Question 1

Cumberland Co. sells $2,000 of inventory to Hancock Co. for cash. Cumberland paid $1,250 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?

Accepted Answer

Choice B reflects the revenue generated from the sale ($2,000) and the cost associated with the merchandise sold ($1,250). This entry follows the matching principle of accounting where the revenue and expenses associated with generating the revenue are recorded in the same period. The cash received from the sale is also recorded in this entry.

Question 2

Discounts taken by a buyer because of early payment are recorded on the seller's accounting records as

Accepted Answer

Discounts taken by a buyer because of early payment are recorded on the seller's accounting records as sales discounts. This is because the seller is reducing the sales price in exchange for the buyer paying early. The discount is a reduction to revenue, so it is recorded as a sales discount.

Question 3

In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is

Accepted Answer

When recording the cost of merchandise sold for cash, we need to decrease the value of Merchandise Inventory (asset account) and increase the Cost of Merchandise Sold (expense account), as we no longer have the products on hand to sell. Therefore, we debit Cost of Merchandise Sold (expenses) and credit Merchandise Inventory (assets).

Question 4

Merchandise is sold for cash. The selling price of the merchandise is $5,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include

Accepted Answer

The answer of Merchandise is sold for cash. The selling...

Question 5

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

Accepted Answer

FOB destination means that the seller is responsible for the freight costs until the merchandise is delivered to the destination specified by the buyer.

Question 6

Merchandise with an invoice price of $3,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September 12, assuming the discount is taken?

Accepted Answer

The answer of Merchandise with an invoice price of $3,000...

Question 7

A retailer purchases merchandise with a catalog list price of $25,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account?

Accepted Answer

The answer of A retailer purchases merchandise with a catalog...

Question 8

Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

Accepted Answer

In a perpetual inventory system, every purchase of merchandise is recorded in the Merchandise Inventory account. Therefore, the entry to record the purchase of $30,000 of merchandise on account would include a debit to Merchandise Inventory. The corresponding credit entry would be to Accounts Payable to show that the company owes the amount to its supplier.

Question 9

Anthony Company sold Madison Company merchandise on account FOB shipping point, 2/10, net 30, for $10,000. Anthony prepaid the $300 shipping charge. Which of the following entries does Anthony make to record this sale?

Accepted Answer

The answer of Anthony Company sold Madison Company merchandise on...

Question 10

A sales invoice included the following information: merchandise price, $10,000; freight, $900; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

Accepted Answer

The answer of A sales invoice included the following information:...

Question 11

The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include

Accepted Answer

The total cash paid to the seller for merchandise purchased for consumption includes both the list price (the price of the item) and the sales tax (a percentage of the list price added on by the government). Therefore, C is the correct choice as it includes both the list price and the sales tax.

Question 12

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a

Accepted Answer

A return of merchandise purchased on account would result in an increase in Merchandise Inventory because the goods are being returned to inventory. There would be no impact on Cost of Merchandise Sold or Sales because the goods were not sold to a customer. The return would decrease the amount owed to the supplier, so there would be a credit to Accounts Payable.

Question 13

Emma Co. sold Isabella Co. merchandise on account FOB shipping point,, 2/10, net 30, for $15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the discount period?

Accepted Answer

The answer of Emma Co. sold Isabella Co. merchandise on...

Question 14

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

Accepted Answer

FOB shipping point means that title passes to the buyer once the goods are shipped from the seller.

Question 15

A chart of accounts for a merchandising business

Accepted Answer

A merchandising business typically requires more accounts than a service business because it involves buying and selling inventory, which requires tracking cost of goods sold, inventory purchases, and inventory valuation. The chart of accounts will also vary depending on the specific nature of the merchandising business (e.g. retail, wholesale, etc.). There is no standardization by the FASB and a three-digit numbering system is not always used.

Question 16

Isaac Co. sells merchandise on credit to Sonar Co in the amount of $5,700. The invoice is dated on April 1 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?

Accepted Answer

The answer of Isaac Co. sells merchandise on credit to...

Question 17

Isaac Co. sells merchandise on credit to Sonar Co in the amount of $9,600. The invoice is dated on April 15 with terms of 1/15, net 45. If Sonar Co. chooses not to take the discount, by when should the payment be made?

Accepted Answer

The net payment date for this invoice will be 45 days after the invoice date, which is May 30. If Sonar Co. chooses not to take the discount, they must pay the full amount within this net payment date. Therefore, option B is the correct answer.

Question 18

Which of the following accounts usually has a debit balance?

Accepted Answer

Freight-In is an expense account and expenses have debit balances.

Question 19

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

Accepted Answer

FOB shipping point means that the buyer is responsible for the freight costs and assumes the risk of loss once the goods leave the seller's premises.

Question 20

When goods are shipped FOB destination and the seller pays the freight charges, the buyer

Accepted Answer

The answer of When goods are shipped FOB destination and...

Quiz 6: Accounting for Merchandising Businesses