Question 1

Baker Company sells merchandise on account for $5,000 to Helix Company with credit terms of 1/10, n/30. Helix Company returns $600 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Baker Company make upon receipt of the check?

Accepted Answer

The answer of Baker Company sells merchandise on account for...

Question 2

The collection of a $1,200 account after the 2 percent discount period will result in a

Accepted Answer

The answer of The collection of a $1,200 account after...

Question 3

Company P sells $3,000 of merchandise on account to Company Q with credit terms of 2/10, n/30. If Company Q remits a check taking advantage of the discount offered, what is the amount of Company Q's check?

Accepted Answer

The answer of Company P sells $3,000 of merchandise on...

Question 4

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

Accepted Answer

The Sales Returns and Allowances account is a contra revenue account because it reduces the total amount of revenue earned by a company. It is not an asset account as it does not represent property or resources owned by the company, nor is it an expense account as it does not track the costs associated with making sales.

Question 5

A credit sale of $3,600 is made on July 15, terms 3/10, n/30, on which a return of $100 is granted on July 18. What amount is received as payment in full on July 24?

Accepted Answer

The net amount due after the return is $3,500 (3,600 - 100). The customer gets a 3% discount (0.03 x 3,500 = 105) if they pay within the discount period (by July 25, which is 10 days from the date of the sale). Therefore, the amount received as payment in full on July 24 is $3,500 - $105 = $3,395.

Question 6

Company M sells $900 of merchandise on account to Company N with credit terms of 1/15, n/30. If Company N remits a check taking advantage of the discount offered, what is the amount of Company N's check?

Accepted Answer

The answer of Company M sells $900 of merchandise on...

Question 7

Which of the following accounts has a normal credit balance?

Accepted Answer

Sales Revenue is a revenue account, and revenue accounts have a normal credit balance. The other accounts listed are all contra-revenue or expense accounts and have normal debit balances.

Question 8

Python Company sells merchandise on account for $5,000 to Monte Company with credit terms of 2/10, n/30. Monte Company returns $1,500 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?

Accepted Answer

The answer of Python Company sells merchandise on account for...

Question 9

The Sales Returns and Allowances account is not debited if a customer

Accepted Answer

The Sales Returns and Allowances account is not debited when a customer utilizes a prompt payment incentive, as this situation involves a discount for early payment, not a return or allowance for defective or inferior goods.

Question 10

A credit granted to a customer for returned goods requires a debit to

Accepted Answer

When a customer returns goods, the seller needs to adjust the original sale. This is done by debiting (increasing) Sales Returns and Allowances, which is a contra-revenue account that reduces total sales revenue, and crediting (decreasing) Accounts Receivable to reflect the reduction in the amount the customer owes.

Question 11

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales

Accepted Answer

When a customer agrees to retain defective merchandise at a reduced price, the seller issues an allowance. This is a reduction in the price of the merchandise to compensate for the defective product. This allowance is recorded as a deduction to sales revenue.

Question 12

When goods are returned that relate to a prior cash sale,

Accepted Answer

The answer of When goods are returned that relate to...

Question 13

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Accepted Answer

Offering a sales discount is a common incentive for customers to pay their accounts promptly. It provides customers with an immediate financial benefit for paying their account on time, which encourages prompt payment and can improve the cash flow of the business. Free delivery, a sales allowance, and a sales return are not typically used as incentives for prompt payment.

Question 14

The Sales Returns and Allowances account does not provide information to management about

Accepted Answer

The Sales Returns and Allowances account tracks the amount of refunds or price adjustments given to customers, but it does not provide information about possible inferior merchandise, inefficiencies in filling orders, or errors in overbilling customers. However, it can be used to calculate the percentage of credit sales versus cash sales since returns and allowances generally apply to sales made on credit.

Question 15

Sales Returns and Allowances is increased when

Accepted Answer

Sales Returns and Allowances is a contra-revenue account that is used to record the reduction in sales revenue due to returned or defective goods. Therefore, Sales Returns and Allowances is increased when goods that were sold on credit are returned.

Question 16

The collection of a $1,400 account after the 2 percent discount period will result in a

Accepted Answer

If the account is collected after the 2 percent discount period, the full amount of $1,400 is due and should be debited to Cash. Option A is incorrect because the discount is not given, hence the debit to Cash will be for the full amount. Option B is also incorrect because the Accounts Receivable account was already credited when the sale was made, and it should not be debited at this point. Option D is incorrect because Sales Discounts is a contra revenue account used to record the discount given to customers, and in this case, no discount is given since the payment is made after the discount period.

Question 17

The credit terms offered to a customer by a business firm are 3/10, n/30, which means that

Accepted Answer

The credit terms 3/10, n/30 means that the customer can deduct a 3% discount if the bill is paid within 10 days of the invoice date.

Question 18

Bagley Company sells merchandise on account for $5,000 to Hoffman Company with credit terms of 1/10, n/30. Bagley grants Hoffman a $600 allowance because some of the merchandise did not conform to specifications. Hoffman settle the account within the discount period. What entry does Bagley make upon receipt of the check?

Accepted Answer

The answer of Bagley Company sells merchandise on account for...

Question 19

A sales discount does not

Accepted Answer

A sales discount is a reduction in the selling price of a product or service given to the customer as an incentive to pay their invoice early. It does not increase an operating expense account, as it is a reduction in revenue rather than an expense. Therefore, choices A, B, and C are incorrect.

Question 20

Which of the following would not be classified as a contra account?

Accepted Answer

Inventory is not a contra account. It is a current asset account that is typically debited in transactions such as the purchase of goods for resale. Contra accounts are accounts that are used to offset or reduce the balance of a related account, such as Accumulated Depreciation, Sales Returns and Allowances, and Sales Discounts.

Quiz 8: Merchandising Companies: Sales Perpetual