Question 1

If a customer pays within the discount period,the discount will be debited to the Inventory account.

Accepted Answer

If a customer pays within the discount period, the discount will be credited to the Accounts Receivable account and debited to the Sales Discounts account. It does not affect the Inventory account.

Question 2

The name of the supplier (vendor)is listed in the:

Accepted Answer

The Accounts Payable subsidiary ledger is a detailed record of the individual vendor accounts, including the name of the supplier (vendor) along with other information such as the amount owed and due dates. Therefore, the supplier's name is listed in the Accounts Payable subsidiary ledger.

Question 3

Bach Co.had an inventory balance of $15,250 on January 1,purchased $37,000 during the accounting period,and the cost of goods sold was $25,000.What is the ending balance in the inventory account?

Accepted Answer

The ending balance in the inventory account can be calculated as follows:
Beginning inventory + Purchases - Cost of goods sold = Ending inventory
$15,250 + $37,000 - $25,000 = $27,250
Therefore, the ending balance in the inventory account is $27,250. Option A is the correct answer.

Question 4

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

Accepted Answer

In a perpetual inventory system, when a company takes a discount for early payment, the discount reduces the cost of inventory. Therefore, the Inventory account is credited.

Question 5

Northshore Equipment,Inc.purchases $3,500 of inventory on account from Aspen,Co.The journal entry to record this purchase for Northshore Equipment under a perpetual inventory system is:

Accepted Answer

Under a perpetual inventory system, the journal entry to record a purchase on account includes debiting Inventory and crediting Accounts Payable to the supplier from whom the inventory was purchased. Therefore, the correct option is to debit Inventory and credit Accounts Payable-Aspen. Option D is the only one that correctly records the transaction under a perpetual inventory system.

Question 6

If an invoice shows a total of $4,000 with terms 2/10,n/30,the customer may pay $3,920 within 10 days to satisfy the bill.

Accepted Answer

The terms 2/10, n/30 mean that the customer can take a 2% discount if they pay within 10 days, otherwise the full amount of $4,000 is due within 30 days. Therefore, the customer can pay $3,920 (which is 2% less than $4,000) within 10 days to satisfy the bill.

Question 7

TNT Inc.had an inventory balance of $21,000 on January 1,and $23,500 on December 31.The cost of goods sold during the period was $27,250.What is the purchase amount?

Accepted Answer

The purchase amount can be calculated using the formula: Purchases = Ending Inventory - Beginning Inventory + Cost of Goods Sold. So, Purchases = $23,500 - $21,000 + $27,250 = $29,750.

Question 8

Woods Company had an inventory balance of $3,500 on January 1.During the accounting period they made purchases of $11,500.The ending inventory balance was $2,250.If Woods Co.uses the periodic inventory system,what is the cost of inventory sold during the period?

Accepted Answer

Cost of goods sold = Beginning inventory + Purchases - Ending inventory= $3,500 + $11,500 - $2,250= $12,750

Question 9

Woods Company had an inventory balance of $3,500 on January 1.During the accounting period they made purchases of $11,500.The ending inventory balance was $2,250.If Woods Co.uses the periodic inventory system,what is the cost of goods available for sale?

Accepted Answer

The cost of goods available for sale is calculated by adding the beginning inventory to the purchases made during the period. So, $3,500 (beginning inventory) + $11,500 (purchases) = $15,000.

Question 10

If an invoice reads 2/10,n/30,the 10 refers to the percent that can be taken for the discount.

Accepted Answer

The "10" in "2/10, n/30" refers to the number of days within which the 2% discount can be taken, not the percentage of the discount.

Question 11

A company uses the perpetual inventory system.At year end the general ledger indicated that this company had a balance of $50,000 in the Inventory account.Actual inventory on hand per a physical count was $51,500.What action does the company now need to take?

Accepted Answer

The company needs to adjust the Inventory account to match the physical count. This requires debiting Inventory and crediting Cost of Goods Sold for the $1,500 difference.

Question 12

When accounting for a merchandising business,which of the following is TRUE?

Accepted Answer

Both retailers and wholesalers may use either the perpetual or periodic inventory system. It is up to the business to choose which system works best for their operations.

Question 13

Under the periodic inventory system,the amount of inventory is:

Accepted Answer

Under the periodic inventory system, the amount of inventory is only known when a physical count is taken, which may happen on a regular basis or occasionally. The inventory balance is calculated by subtracting the cost of goods sold from the beginning inventory plus purchases during the period, and the result is the ending inventory.

Question 14

Smith Company had an inventory balance of $12,000 on January 1 and $18,000 on December 31.The cost of goods sold during the period was $63,000.What is the purchase amount?

Accepted Answer

The purchase amount can be calculated using the formula: Purchases = Ending Inventory - Beginning Inventory + Cost of Goods Sold. Therefore, Purchases = $18,000 - $12,000 + $63,000 = $69,000.

Question 15

The purchase of inventory affects both an asset and the Stockholders' Equity account.

Accepted Answer

The purchase of inventory affects an asset account (increases inventory) and either decreases another asset account (like cash) or increases a liability account (like accounts payable) but does not directly affect the Stockholders' Equity account.

Question 16

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 reduction in price for damaged goods is taken by the merchandiser because the goods are not in their original condition and their value is decreased. Therefore, the account that should be credited for the reduced price is the inventory account.

Question 17

Simmons,Inc.received an invoice from Wilson Company for $5,550 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

Since Simmons is taking advantage of the discount offered by Wilson Company, they will only pay 97% of the invoice amount. This is calculated as:

$5,550 x 0.97 = $5,378.50

Therefore, the amount credited to inventory will be the amount paid minus the discount:

$5,378.50 - $5,212.00 = $166.50

Option C is the correct answer.

Question 18

An invoice with the credit terms 3/10,n/30 means that the customer has 3 days to take a 10% discount off of the invoice total.

Accepted Answer

The terms 3/10, n/30 mean that the customer can take a 3% discount if the invoice is paid within 10 days; otherwise, the net amount is due within 30 days.

Question 19

Credit terms are determined by the purchaser.

Accepted Answer

Credit terms are determined by the seller or the creditor, not the purchaser or debtor.

Question 20

Both purchase returns and allowances decrease the merchandiser's inventory cost.

Accepted Answer

Purchase returns and allowances both result in a decrease in the cost of merchandise inventory for the merchandiser. Purchase returns involve the return of goods to the supplier, which removes the cost of those goods from the inventory. Allowances reduce the cost of the inventory by reducing the original purchase price.

Quiz 4: Accounting for a Merchandising Business