Question 1

If a firm using the periodic inventory system sells merchandise for $320,000 that originally cost $160,000, the firm will debit Sales Revenue for $320,000.

Accepted Answer

The firm records the following entries:
To record sale of merchandise on credit.
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Question 2

In specifying credit terms, 2/10, n/30 means that one-half of the invoice must be paid in 10 days, with the net balance due in 30 days.

Accepted Answer

2/10, n/30 represents a cash discount of two percent if paid within ten days of the sale with a total credit period of 30 days following the date of the sale

Question 3

The Purchases account normally has a debit balance.

Accepted Answer

When a company uses the periodic inventory system, it records the purchase of merchandise by debiting the cost of the merchandise to the Purchases account, rather than the Inventory account, and crediting the cost to Accounts Payable. (The Purchases account has a normal debit balance.)

Question 4

All merchandise purchased for resale by a firm is initially recorded in the Purchases account when the firm uses the periodic inventory system.

Accepted Answer

When a company uses the periodic inventory system, it records the purchase of merchandise by debiting the cost of the merchandise to the Purchases account, rather than the Inventory account, and crediting the cost to Accounts Payable. (The Purchases account has a normal debit balance.)

Question 5

If merchandise is shipped F.O.B. destination, the seller ultimately bears the expense of transporting it.

Accepted Answer

Transportation costs are sometimes incurred by a merchandising company when it acquires goods, and this cost is included as part of the acquisition cost of the inventory. When the buyer is responsible for shipping costs, it is referred to as FOB shipping point. When the seller is responsible for shipping costs, it is referred to as FOB destination.

Question 6

Which of the following is not true for a retailer using perpetual inventory system?
A) When merchandise is purchased FOB shipping point, the buyer assumes the risk of any damage in transit.
B) After a physical inventory count, the retailer credits the Inventory account for any missing inventory.
C) When the retailer returns defective merchandise to the manufacturer, they credit Purchase Returns.
D) The Cost of Goods Sold account is closed at the end of the year with a debit to Income Summary.

Accepted Answer

When the buyer is responsible for shipping costs, it is referred to as FOB shipping point. Since inventory is being continuously updated using the perpetual inventory system, management can compare these amounts to a physical count of the inventory and credit the Inventory account for any missing inventory. The Cost of Goods Sold, an expense account, is a temporary account which is closed at the end of the year with a debit to Income Summary. Under the perpetual inventory system, the retailer would credit Inventory rather than Purchase Returns for the return of defective merchandise.

Question 7

Dells Company uses the periodic inventory system. Sales for 2019 were $1,410,000 while operating expenses were $525,000. Beginning and ending inventories for 2019 were $210,000 and $180,000, respectively. Net purchases were $540,000 while freight in was $45,000.
The net income or loss for 2019 was:
A) $270,000 net income
B) $ 90,000 net income
C) $ 30,000 net income
D) $ 90,000 net loss

Accepted Answer

Cost of Goods Sold = Beginning Inventory + Purchases + Freight - Ending Inventory
X = $210,000 + $540,000 + $45,000 - $180,000
X = $615,000 = Cost of Goods Sold
Sales - Cost of Goods Sold - Operating Expenses = Net Income
$1,410,000 - $615,000 - $525,000 = X
X = $270,000 = Net Income

Question 8

Illinois Company uses the periodic inventory system. Sales for 2019 were $1,880,000 while operating expenses were $700,000. Beginning and ending inventories for 2019 were $280,000 and $240,000, respectively. Net purchases were $720,000 while freight in was $60,000.
The net income or loss for 2019 was:
A) $360,000 net income
B) $120,000 net income
C) $ 40,000 net income
D) $120,000 net loss

Accepted Answer

Cost of Goods Sold = Beginning Inventory + Purchases + Freight - Ending Inventory
X = $280,000 + $720,000 + $60,000 - $240,000
X = $820,000 = Cost of Goods Sold
Sales - Cost of Goods Sold - Operating Expenses = Net Income
$1,880,000 - $820,000 - $700,000 = X
X = $360,000 = Net Income

Question 9

Charleston Company purchases $180,000 of inventory during the period and sells $54,000 of it for $90,000. Beginning of the period inventory was $9,000.
What is the company's inventory balance to be reported on its balance sheet at year end?
A) $ 54,000
B) $ 64,000
C) $135,000
D) $ 9,000

Accepted Answer

Ending Inventory = Beginning Inventory + Purchases - Cost of Goods Sold
X = $9,000 + $180,000 - $54,000
X = $135,000

Question 10

Oaks Company purchases $240,000 of inventory during the period and sells $72,000 of it for $120,000. Beginning of the period inventory was $12,000.
What is the company's inventory balance to be reported on its balance sheet at year end?
A) $ 72,000
B) $ 8,000
C) $180,000
D) $ 12,000

Accepted Answer

Ending Inventory = Beginning Inventory + Purchases - Cost of Goods Sold
X = $12,000 + $240,000 - $72,000
X = $180,000

Question 11

On August 1, Nevling Brothers bought goods with a list price of $14,400, terms 2/10, n/30. The firm records purchases at invoice price, using the periodic inventory system. On August 5, Nevling Brothers returned goods with a list price of $1,800 for credit.
If Nevling Brothers paid the supplier the amount due on August 9, the appropriate entry would be:
A) Accounts Payable $\quad $ 14,400
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Discounts$\quad $  288
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ 14,112
B) Accounts Payable$\quad $  12,348
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ 12,348
C) Accounts Payable $\quad $ 12,600
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Discounts $\quad $ 252
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ 12,348
D) Accounts Payable $\quad $ 12,600
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ 12,600

Accepted Answer

Nevling Brothers records the following entries:
August 1: Purchases$\quad $  $14,400
$\quad $ $\quad $ $\quad $ $\quad $ Accounts payable $14,400
To record purchase of goods on credit.
August 5: Accounts payable$\quad $  $1,800
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchase returns $1,800
To record purchase returns.
August 9: Accounts payable$\quad $  $12,600
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchase discounts $ 252
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $12,348
To record purchase discount and payment.

Question 12

On August 1, Baker Brothers bought goods with a list price of $19,200, terms 2/10, n/30. The firm records purchases at invoice price, using the periodic inventory system. On August 5, Baker Brothers returned goods with a list price of $2,400 for credit.
If Baker Brothers paid the supplier the amount due on August 9, the appropriate entry would be:
A) Accounts Payable$\quad $  19,200
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Discounts $\quad $ 384
$\quad $ $\quad $ $\quad $ $\quad $$\quad $ $\quad $  Cash$\quad $  18,816
B) Accounts Payable$\quad $  18,464
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ $\quad $ 18,464
C) Accounts Payable 16,800
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Discounts $\quad $ 336
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ 16,464
D) Accounts Payable $\quad $ 16,800
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ 16,800

Accepted Answer

Baker Brothers records the following entries:
August 1: Purchases$\quad $ $\quad $  $19,200
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Accounts payable $19,200
To record purchase of goods on credit
August 5: Accounts payable$\quad $  $2,400
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchase returns $\quad $ $2,400
To record purchase returns
August 9: Accounts payable $\quad $ $16,800
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchase discounts$\quad $  $ 336
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $\quad $ $\quad $ $\quad $ $\quad $ $16,464
To record purchase discount and payment

Question 13

Lite Company records purchases at invoice price, using the periodic inventory system. On July 5, Lite returned $18,000 of goods purchased on account to the seller.
How would Lite record this transfer?
A) Accounts Payable 18,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Returns and Allowances 18,000
B) Accounts Receivable 18,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Returns and Allowances 18,000
C) Accounts Payable 18,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases 18,000
D) Cash 18,000
$\quad $ $\quad $ $\quad $ $\quad $ Purchases Returns and Allowances 18,000

Accepted Answer

When goods are returned to a supplier, the company decreases its Accounts Payable (since it now owes less to the supplier) and records the return in the Purchases Returns and Allowances account, reflecting a reduction in the cost of purchases.

Question 14

Lavinia Company records purchases at invoice price, using the periodic inventory system. On July 5, Lavinia returned $24,000 of goods purchased on account to the seller.
How would Lavinia record this transfer?
A) Accounts Payable 24,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Returns and Allowances 24,000
B) Accounts Receivable 24,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases Returns and Allowances 24,000
C) Accounts Payable 24,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases 24,000
D) Cash 24,000
$\quad $ $\quad $ $\quad $ $\quad $ Purchases Returns and Allowances 24,000

Accepted Answer

When goods are returned to a supplier, the company decreases its Accounts Payable (since it owes less to the supplier) and records the return in the Purchases Returns and Allowances account to decrease the total purchases amount.

Question 15

On August 1, Burkett Company bought goods with a list price of $7,200, terms 2/10, n/30. The firm records purchases at invoice price using the perpetual inventory system. On August 5, Burkett returned goods with a list price of $900 for credit.
If Burkett paid the supplier the amount due on August 9, the appropriate entry would be:
A) Accounts Payable 7,200
$\quad $ $\quad $ $\quad $ $\quad $$\quad $  Inventory 144
$\quad $ $\quad $ $\quad $ $\quad $$\quad $ $\quad $  Cash 7,056
B) Accounts Payable 6,174
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash 6,174
C) Accounts Payable 6,300
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory 126
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash 6,174
D) Accounts Payable 6,300
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash 6,300

Accepted Answer

Burkett records the following entries:
August 1: Inventory $7,200
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Accounts payable $7,200
To record purchase of goods on credit
August 5: Accounts payable $ 900
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory $ 900
To record purchase returns
August 9: Accounts payable $6,300
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory $ 126
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $6,174
To record purchase discount and payment

Question 16

On August 1, Trina Company bought goods with a list price of $9,600, terms 2/10, n/30. The firm records purchases at invoice price using the perpetual inventory system. On August 5, Trina returned goods with a list price of $1,200 for credit.
If Trina paid the supplier the amount due on August 9, the appropriate entry would be:
A) Accounts Payable 9,600
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory 192
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash 9,408
B) Accounts Payable 8,232
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash 8,232
C) Accounts Payable 8,400
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory 168
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash 8,232
D) Accounts Payable 8,400
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash 8,400

Accepted Answer

Trina records the following entries:
:
August 1: Inventory $9,600
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Accounts payable $9,600
To record purchase of goods on credit
August 5: Accounts payable $1,200
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory $1,200
To record purchase returns
August 9: Accounts payable $8,400
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory $ 168
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Cash $8,232
To record purchase discount and payment

Question 17

Josiah records purchases at invoice price and uses the perpetual inventory system. On July 5, Josiah returned $9,000 of goods purchased on account to the seller.
How would Joshua record this transaction?
A) Accounts Payable 9,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory 9,000
B) Accounts Receivable 9,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory 9,000
C) Accounts Payable 9,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases 9,000
D) Cash 9,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases 9,000

Accepted Answer

When goods are returned to a seller, the buyer reduces the amount owed to the seller (Accounts Payable) and also reduces the inventory account because the goods are no longer in the buyer's possession. This is accurately reflected in option A.

Question 18

Bacerra records purchases at invoice price and uses the perpetual inventory system. On July 5, Bacerra returned $12,000 of goods purchased on account to the seller.
How would Bacerra record this transaction?
A) Accounts Payable 12,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory 12,000
B) Accounts Receivable 12,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Inventory 12,000
C) Accounts Payable 12,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases 12,000
D) Cash 12,000
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Purchases 12,000

Accepted Answer

Returning goods purchased on account decreases Accounts Payable and also decreases Inventory under the perpetual inventory system.

Question 19

For a firm that uses the perpetual inventory system, the Sales Returns and Allowances account:
A) Is not a contra account
B) Has a normal credit balance
C) Is not used
D) Is debited by the firm receiving returned goods from a customer

Accepted Answer

When a firm receives returned goods from a customer, the following entry is made:
Sales returns and allowances XXX
$\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ Accounts receivable XXX
Inventory XXX
$\quad $ $\quad $ $\quad $ $\quad $ Cost of goods sold XXX
To record the return of sales merchandise

Question 20

Using a periodic inventory system, the buyer's journal entry to record the return of merchandise purchased on account includes a:
A) Credit to Purchase Returns
B) Debit to Inventory
C) Credit to Accounts Payable
D) Debit to Cost of Goods Sold

Accepted Answer

Under a periodic inventory system, when a buyer returns merchandise to the seller, the following entry is made by the buyer:
Accounts payable XXX
$\quad $ $\quad $ $\quad $ $\quad $ Purchase returns XXX

Quiz 5: Accounting for Merchandising Operations

If a firm using the periodic inventory system sells merchandise for $320,000 that originally cost $160,000, the firm will debit Sales Revenue for $320,000.

In specifying credit terms, 2/10, n/30 means that one-half of the invoice must be paid in 10 days, with the net balance due in 30 days.

The Purchases account normally has a debit balance.

All merchandise purchased for resale by a firm is initially recorded in the Purchases account when the firm uses the periodic inventory system.

If merchandise is shipped F.O.B. destination, the seller ultimately bears the expense of transporting it.

Which of the following is not true for a retailer using perpetual inventory system?

Dells Company uses the periodic inventory system. Sales for 2019 were $1,410,000 while operating expenses were $525,000. Beginning and ending inventories for 2019 were $210,000 and $180,000, respectively. Net purchases were $540,000 while freight in was $45,000. The net income or loss for 2019 was:

Charleston Company purchases $180,000 of inventory during the period and sells $54,000 of it for $90,000. Beginning of the period inventory was $9,000. What is the company's inventory balance to be reported on its balance sheet at year end?

Oaks Company purchases $240,000 of inventory during the period and sells $72,000 of it for $120,000. Beginning of the period inventory was $12,000. What is the company's inventory balance to be reported on its balance sheet at year end?

Lite Company records purchases at invoice price, using the periodic inventory system. On July 5, Lite returned $18,000 of goods purchased on account to the seller. How would Lite record this transfer?

Lavinia Company records purchases at invoice price, using the periodic inventory system. On July 5, Lavinia returned $24,000 of goods purchased on account to the seller. How would Lavinia record this transfer?

Josiah records purchases at invoice price and uses the perpetual inventory system. On July 5, Josiah returned $9,000 of goods purchased on account to the seller. How would Joshua record this transaction?

Bacerra records purchases at invoice price and uses the perpetual inventory system. On July 5, Bacerra returned $12,000 of goods purchased on account to the seller. How would Bacerra record this transaction?

For a firm that uses the perpetual inventory system, the Sales Returns and Allowances account:

Using a periodic inventory system, the buyer's journal entry to record the return of merchandise purchased on account includes a: