Question 1

If damaged goods are received by the merchandiser and are kept with a reduction in price, the account to be credited by the merchandiser for the reduction in price under a perpetual inventory system is:

Accepted Answer

The account to be credited by the merchandiser for the reduction in price of damaged goods under a perpetual inventory system is Inventory. This is because the reduction in price is due to a decrease in the value of the inventory caused by the damage to the goods. Crediting the inventory account reduces the carrying cost of the inventory on the balance sheet, reflecting the decrease in value of the damaged goods.

Question 2

TNT Corporation pays an invoice for $4,500 in time to take a 5% discount. The journal entry to record the payment of this invoice is:

Accepted Answer

The company takes a 5% discount on a $4,500 invoice, reducing the cash payment to $4,275. The discount of $225 is credited to Inventory, and the full invoice amount is debited to Accounts Payable.

Question 3

If an invoice reads n/10, it means that:

Accepted Answer

The term "n/10" on an invoice means that the net amount is due within 10 days.

Question 4

TLR Productions has received an invoice for $6,500 with terms of 3/15, n/50. If TLR pays the invoice on the seventeenth day, the Cash account will be:

Accepted Answer

Since TLR pays the invoice on the seventeenth day, they miss the discount period of 3/15 and must pay the full amount of $6,500. The Cash account is credited to record the decrease in cash due to payment.

Question 5

Simmons, Inc. received an invoice from Wilson Company for $3,500 with terms of 3/10, n/45 on March 8. If Simmons pays the bill on March 15, they will credit inventory under a perpetual inventory system for:

Accepted Answer

The terms 3/10, n/45 mean that if Simmons pays within 10 days, they can take a 3% discount (i.e., $3,500 x 0.03 = $105), otherwise, they must pay the full amount within 45 days. Since Simmons did not pay within the 10-day discount period, they will not receive any discount. Therefore, they will credit inventory for $0. If they had paid within the discount period, they would have credited inventory for $105 (the amount of the discount).

Question 6

The discount period is determined by the:

Accepted Answer

The seller of the merchandise determines the discount period, which is usually outlined in the sales contract or agreement. The discount period may be based on factors such as the type of merchandise, the sale terms, and the payment terms agreed upon between the buyer and the seller.

Question 7

An invoice of $2,400 is dated April 2, terms 2/10, n/30. If the invoice is paid on April 9, the amount to be paid is:

Accepted Answer

The terms 2/10, n/30 mean that the buyer can take a 2% discount if they pay within 10 days, and the full amount is due in 30 days.

Since the invoice is paid on April 9 (within the discount period), the buyer can take the discount.

Discount = Invoice amount x Discount rate
Discount = $2,400 x 0.02
Discount = $48

Therefore, the amount to be paid is:

Invoice amount - Discount
Amount to be paid = $2,400 - $48
Amount to be paid = $2,352

So the best choice is C, $2,352.

Question 8

A discount offered as an inducement for prompt payment of an invoice is called a(n):

Accepted Answer

The answer of A discount offered as an inducement for...

Question 9

Caesar Company returned $800 of goods it had purchased from another company. The original invoice was for $4,200, 3/10, n/30. What is the discount if Caesar pays the balance within the discount period?

Accepted Answer

The answer of Caesar Company returned $800 of goods it...

Question 10

A company pays an invoice early and takes 4% off of the original invoice price. The account to be credited for the discount under a perpetual inventory system is:

Accepted Answer

Under a perpetual inventory system, when a company takes a discount for early payment, the inventory account is credited to reflect the reduced cost of the inventory purchased. This adjustment ensures that the inventory is recorded at its correct cost.

Question 11

The time period within which an invoice may be paid early to receive a discount is called the:

Accepted Answer

The discount period is the time period offered by the seller during which if the buyer pays the invoice early, they receive a discount.

Question 12

Discounts allowed for customers who pay their invoices early:

Accepted Answer

Discounts allowed for customers who pay their invoices early reduce the cost of the purchased inventory. This is a common business practice where suppliers offer a cash discount to customers who pay their bills within a specified time frame, usually 10-30 days. This encourages customers to pay on time and helps improve the supplier's cash flow.

Question 13

If an invoice states 2/10, n/45, the 10 refers to the:

Accepted Answer

The 10 refers to the number of days in the discount period, during which the buyer can take a 2% discount off the total invoice amount. The "n" usually stands for "net," meaning payment is due within the 45 days after the discount period.

Question 14

Charmed, Inc. purchased merchandise from Birch Co. for cash. The journal entry for Charmed, Inc. under a perpetual inventory system will be:

Accepted Answer

When a company purchases merchandise for cash under a perpetual inventory system, it increases its inventory (an asset) and decreases its cash (another asset). Therefore, the correct journal entry is to debit Inventory (to record the increase in inventory) and credit Cash (to record the decrease in cash).

Question 15

A record to keep the amount owed to each supplier is called a(n):

Accepted Answer

A record to keep the amount owed to each supplier is called an Accounts Payable subsidiary ledger, which is a separate ledger that lists all the outstanding balances an organization owes to its suppliers. The other options - Accounts Receivable subsidiary ledger, transportation ledger, and general ledger for Accounts Payable - do not fit the definition of a record for amounts owed to suppliers.

Question 16

Which of the following credit terms allows a discount of 4% if payment is made within 20 days of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from the date of the invoice?

Accepted Answer

The credit terms described in option C are 4/20, n/30. This means that a discount of 4% can be taken if payment is made within 20 days of the invoice date. If payment is not made within 20 days, the full amount is due within 30 days of the invoice date. Option A (4/20, EOM) and Option B (4/EOM, n/30) are not correct because they do not clearly state that payment must be made within 30 days if the discount is not taken. Option D (20/4, n/30) is incorrect because it is not a valid credit term.

Question 17

Wolfe Company purchases goods for resale from Coyote, Inc. The amount of the purchase is $12,500 with terms of 3/10, n/30. Wolfe later returns $500 of the goods. Under the perpetual inventory system, the journal entry to record the return is:

Accepted Answer

Under the perpetual inventory system, returns are recorded by debiting Accounts Payable and crediting Inventory to reflect the decrease in inventory and the reduction in the amount owed to the supplier.

Question 18

When merchandise is purchased on account under the perpetual inventory system, the journal entry is:

Accepted Answer

Under the perpetual inventory system, merchandise purchased on account is recorded by debiting Inventory (as it is now in the possession of the company) and crediting Accounts Payable (as a liability has been created by the purchase on credit). Therefore, the correct journal entry would be to debit Inventory and credit Accounts Payable.

Question 19

The amount of an invoice is $1,000, with terms 2/10, n/30. The amount to be paid within the discount period is:

Accepted Answer

The terms 2/10, n/30 mean that there is a 2% discount if the invoice is paid within 10 days, otherwise the full amount is due within 30 days.

To calculate the amount to be paid within the discount period, we take the invoice amount of $1,000 and subtract the discount of 2%, which is $20 (2% of $1,000).

Therefore, the amount to be paid within the discount period is $1,000 - $20 = $980.

So, the best choice is B.

Question 20

Torres, Inc. purchases $4,800 of inventory on account from Leo Corp. The journal entry to record this purchase for Torres under a perpetual inventory system is:

Accepted Answer

Under a perpetual inventory system, inventory is debited for purchases, and accounts payable is credited. Therefore, the journal entry would be to debit inventory for $4,800 and credit accounts payable-leo for $4,800, which is option D.

Quiz 4: Accounting for a Merchandising Business