Question 1

Using the perpetual inventory system, discounts taken on an invoice, such as 3/10, n/30, would be:
A)debited to Inventory.
B)debited to Cost of sales.
C)credited to Inventory.
D)credited to Cost of sales.

Accepted Answer

In a perpetual inventory system, purchase discounts are credited to the Inventory account, reducing the cost of inventory.

Question 2

FOB shipping point means that the:
A)seller normally pays the transportation costs.
B)buyer and the seller split the shipping costs.
C)buyer normally pays the transportation costs.
D)shipping costs are billed to the seller.

Accepted Answer

FOB shipping point means that the buyer is responsible for the transportation costs from the seller's location.

Question 3

A firm that uses the perpetual inventory method purchased inventory for $2 000 from a vendor on credit, FOB shipping point, with terms of 2/10, n/30. The firm paid the shipper $100 cash for freight in. The firm paid the vendor 9 days after the sale. Assuming this was the only transaction affecting inventory, and that there was no beginning balance, what is the overall cost of the inventory? All amounts include GST.
A)$2 060.00
B)$2 100.00
C)$2 000.00
D)$1 872.73

Accepted Answer

The cost of inventory includes the purchase price minus any discounts plus freight-in costs. The purchase price is $2,000, and the firm took advantage of the 2% discount for early payment, reducing the cost by $40 ($2,000 * 2%). The freight-in cost of $100 is added to the discounted purchase price of $1,960, resulting in a total inventory cost of $2,060. However, since the amounts include GST, the cost excluding GST is $1,872.73.

Question 4

A sales allowance is recorded with a debit to Inventory.

Accepted Answer

A sales allowance is a reduction in the selling price offered by the seller to the buyer as a form of compensation for defects, damages or other issues related to the product or service purchased. This allowance reduces the total revenue earned by the seller. Therefore, it is recorded with a credit to Sales and a debit to Sales Allowance or a separate contra-revenue account, not Inventory.

Question 5

An invoice is dated 28 April for $235.00 and is shown with payment terms of 5/10, n/30. If the invoice is paid on 12 May, the amount to pay will be:
A)$223.25.
B)$211.50.
C)$235.00.
D)$230.00.

Accepted Answer

The payment terms 5/10, n/30 mean a 5% discount is available if paid within 10 days. Since the invoice is paid on 12 May, which is beyond the 10-day discount period, the full amount of $235.00 is due.

Question 6

A firm that uses the perpetual inventory method purchases inventory for $2 000 from a vendor on credit, FOB shipping point, with terms of 2/10, n/30. The firm paid the shipper $100 cash for freight in. Which of the following entries would be made to record payment to the vendor if the payment is made within 10 days? All amounts include GST.
A)$2 000 debit to Accounts payable, a $100 debit to Inventory and a $1 960 credit to Cash
B)$2 000 debit to Accounts payable, a $36.36 credit to Inventory, a $3.64 credit to GST Clearing and a $1 960 credit to Cash
C)$1 960 debit to Accounts payable, a $36.36 debit to Inventory, a $3.64 debit to GST Clearing and a $2 000 credit to Cash
D)$1 960 debit to Accounts payable and a $1 960 credit to Cash

Accepted Answer

The firm receives a 2% discount on the $2,000 purchase, which is $40. The GST on the discount is $3.64 (10% of $36.36), so the inventory is reduced by $36.36. The payment to the vendor is $1,960 ($2,000 - $40).

Question 7

Compute the amount of payment for an invoice of $5 600, 4/10, n/30 paid on the 7th day.
A)$5 600
B)$5 040
C)$5 570
D)$5 376

Accepted Answer

The answer of Compute the amount of payment for an...

Question 8

Which of the following means that the shipment is free on board at the point of shipment and the buyer pays all shipping costs?
A)4/10 eom
B)COD
C)FOB destination
D)FOB shipping point

Accepted Answer

FOB shipping point means the buyer pays for shipping costs from the point of shipment.

Question 9

When a firm ships goods to a customer and pays for freight out, how is that cost recorded?
A)As an addition to cost of sales
B)As an operating expense
C)As an addition to the cost of inventory
D)As a reduction of sales revenue

Accepted Answer

Freight out is considered a selling expense and is recorded as an operating expense on the income statement.

Question 10

An invoice in the amount of $600.00 for inventory purchased is shown with a 4/10, n/30 discount. To get the discount, the amount to pay on or before the tenth day is:
A)$552.50.
B)$600.00.
C)$576.00.
D)$540.25.

Accepted Answer

The discount is 4%, so the discount amount is $600 * 0.04 = $24. The amount to pay to get the discount is $600 - $24 = $576.

Question 11

The terms on an invoice are 3/10, n/25. This means that a:
A)discount of 3% is allowed if the invoice is paid in 10 days.
B)discount of 10% is allowed if the invoice is paid in 3 days.
C)discount of 25% is allowed if the invoice is paid in 10 days.
D)discount of 3% is allowed if the invoice is paid after 25 days.

Accepted Answer

The terms 3/10, n/25 mean a 3% discount is allowed if the invoice is paid within 10 days, and the net amount is due in 25 days.

Question 12

A sales return is recorded with a credit to Accounts receivable.

Accepted Answer

A sales return means a customer is returning a product they previously purchased on credit, so the amount owed by the customer decreases. This decrease is reflected by a credit entry to Accounts receivable.

Question 13

A sales allowance is recorded with a credit to Accounts receivable.

Accepted Answer

A sales allowance reduces the amount that the customer owes, so it is recorded as a credit to Accounts receivable.

Question 14

A firm uses the perpetual inventory method. To record a sale of inventory on credit will require an entry to record revenue and an entry to record cost of sales.

Accepted Answer

Under the perpetual inventory method, every transaction related to inventory is recorded at the time of occurrence. Hence, a sale of inventory on credit will require an entry to record the revenue generated from the sale as well as the cost of goods sold (COGS) associated with the sale. COGS is the cost of inventory items sold during a period, and it is recorded as soon as the sale is made.

Question 15

Which of the following is GENERALLY the major cost of inventory?
A)Cost of sales
B)Advertising
C)Buildings
D)Salary expense

Accepted Answer

The cost of sales, also known as the cost of goods sold (COGS), is generally the major cost associated with inventory as it includes the direct costs attributable to the production of the goods sold by a company.

Question 16

FOB Destination means that the:
A)shipping costs are billed to the buyer.
B)buyer normally pays the transportation costs.
C)seller normally pays the transportation costs.
D)buyer and the seller split the shipping costs.

Accepted Answer

FOB Destination means the seller is responsible for the shipping costs and owns the goods until they reach the buyer's location.

Question 17

A firm that uses the perpetual inventory method purchased inventory for $2 000 from a vendor on credit, FOB shipping point, with terms of 2/10, n/30. The firm paid the shipper $100 cash for freight in. The firm then returned $200 of damaged goods and got an allowance from the vendor. The firm paid the vendor 8 days after the sale. Assuming this was the only transaction affecting inventory, and that there was no beginning balance, what is the overall cost of the inventory? All amounts include GST.
A)$1 694.55
B)$2 100.00
C)$1 764.00
D)$1 864.00

Accepted Answer

The overall cost of the inventory is $1,694.55. This is calculated as follows:Purchase price: $2,000Less: Discount (2%): $40Less: Allowance for damaged goods: $200Plus: Freight in: $100Net cost: $1,694.55

Question 18

A firm has purchased inventory and receives an invoice that indicates that the buyer must pay the transportation costs of delivering the inventory. Which of the following will most likely be noted as the delivery terms?
A)FOB 2/10, n/30
B)FOB destination
C)FOB shipping point
D)None of the above

Accepted Answer

FOB shipping point indicates that the buyer is responsible for transportation costs from the shipping point.

Question 19

Net sales revenue is equal to Sales revenue less Cost of sales.

Accepted Answer

Net sales revenue is equal to Sales revenue minus any deductions or returns, not cost of sales. Cost of sales is subtracted from net sales revenue to calculate gross profit.

Question 20

A sales return is recorded with a credit to Inventory.

Accepted Answer

A sales return is recorded with a debit to Sales Returns and Allowances (or a similar account) and a credit to Accounts Receivable or Cash, depending on the original sale. Inventory is adjusted separately, typically with a debit to Inventory and a credit to Cost of Goods Sold if the returned goods are restocked.

Quiz 5: Retailing Operations

Using the perpetual inventory system, discounts taken on an invoice, such as 3/10, n/30, would be:

FOB shipping point means that the:

A sales allowance is recorded with a debit to Inventory.

An invoice is dated 28 April for $235.00 and is shown with payment terms of 5/10, n/30. If the invoice is paid on 12 May, the amount to pay will be:

Compute the amount of payment for an invoice of $5 600, 4/10, n/30 paid on the 7th day.

Which of the following means that the shipment is free on board at the point of shipment and the buyer pays all shipping costs?

When a firm ships goods to a customer and pays for freight out, how is that cost recorded?

An invoice in the amount of $600.00 for inventory purchased is shown with a 4/10, n/30 discount. To get the discount, the amount to pay on or before the tenth day is:

The terms on an invoice are 3/10, n/25. This means that a:

A sales return is recorded with a credit to Accounts receivable.

A sales allowance is recorded with a credit to Accounts receivable.

A firm uses the perpetual inventory method. To record a sale of inventory on credit will require an entry to record revenue and an entry to record cost of sales.

Which of the following is GENERALLY the major cost of inventory?

FOB Destination means that the:

A firm has purchased inventory and receives an invoice that indicates that the buyer must pay the transportation costs of delivering the inventory. Which of the following will most likely be noted as the delivery terms?

Net sales revenue is equal to Sales revenue less Cost of sales.

A sales return is recorded with a credit to Inventory.