Question 1

Freight paid by the seller on goods sold

Accepted Answer

Freight paid by the seller on goods sold is considered an operating expense, thus increasing operating expenses.

Question 2

FishBoil prepared a sales invoice for its sale of 20 pots to Rusty Pelican, a retailer. The invoice showed a sales price of $22 per pot. Rusty Pelican should debit

Accepted Answer

Rusty Pelican should debit inventory for $440 because they are purchasing 20 pots at $22 each, totaling $440.

Question 3

Fiesta Cancun purchased 200 plates. What account would they debit if the company is (1) a restaurant, and (2) a kitchen supplies store?

Accepted Answer

For a restaurant, plates are considered supplies as they are used in operations. For a kitchen supplies store, plates are inventory as they are intended for resale.

Question 4

Pasco Company purchased merchandise from Eastlawn Company with freight terms of FOB destination. The freight costs will be paid by

Accepted Answer

Under FOB destination terms, the seller (Eastlawn Company) is responsible for paying the freight costs until the goods reach the buyer's location.

Question 5

If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the

Accepted Answer

Under FOB shipping point terms, the buyer is responsible for the freight costs, and these costs are typically added to the inventory account, increasing its value.

Question 6

Paden Company purchased merchandise from Emmett Company with freight terms of FOB shipping point. The freight costs will be paid by the

Accepted Answer

With FOB shipping point, the buyer bears the responsibility of paying for the freight costs. Therefore, in this scenario, Paden Company will be responsible for paying the freight costs.

Question 7

Freight paid by the buyer for goods purchased

Accepted Answer

The answer of Freight paid by the buyer for goods...

Question 8

If a company is given credit terms of 2/10, n/30, it should

Accepted Answer

The credit terms of 2/10, n/30 mean that the company can take a 2% discount if they pay the bill within 10 days, or they can pay the full amount within 30 days. The best choice is to pay within the discount period (10 days) and recognize a savings of 2% on the total bill. This not only saves the company money but also establishes a good relationship with the supplier. Holding off payment until the end of the credit period to invest the money or withholding payment to negotiate a lower sales price can be seen as unethical and damaging to relationships with suppliers.

Question 9

When paying freight on goods purchased, the buyer can debit

Accepted Answer

The answer of When paying freight on goods purchased, the...

Question 10

Howard Company purchased merchandise inventory with an invoice price of $7,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Howard Company pays within the discount period?

Accepted Answer

The net cost of the goods if Howard Company pays within the discount period is calculated by applying the discount to the invoice price: $7000 - ($7000 * 2%) = $7000 - $140 = $6860.

Question 11

The term FOB shipping point means

Accepted Answer

FOB shipping point means the buyer is responsible for freight costs and should debit Inventory for these costs as they are part of the cost of acquiring the inventory.

Question 12

Freight costs paid by a seller on merchandise sold to customers will cause an increase

Accepted Answer

Freight costs paid by a seller on merchandise sold to customers are considered part of the selling expenses, which are a component of the operating expenses for the seller. These costs are not directly related to the production (cost of goods sold) nor are they considered a contra-revenue account or an expense of the buyer.

Question 13

Maggie's Market recorded the following events involving a recent purchase of merchandise: Received goods for $50,000, terms 2/10, n/30.
Returned $1,500 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

Accepted Answer

The amount paid within the discount period is calculated as follows:
$50,000 - $1,500 - $400 = $48,100
The discount is calculated as follows:
2% x $48,100 = $962
Therefore, the amount paid is: 
$48,100 - $962 = $47,138
The cost of inventory is calculated as follows:
$47,138 + $1,500 + $400 = $49,038
Therefore, the inventory increased by $49,038 - $50,000 = $962, and the best choice is C.

Question 14

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

Accepted Answer

The answer of The journal entry to record a return...

Question 15

Freight paid by the buyer on goods purchased is

Accepted Answer

Freight paid by the buyer is considered a cost incurred to get the goods to its final destination and therefore becomes part of the cost of goods sold when the inventory is sold. It increases the cost of the inventory and reduces the gross profit made on the sale of that inventory.

Question 16

Under the perpetual system, cash freight costs incurred by the buyer for the transporting of goods is recorded in

Accepted Answer

Under the perpetual system, cash freight costs incurred by the buyer for transporting goods are added to the cost of inventory, hence recorded in Inventory. This is because these costs are considered necessary to bring the goods to a saleable condition and location.

Question 17

In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to

Accepted Answer

The answer of In a perpetual inventory system, the amount...

Question 18

The term FOB destination means

Accepted Answer

FOB destination means the seller is responsible for the freight charges and records it as a delivery expense.

Question 19

A buyer would record a payment within the discount period under a perpetual inventory system by crediting

Accepted Answer

The answer of A buyer would record a payment within...

Question 20

The Inventory account is adjusted for each of the following transactions except the entry to record

Accepted Answer

The Inventory account is not adjusted for the payment of freight on goods sold, as this cost is related to selling expenses, not inventory.

Quiz 7: Merchandising Companies: Purchases Perpetual