Question 1

Nadir Company sold $2,000 of merchandise to Acme Company,with terms of 3/10,n/30.Five days later,Acme returned $500 of the merchandise.If Acme does NOT pay within the discount period,how much cash will Nadir receive?

Accepted Answer

Nadir Company will receive $1,500 because Acme returned $500 of the merchandise, reducing the amount owed from the original $2,000 to $1,500. Since Acme does not pay within the discount period, they pay the full amount without the 3% discount.

Question 2

Acme Enterprise sold $150 of merchandise to a customer for cash.The sales tax was 7%.How much cash did Inside Acme receive?

Accepted Answer

The sales tax on $150 of merchandise is $10.50 (150 x 0.07 = 10.50), so the total amount of cash Inside Acme received is $160.50 (150 + 10.50). Therefore, the best choice is B.

Question 3

On December 12,Occident,Ltd.,a company in Singapore,ordered merchandise from San Francisco Exports.The merchandise was shipped to Occident on December 29,FOB destination.The merchandise arrived at Occident's warehouse on February 1.Occident paid for the merchandise on March 2.When should Occident record the purchase?

Accepted Answer

Occident should record the purchase on February 1, as that is when the merchandise arrived at their warehouse and the transfer of control and ownership occurred with FOB destination terms. The payment made on March 2 is simply the settlement of the earlier purchase transaction.

Question 4

Which statement below best explains the credit terms of 2/15,n/30?

Accepted Answer

The credit terms of 2/15,n/30 mean that the buyer will receive a 2 percent discount if it pays within fifteen days. The "15" in the terms refers to the number of days within which the buyer must pay to receive the discount, and the "2" refers to the percentage discount. The "n/30" means that if the buyer does not pay within fifteen days, the full amount is due within thirty days with no discount.

Question 5

On November 27,Acme,Inc.ordered merchandise from Zenith Company.Zenith shipped the merchandise to Acme on November 29,FOB destination.The merchandise arrived at Acme's warehouse on December 1.Acme paid for the merchandise on January 2.When should Acme record the purchase?

Accepted Answer

Acme should record the purchase on December 1, the date the merchandise arrived at their warehouse, as that is when the title and risk of loss transferred to Acme. The payment date of January 2 is not relevant for recording the purchase.

Question 6

Nadir Company sold $2,000 of merchandise to Acme Company,with terms of 3/10,n/30.Five days later,Acme returned $500 of the merchandise.If Acme pays within the discount period,how much cash will Nadir receive?

Accepted Answer

The net amount of the merchandise that Acme will pay for is $2,000 - $500 = $1,500. 
Since they are paying within the discount period, they will receive a 3% discount on the net amount. 
3% of $1,500 = $45 
So the total amount of cash Nadir will receive is $1,500 - $45 = $1,455. Therefore, the best answer choice is D.

Question 7

On May 27,Ace Electronics ordered merchandise from Elmo Company.Elmo shipped the merchandise to Ace on May 31,FOB shipping point.The merchandise arrived at Ace's warehouse on June 2.Ace paid for the merchandise on July 1.When should Elmo recognize revenue?

Accepted Answer

Elmo should recognize revenue on May 31 when the merchandise was shipped FOB shipping point. Ownership and risk of loss transferred to Ace at that point, and Elmo fulfilled its obligations under the sales contract. The subsequent arrival of the merchandise at Ace's warehouse on June 2 and payment on July 1 are not relevant to the revenue recognition.

Question 8

On November 27,Acme,Inc.ordered merchandise from Zenith Company.Zenith shipped the merchandise to Acme on November 29,FOB shipping point.The merchandise arrived at Acme's warehouse on December 1.Acme paid for the merchandise on January 2.When should Zenith recognize revenue?

Accepted Answer

According to FOB shipping point terms, the responsibility for the merchandise and the revenue recognition transfers to Acme as soon as Zenith ships the merchandise on November 29. Therefore, Zenith should recognize revenue on November 29.

Question 9

On May 27,Ace Electronics ordered merchandise from Elmo Company.Elmo shipped the merchandise to Ace on May 31,FOB destination.The merchandise arrived at Ace's warehouse on June 2.Ace paid for the merchandise on July 1.When should Ace record the purchase?

Accepted Answer

According to the FOB destination terms, the ownership of the merchandise transfers to Ace at their destination, which is their warehouse on June 2. Therefore, the purchase should be recorded on June 2 when the merchandise arrived at Ace's warehouse.

Question 10

A vendor offers terms of 1/10,n/30.What is the ANNUAL interest rate the vendor is charging a buyer who does not pay within 10 days? (Assume there are 360 days in the year.

Accepted Answer

The terms 1/10, n/30 mean that a buyer can receive a 1% discount if payment is made within 10 days. If payment is not made within 10 days, the full payment is due within 30 days. 
To find the annual interest rate charged to a buyer who does not pay within 10 days, we need to calculate the cost of not taking the discount. 
The effective annual interest rate can be calculated as (1 - discount percentage) * (360 / terms of credit). 
Plugging in the numbers, we get:
(1 - 0.01) * (360 / 20) = 0.99 * 18 = 17.82%
Therefore, the vendor is charging an annual interest rate of 17.82% to a buyer who does not pay within 10 days. Option C is the closest answer choice.

Question 11

Ace Company sells goods FOB destination.The shipping costs ________.

Accepted Answer

Since Ace Company sells goods FOB destination, the shipping costs will be paid by Ace and will appear on the income statement as an Operating expense.

Question 12

Sailors,Inc.sold $100,000 of merchandise to Breyer,Inc.with terms of 1/10,n/30.Five days later,Breyer returned $10,000 of the merchandise.If Breyer pays within the discount period,how much cash will Sailors receive?

Accepted Answer

Breyer returned $10,000 of the merchandise, so the net sale would be $90,000. With terms of 1/10, Sailors can offer a 1% discount if Breyer pays within 10 days. Therefore, if Breyer pays within the discount period, they will pay $89,100 ($90,000 - $900 discount).

Question 13

Zenith Company sold $10,000 of merchandise to Nadir Company,with terms of 2/10,n/30.Five days later,Nadir returned $1,000 of the merchandise.If Nadir does NOT pay within the discount period,how much cash will Zenith receive?

Accepted Answer

Zenith will receive $9,000 because Nadir returned $1,000 worth of merchandise, reducing the total amount owed to $9,000. Since Nadir did not pay within the discount period, they do not receive the 2% discount.

Question 14

On December 12,Occident,Ltd.,a company in Singapore,ordered merchandise from San Francisco Exports.The merchandise was shipped to Occident on December 29,FOB shipping point.The merchandise arrived at Occident's warehouse on February 1.Occident paid for the merchandise on March 2.When should San Francisco Exports recognize revenue?

Accepted Answer

Revenue should be recognized when control of the merchandise is transferred to Occident, which would be on December 29, the FOB shipping point.

Question 15

Inside Outfitters sold $200 of merchandise to a customer for cash.The sales tax was 8%.How much sales revenue did Inside Outfitters earn?

Accepted Answer

Sales revenue refers to the amount earned from selling goods or services before any costs or taxes are deducted. In this case, the $200 represents the sales revenue, as it is the amount earned from selling the merchandise, excluding the sales tax.

Question 16

Acme Enterprise sold $150 of merchandise to a customer for cash.The sales tax was 7%.How much sales revenue did Acme earn?

Accepted Answer

Sales revenue refers to the amount earned from selling goods or services before any costs or taxes are deducted. In this case, the $150 represents the sales revenue, as the sales tax is a separate component that is added to the total cost to the customer but does not affect the revenue earned from the sale of merchandise.

Question 17

Ace Electronics sold $350 of merchandise to a customer on account.The sales tax was 6%.How much sales revenue did Ace earn?

Accepted Answer

Sales revenue refers to the amount earned from selling goods or services before any costs or expenses, like sales tax, are subtracted. In this case, the $350 represents the sales revenue, as the sales tax is an additional charge on top of this amount, not a deduction from it.

Question 18

Inside Outfitters sold $200 of merchandise to a customer for cash.The sales tax was 8%.How much cash did Inside Outfitters receive?

Accepted Answer

The sales tax was 8% of the merchandise sold, which is $16. So, the total amount that the customer paid is $200 + $16 = $216. Therefore, Inside Outfitters received $216 in cash.

Question 19

Sailors,Inc.sold $100,000 of merchandise to Breyer,Inc.with terms of 1/10,n/30.If Breyer pays the invoice 20 days after receipt of the invoice,how much cash will Sailors receive?

Accepted Answer

Since Breyer pays the invoice 20 days after receipt, they miss the discount period of 1/10, n/30, which means they pay the full amount of $100,000.

Question 20

A vendor offers terms of 2/10,n/30.What is the ANNUAL interest rate the vendor is charging a buyer who does not pay within 10 days? (Assume there are 360 days in the year.

Accepted Answer

The terms 2/10, n/30 mean that the buyer can take a 2% discount if they pay within 10 days; otherwise, the net (full) amount is due in 30 days. The 2% discount lost by not paying early effectively becomes an interest charge for the additional 20 days (30-10 days) of credit. To annualize: (2% / 20 days) * 360 days/year = 36%.

Quiz 5: The Purchase and Sale of Inventory