Deck 10: Purchases and Cash Payments

Question 1

A debit memorandum decreases which account on the buyer's books?

A) Sales Returns and Allowances
B) Merchandise Inventory
C) Accounts Receivable
D) Sales Discount

Answer 1

B

Question 2

Shoes Plus bought some new shoes for its fashion line and is required to pay the freight costs. The freight terms are:

A) F.O.B. destination.
B) F.O.B. shipping point.
C) 3/10, n/30.
D) B and C are correct.

Answer 2

B

Question 3

Tim returned $600 of merchandise within the discount period. The entry to record the return is to:

A) debit Merchandise Inventory for $600; credit Accounts Payable for $600.
B) debit Merchandise Inventory for $600; credit Sales for $600.
C) debit Accounts Payable for $600; credit Merchandise Inventory for $600.
D) debit to Accounts Payable for $600; credit Sales for $600.

Answer 3

C

Question 4

Merchandise Inventory is what type of account?

A) Liability
B) Asset
C) Equity
D) Contra-asset

Question 5

An invoice approval form is used by the:

A) purchasing department.
B) receiving department.
C) shipping department.
D) accounting department.

Question 6

When the term F.O.B. shipping point is used, title passes:

A) when goods reach the halfway point.
B) when goods reach the destination.
C) when goods are shipped.
D) when the buyer signs for the product.

Question 7

F.O.B. shipping point means:

A) the buyer pays for the freight.
B) the seller pays for the freight.
C) the title passes at time of shipment.
D) Both A and C are correct.

Question 8

When merchandise is bought for resale with cash, which of the following accounts would be decreased?

A) Store Equipment
B) Accounts Payable
C) Cash
D) B or C are correct

Question 9

The normal balance for Merchandise Inventory is:

A) a debit.
B) a credit.
C) zero.
D) It does not have a normal balance.

Question 10

A characteristic of Merchandise Inventory is:

A) it has a normal debit balance.
B) it decreases for the buyer when merchandise is returned.
C) it is an asset.
D) All of the above are correct.

Question 11

A receiving report includes:

A) quantity received.
B) condition of goods.
C) goods received.
D) All of the above are correct.

Question 12

Supplies is a(n):

A) cost.
B) asset.
C) contra-revenue.
D) contra-asset.

Question 13

The entry to record a purchase of $13,000 on account, terms of 2/10, n/30, would include a:

A) debit to Purchases Discount for $260.
B) credit to Accounts Payable for $13,000.
C) debit to Accounts Payable for $13,000.
D) credit to Cash for $13,000.

Question 14

A debit memorandum decreases which account on the seller's books?

A) Accounts Payable
B) Merchandise Inventory
C) Sales Returns and Allowances
D) Accounts Receivable

Question 15

In the perpetual system, freight charges added to the buyer's invoice are debited to ________ for the buyer.

A) Sales Discount
B) Merchandise Inventory
C) Sales Returns and Allowances
D) Freight in

Question 16

When merchandise is bought for resale, which of the following accounts would be increased?

A) Store Equipment
B) Merchandise Inventory
C) Accounts Payable
D) Supplies Expense

Question 17

On October 31, Janoch's Dog Kennel purchased $900 of merchandise on account from the Ganster Company. The goods were shipped F.O.B. shipping point. The freight charge of $110 was paid by Ganster Company and added to the invoice. The amount to record in the Merchandise Inventory account is:

A) $900.
B) $1,010.
C) $790.
D) $780.

Question 18

If a display rack was purchased for the store, which of the following accounts would be increased?

A) Store Equipment
B) Merchandise Inventory
C) Capital
D) Supplies

Question 19

A debit memorandum increases which account on the seller's books?

A) Accounts Payable
B) Merchandise Inventory
C) Sales Returns and Allowances
D) Accounts Receivable

Question 20

A debit memorandum decreases which account on the buyer's books?

A) Accounts Payable
B) Sales
C) Sales Discount
D) Accounts Receivable

Question 21

When a buyer returns merchandise that has been previously purchased, there is a(n):

A) decrease net income.
B) decrease in assets.
C) increase accounts payable.
D) Not enough information provided.

Question 22

Joy's Accessories bought 65 necklaces for $12 each on account. The payment terms of 2/10, n/30. In addition, 13 necklaces were returned prior to payment. The entry to record the initial purchase would include:

A) a debit to Accounts Payable for $624.
B) a debit to Accounts Payable for $780.
C) a debit to Merchandise Inventory for $780.
D) a debit to Merchandise Inventory for $13.

Question 23

The term F.O.B. means:

A) free on board.
B) freight or bill.
C) freight order billing.
D) freight on board.

Question 24

Before paying an invoice, the accounting department must check:

A) the purchase order.
B) the invoice.
C) the receiving report.
D) All of the above are correct.

Question 25

A purchase of merchandise inventory for cash:

A) decrease net income.
B) increase net income.
C) increases assets.
D) has no effect on assets.

Question 26

A form used within a business by the requesting department asking the purchasing department to buy specific goods is called a(n):

A) purchase order.
B) purchase requisition.
C) credit memorandum.
D) employee memorandum.

Question 27

The term used when the purchaser is responsible for the cost of freight is:

A) F.O.B. shipping point.
B) F.O.B. destination.
C) Freight-In.
D) Purchases.

Question 28

A form used in business to place an order for the buying of goods from a seller is:

A) purchase requisition.
B) purchase order.
C) purchase demand.
D) purchases returns.

Question 29

Which of the following transactions will cause a liability to be credited and an asset account to be debited when the perpetual inventory system is in use?

A) Recorded the adjustment for depreciation
B) Recorded the adjustment for the consumption of supplies
C) Purchased merchandise inventory on account
D) Purchased office supplies on account

Question 30

The term used when the seller is responsible for the cost of freight is:

A) F.O.B. shipping point.
B) F.O.B. destination.
C) Freight-In.
D) Purchases.

Question 31

When a 2% discount is taken by a buyer, there is a(n):

A) increase in assets.
B) decrease in assets.
C) increase accounts payable.
D) Not enough information provided.

Question 32

Office Supplies (not used for resale) bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Merchandise Inventory. This error will cause:

A) net income to be overstated.
B) net income to be understated.
C) no effect on net income or total assets.
D) total assets to be understated.

Question 33

The shipping paid on goods purchased F.O.B. Shipping Point was not recorded. This error will cause:

A) net income to be overstated.
B) net income to be understated.
C) total liabilities to be understated.
D) total liabilities to be overstated.

Question 34

The return of merchandise was recorded as a debit to Accounts Receivable and a credit to Merchandise Inventory. This error will cause:

A) net income to be overstated.
B) net income to be understated.
C) total liabilities to be understated.
D) total assets to be overstated.

Question 35

Purchased office supplies on account. This will be recorded with:

A) a debit to Accounts Payable and a credit to Supplies.
B) a debit to Supplies and a credit to Supplies Expense.
C) a debit to Supplies and a credit to Accounts Payable.
D) a debit to Supplies and a credit to Purchases.

Question 36

Discounts are taken on:

A) shipping expense.
B) Merchandise Inventory returned.
C) Merchandise Inventory after returns are taken out.
D) Both A and C are correct.

Question 37

When purchasing merchandise inventory:

A) a debit entry is made to Merchandise Inventory.
B) no entry is needed.
C) a credit entry is made to Accounts Payable.
D) A and C are correct.

Question 38

A discount on a purchase was debited to Merchandise Inventory and a credit to Accounts Payable at the time the entry was recorded. This error will cause:

A) net income to be overstated.
B) net income to be understated.
C) total assets to be understated.
D) total assets to be overstated.

Question 39

Which of the following transactions will cause one asset to be debited and another to be credited when the perpetual inventory system is in use?

A) Purchased merchandise inventory on account
B) Purchased merchandise inventory for cash
C) Purchased office supplies on account
D) Returned merchandise inventory for credit

Question 40

A discount on merchandise purchased would be a:

A) debit to Accounts Receivable, and a credit to Merchandise Inventory.
B) debit to Merchandise Inventory, and a credit to Accounts Receivable.
C) debit to Accounts Payable, and a credit to Merchandise Inventory.
D) debit to Merchandise Inventory, and a credit to Accounts Payable.

Question 41

The return of merchandise to the supplier for credit using the perpetual inventory system would include a:

A) debit to Accounts Receivable and a credit to Accounts Payable.
B) debit to Accounts Payable and a credit to Merchandise Inventory.
C) debit to Sales Returns and Allowances and a credit to Merchandise Inventory.
D) debit to Accounts Payable and a credit to Sales Returns and Allowances.

Question 42

Explain the difference between F.O.B. shipping point and F.O.B. destination.

Question 43

On October 6, Mark purchased merchandise for his electric store. The invoice was for $40,000 plus freight of $850, terms 1/15, n/30. The freight was included on the invoice. On October 10, Mark returned merchandise for $5,000 credit. On October 19, Mark paid the amount owed. Fill in the blanks below.
a) The credit to Accounts Payable on October 6 is ________.
b) The debit to Merchandise Inventory on October 6 is ________.
c) The debit to Accounts Payable on October 10 is ________.
d) The credit to Merchandise Inventory on October 19 is ________.
e) The credit to Cash on October 19 is ________.

Question 44

The seller's sales invoice is the buyer's purchase order.

Question 45

To prove the subsidiary ledger agrees with the Accounts Payable controlling account balance, complete a:

A) trial balance.
B) schedule of accounts payable.
C) purchase order.
D) schedule of accounts receivable.

Question 46

The recording of the cost of freight-in under the perpetual inventory system would include a:

A) debit to Freight-In.
B) credit to Merchandise Inventory.
C) debit to Merchandise Inventory.
D) credit to Freight-Out.

Question 47

Discounts on purchases are not taken on the purchased merchandise plus freight.

Question 48

A receiving report is used to notify the company of the quantity and condition of the goods received.

Question 49

A buyer taking a discount for early payment is recorded as a credit to Merchandise Inventory.

Question 50

The account Freight-In accumulates the shipping costs to the seller.

Question 51

When the terms are F.O.B. shipping point, the buyer is responsible for the cost of shipping from the seller's shipping point to the purchaser's location, but the title does not pass until it is delivered.

Question 52

An invoice approval form is used by accounting to check the invoice before approving it for payment.

Question 53

Using the perpetual inventory system, the purchase of merchandise on account would include a:

A) debit to Merchandise Inventory and a credit to Accounts Payable.
B) debit to Accounts Payable and a credit to Merchandise Inventory.
C) debit to Sales and a credit to Accounts Payable.
D) debit to Sales and a credit to Accounts Receivable.

Question 54

An entry to record the payment to a vendor was correctly recorded and posted to the general ledger but was not posted to the subsidiary ledger. This error will cause:

A) net income to be overstated.
B) the vendor account total in the subsidiary to be less than control total.
C) the accounts payable control account to not agree with the subsidiary ledger.
D) the accounts receivable control account to not agree with the subsidiary ledger.

Question 55

On February 12, Clare purchased $490 of merchandise on account from Larsen's Accessories, terms 5/10, n/30. The goods were shipped F.O.B. destination. The freight charge was $40. The amount to be recorded in the Accounts Payable Subsidiary ledger is: (Round your calculation to the nearest whole dollar.)

A) $466.
B) $515.
C) $490.
D) $530.

Question 56

The Merchandise account normally has a credit balance.

Question 57

Returned merchandise for credit under the perpetual inventory method. This will be recorded with:

A) a debit to Accounts Payable and a credit to Sales Returns and Allowances.
B) a debit to Sales Returns and Allowances and a credit to Merchandise Inventory.
C) a credit to Accounts Payable and a debit to Merchandise Inventory.
D) a debit to Accounts Payable and a credit to Merchandise Inventory.

Question 58

Purchase discounts are given to the buyer from the supplier for motivation to increase quantity purchased.

Question 59

Which account is the controlling account for the amounts owed to individual creditors?

A) Accounts Payable in the general ledger
B) Purchases in the general ledger
C) Accounts Receivable in the subsidiary ledger
D) Accounts Payable in the subsidiary ledger

Question 60

The purchase for merchandise inventory does not require approval before payment is made.

Question 61

Sam's Online Service on April 30 has the following transactions: If Sam's is offered a 4% discount, but does not pay the invoice in time to receive the discount, how much does Sam owe?

A) $19,000
B) $5,000
C) $24,000
D) $18,240

Question 62

When using a perpetual inventory method, what account(s) must be updated when a sale is recognized?

A) Cost of Goods Sold
B) Supplies
C) Merchandise Inventory
D) Both A and C are correct.

Question 63

A Schedule of Accounts Payable is a list of customer accounts that owe the company money.

Question 64

The controlling account is found in the subsidiary ledger for all accounts payable.

Question 65

Jim's Accessories bought 150 necklaces for $40 each on account. Payment terms are 5/10, n/30. In addition, 14 necklaces were returned prior to payment. The entry to record the return would include:

A) a debit to Accounts Payable for $560.
B) a debit to Accounts Payable for $538.
C) a debit to Merchandise Inventory for $560.
D) a debit to Merchandise Inventory for $538.

Question 66

Bob's Restoration purchased merchandise inventory of $67,000. If Bob returned merchandise inventory of $12,000 and was able to take a discount of 4%, what is the total amount owed?

A) $64,800
B) $67,000
C) $52,800
D) $12,000

Question 67

Returned merchandise for credit on account. The perpetual inventory system is in use. This will be recorded with:

A) a debit to a liability and a credit to an expense.
B) a debit to an asset and a credit to an expense.
C) a debit to a liability and a credit to an asset.
D) a debit to an expense and a credit to a liability.

Question 68

John bought goods for $390 on credit. John returned $30 worth of goods. Terms of the sale were 5/10, n/30. If John pays the amount owed within the discount period, what is the amount they should pay? (Round intermediary and final calculations to the nearest whole dollar.)

A) $390
B) $378
C) $342
D) $360

Question 69

The entry to record returned merchandise to Vine Company is:

A) debit Merchandise Inventory; credit Accounts Receivable in the general ledger.
B) debit Accounts Payable; credit Supplies.
C) debit Accounts Payable/Vine Company in the accounts payable subsidiary ledger and debit Accounts Payable in the general ledger; credit Merchandise Inventory.
D) debit Merchandise Inventory; credit Accounts Payable.

Question 70

B & J Lumber Restoration purchased merchandise inventory of $53,000. If B and J returned merchandise inventory of $14,000 and was able to take a discount of 3%, what is the total amount owed?

A) $39,000
B) $53,000
C) $35,820
D) $37,830

Question 71

The entry to record a payment on a $660 account within the 4% discount period would include a:

A) debit to Accounts Payable for $634.
B) debit to Accounts Payable for $660.
C) debit to Purchases for $634.
D) debit to Cash for $660.

Question 72

Sam's Online Service on April 30 has the following transactions: If Sam's pays the invoice in time to receive a 2% discount, what is the amount Sam owes?

A) $15,000
B) $5,000
C) $20,000
D) $14,700

Question 73

Merchandise Inventory is what type of account?

A) Asset
B) Liability
C) Expense
D) Cost

Question 74

The Schedule of Accounts Payable is listed by highest to lowest dollar value.

Question 75

The accounts payable subsidiary ledger:

A) lists accounts alphabetically.
B) lists accounts for which the company owes money.
C) has a controlling account in the general ledger.
D) All of the above are correct.

Question 76

Jack's Online Service on April 30 has the following transactions: If Jack's pays the invoice in time to receive a 1% discount, what is the amount Jack owes?

A) $28,710
B) $29,000
C) $31,680
D) $32,000

Question 77

Returned merchandise paid for within the discount period for a Cash refund. This will be recorded with:

A) a credit to a liability.
B) a credit to both an asset and liability.
C) a debit to a liability.
D) a debit to an asset.

Question 78

Returned merchandise paid for within the discount period for cash. The perpetual inventory system is in use. This return will be recorded with:

A) a debit to a liability and a credit to purchases.
B) a debit to an asset and a credit to an asset.
C) a debit to an expense and a credit to a liability.
D) a debit to an expense and a credit to an asset.

Question 79

Jeff purchased $550 of goods and received credit terms of 5/15, n/30. How much did he pay if payment was made during the discount period? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

A) $468
B) $578
C) $550
D) $523

Question 80

Returned merchandise under the periodic inventory method. This will be recorded with:

A) a debit to Accounts Payable and a credit to Purchases Returns and Allowances.
B) a debit to Merchandise Inventory and a credit to Cash.
C) a credit to Accounts Payable and a debit to Merchandise Inventory.
D) a debit to Accounts Payable and a credit to Merchandise Inventory.