivable.

Which of the following would not be considered a merchandising company? • Wholesaler • Amazon • Retailer • American Airlines

American Airlines

Paden Company purchased merchandise from Emmett Company with freight terms of FOB shipping point. The freight costs will be paid by the buyer and the seller. • seller. • buyer. • transportation company.

Buyer

On July 9, Crane Company sells goods on credit to Blossom Company for $4000, terms 1/10, n/60. Crane receives payment on July 18. The entry by Crane on July 18 is:

Cash Sales Discounts Accounts Receivable 3960 40 4000

A company that maintains a perpetual inventory system has an inventory account balance of $50,000. The physical count of goods on hand totals $49,600. Which of the following adjusting entries is correct? • Debit Inventory and credit Purchases. • Debit Cost of Goods Sold and credit Inventory. • Debit Sales Discounts and credit Inventory. • Debit Purchases and credit Inventory.

Debit Cost of Goods Sold and credit Inventory.

A buyer would record a payment within the discount period under a perpetual inventory system by crediting • Accounts Payable. • Sales Discounts. • Inventory. • Purchase Discounts.

Inventory

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting • Inventory. • Purchases. • Purchase Returns. • Purchase Allowance.

Inventory

In a perpetual inventory system, which account would be debited when goods are purchased with the intent of being resold? • Purchases • Cost of Goods Sold • Accounts Payable • Inventory

Inventory

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit • Accounts Payable. • Sales Revenue. • Purchase Returns and Allowances. • Inventory.

Inventory

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in • Freight - In. • Freight - Out. • Freight Expense. • Inventory.

Inventory

Which of the following accounts will appear in the trial balance of a merchandising company but not a service company? • Inventory. • Salaries and Wages Expense. • Accumulated Depreciation - Equipment. • Owner's Drawings.

Inventory

Which of the following would not be classified as a contra account? • Sales Discounts • Inventory • Accumulated Depreciation • Sales Returns and Allowances

Inventory

Coronado Company uses a perpetual inventory system and purchased inventory from Wildhorse Company. The shipping costs were $460 and the terms of the shipment were FOB shipping point. Coronado would have the following entry to pay the shipping charges:

Inventory Cash 460 460

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting • inventory. • purchases. • purchase discounts. • purchase returns and allowances.

Inventory A return of defective merchandise by a purchaser is recorded by crediting Inventory in a perpetual inventory system.

Under a periodic inventory system, acquisition of merchandise is debited to the • Accounts Payable account. • Inventory account. • Purchases account. • Cost of Goods Sold account.

Purchases account

A credit granted to a customer for returned goods requires a debit to • Sales Revenue and a credit to Cash. • Sales Returns and Allowances and a credit to Accounts Receivable. • Accounts Receivable and a credit to a contra-revenue account. • Cash and a credit to Sales Returns and Allowances.

Sales Returns and Allowances and a credit to Accounts Receivable.

The contra revenue account that normally has a debit balance is • freight out. • purchase returns and allowances. • sales returns and allowances. • purchase discounts.

Sales return and allowances

Which of the following accounts has a normal credit balance? Sales Discounts • Sales Returns and Allowances • Selling Expense • Sales Revenue

Sales revenue

Which of the following is not part of the journal entries made when merchandise is sold on credit? • Debit the Accounts Receivable account. • Credit the Cost of Goods Sold account. • Credit the Sales Revenue account. • Credit the Inventory account.

The Cost of Goods Sold account is debited, not credited, when inventory is sold on account.

A company determines the cost of goods sold each time a sale occurs in • a periodic inventory system only. • a perpetual inventory system only. • both a periodic and perpetual inventory system. • neither a periodic nor perpetual inventory system.

a perpetual inventory system only. Companies determine the cost of goods sold each time a sale occurs only under a perpetual inventory system, but not in a periodic inventory system.

The Sales Returns and Allowances account is classified as a(n) contra asset account. expense account. contra revenue account. asset account.

contra revenue account.

Sales revenues are usually considered earned when • adjusting entries are made. an order is received. • cash is received from credit sales. goods have been transferred from the seller to the buyer.

goods have been transferred from the seller to the buyer.

Sales Returns and Allowances is increased when • an employee does a good job. goods that were sold are returned. goods are sold on credit. customers refuse to pay their accounts.

goods that were sold are returned.

In the balance sheet, ending inventory is reported • under property, plant, and equipment. in current assets immediately following prepaid expenses. in current assets immediately following cash. in current assets immediately following accounts receivable.

in current assets immediately following accounts receivable.

ifa purchaser using a perpetual system agrees to freight termsof FOB shipping coirt thes te • seller will bear the freight cost • inventory account will not be affected. • carrier will bear the freight cost. • inventory account will be increased.

inventory account will be increased.

An enterprise which sells goods to consumers is known as a • service firm. • retailer. • corporation. • proprietorship.

retailer

The credit terms offered to a customer by a business firm are 4.3/10, n/30, which means that the customer must pay the bill within 10 days. two sales returns can be made within 10 days of the invoice date and no returns thereafter. the customer can deduct a 4.3% discount if the bill is paid within 10 days of the invoice date. • the customer can deduct a 4.3% discount if the bill is paid between the 10th and 30th day from the invoice date.

the customer can deduct a 4.3% discount if the bill is paid within 10 days of the invoice date.

In a perpetual inventory system, the Cost of Goods Sold account is used • only when a sale of merchandise occurs. • only when a credit sale of merchandise occurs. • only when a cash sale of merchandise occurs. • whenever there is a sale of merchandise or a return of merchandise sold.

whenever there is a sale of merchandise or a return of merchandise sold.

The journal entry to record a credit sale is • Cash Service Revenue • Accounts Receivable Service Revenue • Cash Sales Revenue • Accounts Receivable Sales Revenue

• Accounts Receivable Sales Revenue

The entry to record the receipt of payment within the discount period on a sale of $3100 with terms of 1/10, n/30 will include a credit to • Sales Discounts for $31. • Sales Revenue for $3100. • Accounts Receivable for $3100. • Cash for $3069.

• Accounts Receivable for $3100.

Under a perpetual inventory system, acquisition of merchandise for resale is debited to the • Purchases account. • Supplies account. • Inventory account. • Cost of Goods Sold account.

• Inventory account.

In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to • Inventory. • Sales Discounts. • Purchase Allowance. • Purchase Discounts.

• Inventory.

Which of the following is a true statement about inventory systems? • A perpetual system determines cost of goods sold only at the end of the accounting period. • Periodic inventory systems require more detailed inventory records. • A periodic system requires cost of goods sold be determined after each sale. • Perpetual inventory systems require more detailed inventory records.

• Perpetual inventory systems require more detailed inventory records.

Under GAAP, companies can choose which inventory system? Perpetual Periodic •No Yes •Yes Yes •Yes No •No No

• YES YES

On November 2, 2020, Oriole Company has cash sales of $6030 from merchandise having a cost of $3620. The entries to record the day's cash sales using a perpetual inventory system will include: • a $6030 debit to Accounts Receivable. • a $3620 credit to Cost of Goods Sold. • a $3620 credit to Inventory. • a $6030 credit to Cash.

• a $3620 credit to Inventory.

Cost of goods sold is determined only at the end of the accounting period in • a perpetual inventory system. • a periodic inventory system. • both a perpetual and a periodic inventory system. • neither a perpetual nor a periodic inventory system.

• a periodic inventory system.

FOB shipping point means that the • common carrier pays the freight. • buyer pays the freight. • seller pays the freight. • goods are placed free on board to the buyer's place of business.

• buyer pays the freight. FOB shipping point means that the buyer pays the freight costs.

On October 4, 2020, Oriole Company had credit sales transactions of $4300 from merchandise having cost $2600. The entries to record the day's credit transactions include a debit of $2600 to Inventory. • credit of $4300 to Sales Revenue. • debit of $4300 to Inventory. credit of $2600 to Cost of Goods Sold.

• credit of $4300 to Sales Revenue.

The collection of a $2100 account after the 1 percent discount period expires will result in a credit to Cash for $2100. debit to Sales Discounts for $21. • credit to Accounts Receivable for $2100. • debit to Cash for $2079.

• credit to Accounts Receivable for $2100.

The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are • credit, debit, credit. • credit, debit, debit. • credit, credit, credit. • debit, credit, debit.

• credit, debit, debit.

The collection of a $2300 account after the 2 percent discount period expires will result in a • debit to Sales Discounts for $46. • debit to Cash for $2300. • debit to Cash for $2254. • debit to Accounts Receivable for $2300.

• debit to Cash for $2300.

The collection of a $6100 account within the 2 percent discount period will result in a • debit to Accounts Receivable for $5978. • credit to Accounts Receivable for $5978. • credit to Cash for $5978. • debit to Sales Discounts for $122.

• debit to Sales Discounts for $122.

When goods are purchased for resale on account by a company using a periodic inventory system, they are • debited to Purchases. • debited to Inventory. • debited to Cost of Goods Sold. • debited to Purchase Returns and Allowances.

• debited to Purchases.

Coronado's Market recorded the following events involving a recent purchase of merchandise: Received goods for $50000, terms 2/10, n/30. Returned $700 of the shipment for credit. Paid $100 freight on the shipment. Paid the invoice within the discount period. As a result of these events, the company's inventory • increased by $48314. • increased by $48414. • increased by $48410. • increased by 549400.

• increased by $48414.

In terms of liquidity, inventory is • more liquid than accounts receivable • less liquid than store equipment. • more liquid than prepaid expenses. more liquid than cash.

• more liquid than prepaid expenses.

When goods are returned that relate to a prior cash sale, Accounts Receivable will be credited. • the Sales Returns and Allowances account should not be used. • the Cash account will be credited. • Sales Returns and Allowances will be credited.

• the Cash account will be credited.

If a company determines cost of goods sold each time a sale occurs, it • must have a computer accounting system. • uses a combination of the perpetual and periodic inventory systems. uses a periodic inventory system. • uses a perpetual inventory system.

• uses a perpetual inventory system.

In a perpetual inventory system, the Cost of Goods Sold account is used only when a cash sale of merchandise occurs. • only when a sale of merchandise occurs. • whenever there is a sale of merchandise or a return of merchandise sold. • only when a credit sale of merchandise occurs.

• whenever there is a sale of merchandise or a return of merchandise sold.

In a perpetual inventory system, cost of goods sold is recorded • on a monthly basis. • with each sale. • on an annual basis. • on a daily basis.

• with each sale.