Question 1

The net method of recording purchases refers to recording:

Accepted Answer

The net method of recording purchases involves recording the purchases at the invoice price minus any available cash discounts, reflecting the potential savings if the buyer pays early or within the discount period.

Question 2

A company that uses the net method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10,n/30.On July 7,it returned $200 worth of merchandise.On July 28,it paid the full amount due.The correct journal entry to record the payment on July 28 is:

Accepted Answer

The net method records purchases at the net amount, considering the discount. The initial purchase was recorded at $1,764 ($1,800 - 2% of $1,800). After returning $200, the payable is $1,568. Since the payment was made after the discount period, the discount is lost, and the entry recognizes this with a debit to Discounts Lost.

Question 3

In its first year of business,Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000.Borden expects returns in the following year to equal 8% of sales.The adjusting entry or entries to record the expected sales returns is (are):

Accepted Answer

Option E is correct because it records the expected sales returns by reducing sales through "Sales Returns and Allowances" and setting up a liability for the refund payable. It also adjusts the cost of goods sold and inventory for the expected returns, reflecting the cost side of the returns.

Question 4

An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:

Accepted Answer

When using the net method of recording purchases, the total amount due for purchases is recorded without deducting any cash discounts. If the payment is not made within the discount period, a discount is lost, resulting in an expense referred to as "discounts lost." Therefore, the correct answer is D.

Question 5

Morgan,Inc.uses a perpetual inventory system and the net method of recording purchases.On May 12,a merchandise purchase of $15,000 was made on credit,2/10,n/30.The journal entry to record this purchase is:

Accepted Answer

Since Morgan, Inc. uses the net method of recording purchases, the purchase is recorded at its net amount after discount (2% of $15,000 = $300), so the entry is for $14,700, not the gross amount of $15,000. This is reflected in the Merchandise Inventory and Accounts Payable accounts.

Question 6

Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820,but a physical count reveals that only $90,450 of inventory exists.The adjusting entry to record this $1,370 of inventory shrinkage is:

Accepted Answer

The correct adjusting entry to record inventory shrinkage is to debit Cost of Goods Sold and credit Merchandise Inventory for the amount of the shrinkage, $1,370. This reflects the loss of inventory as an expense and reduces the inventory account to its actual physical count.

Question 7

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales.The journal entry or entries that Klein will make on March 12 is:

Accepted Answer

The correct journal entries include debiting Accounts Receivable for $7,800 and crediting Sales for $7,800 to record the sale. Additionally, Cost of Goods Sold is debited for $4,500 and Merchandise Inventory is credited for $4,500 to account for the cost of the items sold.

Question 8

Netherland Corporation has the following unadjusted balances: Accounts Receivable,$80,000 (debit),and Allowance for Sales Discounts $300 (credit).Of the receivables,$50,000 of them are within the 2% discount period,and Netherland expects buyers to take $1,000 in future-period discounts ($50,000 × 2%)arising from this period's sales.The adjusting entry to estimate sales discounts is (are):

Accepted Answer

The adjusting entry to estimate sales discounts is to debit Sales Discounts for $700 and credit Allowance for Sales Discounts for $700. This is because the company expects buyers to take $1,000 in future-period discounts ($50,000 × 2%) arising from this period's sales, and the company wants to record the estimated amount of sales discounts in the current period.

Question 9

On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Johnson uses the periodic inventory system and the net method of accounting for purchases.Johnson pays the invoice on September 18,and takes the appropriate discount.The journal entry that Johnson makes on September 18 is:

Accepted Answer

Johnson Company uses the net method of accounting for purchases, which means they record purchases at the net of discount price. The credit terms of 2/10, n/30 allow a 2% discount if paid within 10 days. The purchase amount is $5,800, so the discount is $5,800 * 2% = $116. The net amount after discount is $5,800 - $116 = $5,684. Since Johnson pays within the discount period, they pay the net amount, and the entry reflects payment of the net amount against the accounts payable, which would have been recorded at the net amount due to the net method of accounting.

Question 10

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales.Babson pays the invoice on March 17,and takes the appropriate discount.The journal entry that Klein makes on March 17 is:

Accepted Answer

Babson Company takes advantage of the 2% discount on the $7,800 invoice by paying within the 10-day discount period. The discount amount is $7,800 * 2% = $156. Therefore, Babson pays $7,800 - $156 = $7,644. Klein records the cash received, the sales discount granted, and the reduction in accounts receivable accordingly.

Question 11

On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Johnson uses the periodic inventory system and the net method of accounting for purchases.The journal entry that Johnson will make on September 12 is:

Accepted Answer

Johnson Company uses the periodic inventory system and the net method of accounting for purchases. Therefore, the company will record the purchase at the net amount of $5,684 ($5,800 - 2% discount).

Question 12

In the current year,Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000.Borden expects returns in the following year to equal 8% of sales.The unadjusted balance in Inventory Returns Estimated is a debit of $6,000,and the unadjusted balance in Sales Refund Payable is a credit of $10,000.The adjusting entry or entries to record the expected sales returns is (are):

Accepted Answer

The expected sales returns are 8% of $2,000,000, which equals $160,000. However, the correct adjusting entries should account for both the impact on sales (Sales Returns and Allowances) and the estimated inventory returns (Inventory Returns Estimated). Option E correctly adjusts for the sales returns ($150,000, likely a typo for $160,000) and the cost of goods associated with those returns, considering the existing unadjusted balances.

Question 13

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the net method of accounting for sales.On March 15,Babson returns some of the merchandise,which is not defective.The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350.The entry(ies)that Klein must make on March 15 is (are):

Accepted Answer

Klein uses the net method of accounting for sales, which means the sales and returns are recorded at the net amount after discount. The return amount is $600, but with a 2% discount, the net amount is $600 - ($600 * 0.02) = $588. The cost of the returned merchandise is recorded at its cost of $350, adjusting both the accounts receivable and inventory accounts accordingly.

Question 14

All of the following statements regarding sales returns and allowances are true except:

Accepted Answer

The Inventory Returns Estimated account is actually a contra asset account, not a current liability account.

Question 15

On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ryan uses the periodic inventory system and the net method of accounting for sales.The journal entry or entries that Ryan will make on September 12 is (are):

Accepted Answer

Under the net method, sales are recorded net of any discounts. The discount is 2% of $5,800, which is $116. Therefore, the sales and accounts receivable are recorded at $5,684 ($5,800 - $116).

Question 16

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales.On March 15,Babson returns some of the merchandise.The selling price of the merchandise is $600 and the cost of the merchandise returned is $350.Babson pays the invoice on March 20,and takes the appropriate discount.The amount that Klein receives from Babson on March 20 is:

Accepted Answer

Klein initially sells merchandise worth $7,800 to Babson with a 2% discount if paid within 10 days. Babson returns merchandise worth $600, reducing the amount owed to $7,200 ($7,800 - $600). With the 2% discount on the reduced amount, Babson pays $7,056 ($7,200 - 2% of $7,200).

Question 17

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales.On March 15,Babson returns some of the merchandise.The selling price of the merchandise is $600 and the cost of the merchandise returned is $350.Babson pays the invoice on March 20,and takes the appropriate discount.The journal entry that Klein makes on March 20 is:

Accepted Answer

The correct journal entry is C because Babson returns merchandise worth $600, reducing the invoice amount to $7,200 ($7,800 - $600). Babson then pays within the discount period, taking a 2% discount on $7,200, which equals $144 ($7,200 x 2%). Therefore, Babson pays $7,056 ($7,200 - $144), and Klein records a sales discount of $144. The accounts receivable is reduced by the net amount paid plus the discount, totaling $7,200.

Question 18

On March 12,Klein Company sold merchandise in the amount of $7,800 to Babson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,500.Klein uses the perpetual inventory system and the gross method of accounting for sales.On March 15,Babson returns some of the merchandise,which is not defective.The selling price of the returned merchandise is $600 and the cost of the merchandise returned is $350.The entry or entries that Klein must make on March 15 is:

Accepted Answer

Option A is correct because it records both the reduction in revenue due to the sales return ($600) and the corresponding reduction in cost of goods sold ($350), along with the increase in inventory due to the return of merchandise. This reflects the dual effect of a sales return in a perpetual inventory system: reducing revenue and restoring inventory.

Question 19

On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ryan uses the periodic inventory system and the net method of accounting for sales.On September 14,Johnson returns some of the non-defective merchandise,which is restored to inventory.The selling price of the returned merchandise is $500 and the cost of the merchandise returned is $350.The entry or entries that Ryan must make on September 14 is (are):

Accepted Answer

Under the net method, the sales return is recorded at the net amount, which is $500 less the 2% discount, resulting in $490. The periodic inventory system does not require an entry for cost of goods sold or inventory for returns.

Question 20

On September 12,Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,with credit terms of 2/10,n/30.The cost of the items sold is $4,000.Ryan uses the periodic inventory system and the net method of accounting for sales.Johnson pays the invoice on September 18,and takes the appropriate discount.The journal entry that Ryan makes on September 18 is:

Accepted Answer

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Quiz 4: Reporting and Analyzing Merchandising Operations

The net method of recording purchases refers to recording:

In its first year of business,Borden Corporation had sales of $2,000,000 and cost of goods sold of $1,200,000.Borden expects returns in the following year to equal 8% of sales.The adjusting entry or entries to record the expected sales returns is (are) :

An expense resulting from failing to take advantage of cash discounts when using the net method of recording purchases is called:

Morgan,Inc.uses a perpetual inventory system and the net method of recording purchases.On May 12,a merchandise purchase of $15,000 was made on credit,2/10,n/30.The journal entry to record this purchase is:

Zenith Company's Merchandise Inventory account at year-end has a balance of $91,820,but a physical count reveals that only $90,450 of inventory exists.The adjusting entry to record this $1,370 of inventory shrinkage is:

All of the following statements regarding sales returns and allowances are true except: