Question 1

Tiger Co.sold merchandise on account to a customer.The customer returned some of that merchandise because it was not satisfactory.What journal entry will Tiger use to record the return?

Accepted Answer

The journal entry to record the return of merchandise on account would involve debiting Sales Returns & Allowances (to reduce revenue) and crediting Accounts Receivable (to reduce the amount owed by the customer). Additionally, the return would result in an increase in inventory (since the merchandise is being returned back to the company) and a decrease in cost of goods sold (since the cost of the merchandise is being deducted from the company's expenses). Therefore, the entry would also involve debiting Inventory and crediting Cost of Goods Sold. Option D correctly includes both of these transactions in the journal entry.

Question 2

On June 15,Oakley Inc.sells inventory on account to Sunglass Hut (SH)for $1,000,terms 2/10,n/30.On June 20,SH returns to Oakley inventory that SH had purchased for $300.On June 24,SH completely fulfills its obligation to Oakley by making a cash payment.What is the amount of cash paid by SH to Oakley?

Accepted Answer

The amount of the discount is 2% of the total amount owed, which is $1,000. So the discount is $20 ($1,000 x 0.02).
The amount of the return is $300.
To determine the final amount owed, we first subtract the return from the original amount: $1,000 - $300 = $700.
Then, we subtract the discount from this amount: $700 - $20 = $680.
Therefore, the amount of cash paid by SH to Oakley is $680.

Question 3

A company sells goods at a selling price of $20,000.The cost of the goods is $15,000.Under a perpetual inventory system,the journal entries prepared to record the sale will include one with a debit to:

Accepted Answer

The answer of A company sells goods at a selling...

Question 4

When goods are sold to a customer with credit terms of 2/15,n/30,the customer will receive a:

Accepted Answer

The credit terms of 2/15, n/30 indicates that the customer will receive a 2% discount if they pay within 15 days. The n/30 portion of the credit terms means that the entire amount is due within 30 days, but there is no discount offered beyond the 15-day window. Therefore, the best choice is option D.

Question 5

If a company that uses a perpetual inventory system sold inventory which cost $1,000 for a selling price of $3,000,the accounting equation would show a net:

Accepted Answer

Since the company sold inventory for a higher selling price than the cost, there would be an increase in revenue of $3,000 and an increase in cost of goods sold of $1,000. This would result in a net increase in assets (cash or accounts receivable) of $3,000 - $1,000 = $2,000 and a net increase in stockholders' equity (retained earnings) of $2,000 as well.

Question 6

If merchandise costing $500 that was sold cash at a price of $620 is returned by the customer,how would this transaction recorded when using a perpetual inventory system?

Accepted Answer

Using a perpetual inventory system, the return of the merchandise would be recorded by debiting Sales Returns & Allowances (contra-revenue account) and crediting Cash for $620. Then, Inventory would be debited and Cost of Goods Sold would be credited for the cost of the merchandise returned, which in this case is $500. Therefore, the entry would be: Debit Sales Returns & Allowances and credit Cash for $620; debit Inventory and credit Cost of Goods Sold for $500.

Question 7

BetterBuy sells $50,000 of TVs to a customer.The credit terms state a 2% discount if paid in 7 days and a 1% discount if paid in 8-14 days.The customer pays in 12 days.How would BetterBuy record the customer's payment?

Accepted Answer

The customer paid within the discount period of 8-14 days, so BetterBuy should record the sales revenue at the discounted amount of $49,500 ($50,000 - $500). To record the payment, BetterBuy would debit Cash for $49,500, credit Accounts Receivable for the full amount of $50,000, and debit Sales Discounts for $500 (the amount of the discount taken by the customer).

Question 8

Which of the following is a correct statement?

Accepted Answer

The answer of Which of the following is a correct...

Question 9

B-Mart has a perpetual inventory system.B-Mart sells $5,000 of blue jeans.The customer later brings $600 of blue jeans back to B-Mart because they are defective.Those blue jeans had a cost of $200.The customer agrees to keep the blue jeans and B-Mart agrees to a $200 allowance.Which of the following is one of the entries that B-Mart will use to record the return?

Accepted Answer

B-Mart needs to record the return by debiting the Sales Returns & Allowances account to reduce the amount of sales revenue and credit Accounts Receivable to adjust the customer’s balance. Therefore, the correct option is to Debit Sales Returns & Allowances for $200 and credit Accounts Receivable for $200. Option A and B are incorrect because they record the transaction as a return of inventory, while the customer decided to keep the defective jeans. Option C is incorrect because it only records the allowance, but not the return.

Question 10

BetterBuy uses a perpetual inventory system.BetterBuy sells a computer from inventory for $599 on credit.BetterBuy originally bought the computer from IBM for $395.What journal entry (entries)will BetterBuy prepare to record the sale?

Accepted Answer

When BetterBuy sells a computer from inventory for $599 on credit, it needs to record the transaction in its accounting records. Since it uses a perpetual inventory system, it needs to debit the Accounts Receivable account and credit the Sales Revenue account for $599. At the same time, it needs to reduce its inventory by the cost of the computer, which was originally purchased from IBM for $395. Therefore, BetterBuy must debit the Cost of Goods Sold account and credit the Inventory account for $395. This choice correctly records the sale and the related cost of goods sold, as well as the increase in accounts receivable and sales revenue.

Question 11

When a customer returns for credit a defective product it had purchased,the seller would record the transaction using which of the following accounts?

Accepted Answer

The seller records the transaction using the "Sales Returns & Allowances" account to account for the return of a defective product by a customer, which reduces the total sales revenue.

Question 12

Use the information above to answer the following question.What journal entry (entries)will Darin Company make on October 4 to record the sales return?

Accepted Answer

The correct entry involves reversing the sales and cost of goods sold: debit Sales Returns & Allowances and credit Accounts Receivable for the sales amount, and debit Inventory and credit Cost of Goods Sold for the cost amount.

Question 13

Use the information above to answer the following question.What journal entry (entries)will Darin prepare on October 1 to record this sale?

Accepted Answer

Darin will prepare a journal entry to debit Accounts Receivable and credit Sales Revenue for $6,500, reflecting the amount of the sale. Darin will also prepare a second journal entry to debit Cost of Goods Sold and credit Inventory for $4,200, representing the cost of the goods sold. Therefore, the best choice is D.

Question 14

Which of the following statements is not correct about sales returns and allowances?

Accepted Answer

Sales returns and allowances are not required to be separately disclosed in external financial statements under generally accepted accounting principles (GAAP). They are reflected in the gross sales line item and the contra-revenue account is typically presented separately.

Question 15

Use the information above to answer the following question.What journal entry will be prepared by Darin Company on October 8 to record the receipt of payment from Dee?

Accepted Answer

The answer of Use the information above to answer the...

Question 16

East Corp.sold $1,000 of merchandise to a customer on terms of 2/10,n/30.Its customer paid within the discount period.As a result of its customer making the payment within the discount period,East's total assets will:

Accepted Answer

The customer paid within the discount period, so they paid $980 ($1,000 - 2% of $1,000). The $20 discount reduces East Corp's accounts receivable, decreasing total assets by $20.

Question 17

If a company returns an item to a supplier,the supplier will record the return as:

Accepted Answer

The answer of If a company returns an item to...

Question 18

Which of the following statements regarding sales returns and allowances is correct?

Accepted Answer

Recording sales returns and allowances in a separate account helps management assess product quality and customer satisfaction by tracking the volume of returns and allowances.

Question 19

Which one of the following statements regarding sales discounts is correct?

Accepted Answer

If a company offers a sales discount to encourage prompt payment and the discount is taken, the amount of the discount is deducted from the total amount of the sale. Therefore, the net sales amount is lower.

Option B is not entirely correct as the credit terms "2/10, n/30" means that if payment is made within ten days, a 2% discount may be taken. The full invoice price is due in thirty days irrespective of whether the discount is taken or not.
Option C is incorrect as "sales credits" typically refer to returns or allowances given to customers, whereas "sales discounts" refer to discounts offered for prompt payment.
Option D is incorrect as the Sales Discounts account is a contra revenue account used to track the discounts offered. It is not an expense account.

Question 20

Etcetera Clothing sold merchandise inventory on account at a price of $16,000 with payment terms of 2/10,n/30.The merchandise cost Etcetera Clothing $11,000.If the customer paid for the merchandise 5 days after receiving the invoice,how much cash was collected by Etcetera Clothing?

Accepted Answer

The payment terms 2/10,n/30 mean the customer gets a 2% discount if they pay within 10 days. Since the customer paid within 5 days, they are eligible for the discount. The discount is 2% of $16,000, which is $320. Therefore, the cash collected is $16,000 - $320 = $15,680.

Quiz 6: Internal Control and Financial Reporting for Cash and Merchandising Operations