Question 1

Sellers offer a purchase discount to buyers for prompt payment for purchases on account.

Accepted Answer

The answer of Sellers offer a purchase discount to buyers...

Question 2

A sales discount of 1/15 means the seller will receive 85% of the selling price.

Accepted Answer

A sales discount of 1/15 means that the customer will receive a 1/15 or 6.67% discount off the selling price. Therefore, the seller will receive 93.33% of the selling price (100% - 6.67%).

Question 3

Periodic inventory systems were historically used by companies that sold large quantities of low-value items.

Accepted Answer

Periodic inventory systems are a cost-effective method used by companies that sell low-value items in bulk. This method requires the physical counting of inventory at regular intervals, rather than tracking inventory on a real-time basis. This approach was common before the advent of computerized tracking systems, which made it more efficient to track inventory in real-time.

Question 4

The terms 2/10, n/30 means that the seller offers the purchaser a 2% cash discount if the amount is paid in full within 10 days. Otherwise, the full amount is due in 30 days.

Accepted Answer

The terms 2/10, n/30 indicate a 2% cash discount if the amount is paid within 10 days and the full amount is due in 30 days.

Question 5

The Merchandise Inventory account balance at the end of one period is the amount of beginning inventory in the next period.

Accepted Answer

The ending balance of the Merchandise Inventory account for one accounting period becomes the beginning balance for the next period, as inventory not sold carries over into the next period.

Question 6

In a perpetual inventory system, the net cost of purchases is accumulated in the Inventory account.

Accepted Answer

In a perpetual inventory system, the net cost of purchases is immediately recorded in the Inventory account, which is updated continuously to reflect changes in inventory levels.

Question 7

A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

Accepted Answer

The journal entry indicates that a customer has taken a $20 discount on their payment, not a 10% discount. The specific percentage discount cannot be determined from this information alone.

Question 8

The purchaser usually records a purchase return by a credit memorandum.

Accepted Answer

A purchase return is typically recorded by the purchaser using a debit memorandum, not a credit memorandum.

Question 9

In a periodic inventory system, cost of goods sold is not recorded as each sale occurs.

Accepted Answer

In a periodic inventory system, cost of goods sold is calculated at the end of the period by subtracting the ending inventory from the beginning inventory and adding the purchases made during the period. It is not recorded as each sale occurs.

Question 10

Transportation-in increases cost of goods purchased.

Accepted Answer

Transportation-in refers to the cost of transportation incurred when purchasing goods from a supplier. This cost is typically added to the cost of the goods, which ultimately leads to an increase in the overall cost of the goods purchased.

Question 11

Each sales transaction for sellers using a perpetual inventory system involves recognizing revenue and cost of goods sold.

Accepted Answer

When using a perpetual inventory system, sellers keep a continuous and updated record of their inventory levels, which allows them to recognize revenue and cost of goods sold at the time of each sale. This is in contrast to periodic inventory systems where revenue and cost of goods sold are only recognized at the end of a certain period based on a physical count of inventory.

Question 12

Trade discounts are entered into the accounting system.

Accepted Answer

Trade discounts are not entered into the accounting system; instead, they are deducted from the list price before recording the net sale amount.

Question 13

A perpetual inventory system is able to directly measure shrinkage.

Accepted Answer

A perpetual inventory system tracks inventory transactions in real-time but cannot directly measure shrinkage; shrinkage is determined by physical inventory counts and comparing the results to the perpetual inventory records.

Question 14

In a periodic inventory system, Purchases is a temporary account.

Accepted Answer

In a periodic inventory system, Purchases is a temporary account used to track the total cost of merchandise purchased during the accounting period. At the end of the period, the balance in Purchases is transferred to the inventory account.

Question 15

Sales of $350,000 and net sales of $323,000 may reflect sales discounts of $27,000.

Accepted Answer

Sales discounts are deducted from total sales to calculate net sales. 
Therefore, Sales - Sales discounts = Net sales
$350,000 - $27,000 = $323,000 
This equation shows that sales discounts of $27,000 could have resulted in net sales of $323,000.

Question 16

A debit to Sales Returns and Allowances and a credit to Accounts Receivable mean that a customer may have returned merchandise.

Accepted Answer

This is correct accounting treatment for merchandise returns by a customer. The debit to Sales Returns and Allowances reduces the revenue from the original sale, while the credit to Accounts Receivable reduces the amount that the customer owes.

Question 17

Z-Mart did not take advantage of a supplier's offer of 2/10, n/30, and paid the invoice at the end of the month. By not taking the discount Z-Mart lost the equivalent of 18% annual interest on the amount of the purchase.

Accepted Answer

The answer of Z-Mart did not take advantage of a...

Question 18

A credit memorandum informs a customer of a credit to its Accounts Payable account from a sales return or allowance.

Accepted Answer

A credit memorandum informs a customer of a credit to its Accounts Receivable account, not Accounts Payable, reflecting a sales return, allowance, or other credit situation.

Question 19

FOB shipping or FOB factory means ownership of goods transfers to the buyer at the buyer's place of business.

Accepted Answer

FOB shipping or FOB factory means ownership of goods transfers to the buyer once the goods are loaded onto the carrier at the seller's location. It does not transfer at the buyer's place of business.

Question 20

Credit terms are the listing of the amounts and timing of payments between a buyer and a seller.

Accepted Answer

Credit terms refer to the agreed-upon payment arrangement between a buyer and a seller, including the amounts, due dates, and other terms associated with payment.

Quiz 5: Accounting for Merchandising Activities