Question 1

A credit sale of $3,800 is made on April 25, terms 2/10, net/30, on which a return of $200 is granted on April 28. What amount is received as payment in full on May 4?

Accepted Answer

The amount due on the invoice is $3,800. The terms of 2/10, net/30 mean that the customer can take a 2% discount if they pay within 10 days, otherwise the full amount is due in 30 days. 
If the customer takes the discount, they will pay $3,724 ($3,800 - 2%*$3,800). 
However, there was a return of $200, so the new amount due is $3,600 ($3,800 - $200). 
Since the customer did not take the discount and paid within 30 days, they need to pay the full amount of $3,600. Therefore, the amount received as payment in full on May 4 is $3,528 ($3,600 - 2%*$3,600).

Question 2

Davies Company purchased merchandise inventory with an invoice price of $15,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Davies Company pays within the discount period?

Accepted Answer

The answer of Davies Company purchased merchandise inventory with an...

Question 3

A buyer borrows money at 6% interest to pay a $9,000 invoice with terms 1/10, n/30 on the 10th day of the discount period. The loan is repaid on the 30th day of the invoice. What is the buyer's net savings for this total event?

Accepted Answer

The answer of A buyer borrows money at 6% interest...

Question 4

In the credit terms of 1/10, n/30, the "1" represents the

Accepted Answer

The "1" represents the percent of the cash discount offered for early payment, which in this case is 1%. The "10" represents the number of days in the discount period, during which the buyer can take advantage of the discount. The "n" represents the number of days in the credit period, during which the buyer has to pay the full amount of the invoice without incurring any additional fees.

Question 5

Conway Company purchased merchandise inventory with an invoice price of $12,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

Accepted Answer

The answer of Conway Company purchased merchandise inventory with an...

Question 6

A company using a perpetual inventory system that returns goods previously purchased on credit would

Accepted Answer

When a company returns goods previously purchased on credit, it means that they did not keep the goods and therefore should no longer be included in the inventory. Therefore, the entry would be to debit Accounts Payable to reduce the amount owed to the supplier and credit Inventory to remove the cost of the goods from the records.

Question 7

Freight costs incurred by a seller on merchandise sold to customers will cause an increase

Accepted Answer

The answer of Freight costs incurred by a seller on...

Question 8

Farwell Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?

Accepted Answer

The answer of Farwell Company purchased merchandise with an invoice...

Question 9

A purchase invoice is a document that

Accepted Answer

A purchase invoice is a document that provides evidence of credit purchases, which means that the goods or services were purchased on credit and that payment will be made at a later date. It is not a receipt for cash purchases, as those would typically be documented with a cash register receipt or similar documentation. Additionally, while a purchase invoice could provide evidence of incurred operating expenses, that is not its primary purpose.

Question 10

Grayson Company purchased merchandise with an invoice price of $2,000 and credit terms of 3/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
A)3%
B)8%
C)36% d 54%

Accepted Answer

The answer of Grayson Company purchased merchandise with an invoice...

Question 11

A credit sale of $1,400 is made on July 15, terms 2/10, net/30, on which a return of $100 is granted on July 18. What amount is received as payment in full on July 24?

Accepted Answer

The discount period ended on July 25 (10 days after July 15). Since payment was made on July 24, the discount of 2% is taken. The amount received is $1,400 - (2% x $1,400) - $100 = $1,274.

Question 12

What is a difference between merchandising companies and service enterprises?

Accepted Answer

Merchandising companies typically have a longer operating cycle because they have to purchase inventory, wait for it to be delivered, sell it, and then collect payment from customers, whereas service enterprises typically provide services and collect payment from customers more quickly. Choices A and C are incorrect: both types of companies must prepare income statements and include expenses such as cost of goods sold or cost of services performed. Choice D is incorrect because only choice B is a valid difference.

Question 13

Under the perpetual inventory system, which of the following accounts would not be used?

Accepted Answer

The answer of Under the perpetual inventory system, which of...

Question 14

If a company is given credit terms of 2/10, n/30, it should

Accepted Answer

The credit terms of 2/10, n/30 mean that the company can receive a 2% discount if they pay within 10 days, otherwise, they must pay the full amount within 30 days. Choosing to pay within the discount period and recognizing a savings is the best choice, as it allows the company to save money and maintain a good relationship with the supplier by paying on time. Holding off on payment until the end of the credit period, as suggested in option A, could damage the relationship with the supplier and potentially harm future business opportunities. Option C is also not optimal because it does not take advantage of the discount opportunity, and option D is not ethical and could harm the supplier's business.

Question 15

Under a perpetual inventory system, acquisition of merchandise for resale is debited to

Accepted Answer

Under the perpetual inventory system, the Inventory account is updated continuously, therefore, acquisition of merchandise for resale is debited directly to the Inventory account.

Question 16

As the president of Harter Company, you notice that no discounts have been taken when settling accounts payables. What would be an acceptable explanation?

Accepted Answer

All invoices have credit terms of n/30, meaning that discounts can only be taken within 30 days.

Question 17

The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

Accepted Answer

The answer of The journal entry to record a return...

Question 18

Adams Company is a retailer and uses a perpetual inventory system. Which statement is correct?

Accepted Answer

The answer of Adams Company is a retailer and uses...

Question 19

Which of the following items does not result in an adjustment in the merchandise inventory account under a perpetual system?

Accepted Answer

Payment of freight costs for goods shipped to a customer do not result in an adjustment in the merchandise inventory account under a perpetual system. The account affected for this transaction would be the freight-out account as it represents a selling expense. On the other hand, choices A, B, and D would result in adjustments to the merchandise inventory account since they involve purchases, returns, and receipts of merchandise.

Question 20

If a purchaser using a perpetual inventory system pays the transportation costs, then the

Accepted Answer

When a purchaser using a perpetual inventory system pays for transportation costs, the cost of transportation is added to the cost of the inventory. This increases the Inventory account.

Quiz 4: Merchandising Operations and the Multiple-Step Income Statement