Question 1

Polk Company uses a perpetual inventory system and had the following transactions during November: November 6-Purchased $8,700 of inventory on account,terms 2/10,n/30.
November 8-Returned $1,200 of defective units and received full credit.
November 15-Paid the amount due.
What journal entry will be recorded by Polk Company on November 15?
A)Debit Accounts Payable and credit Cash for $7,350
B)Debit Accounts Payable for $7,500,credit Purchase Discount for $150,and credit Cash for $7,350
C)Debit Accounts Payable for $7,500,credit Inventory for $150,and credit Cash for $7,350
D)Debit Accounts Payable for $7,350,credit Inventory for $150,and credit Cash for $7,200

Accepted Answer

Debit Accounts Payable for $7,500,credit Inventory for $150 (or $7,500 × 0.02),and credit Cash for $7,350 (or $7,500 − $150).

Question 2

Harvard,Inc.paid an invoice for $1,000,with discount terms of 2/7,n/30,within the discount period and will write a check in the amount of:
A)$1,000.
B)$980.
C)$1,020.
D)$998.

Accepted Answer

Payment = Amount owed − Discount
= $1,000 − ($1,000 × 0.02)= $1,000 − $20 = $980

Question 3

Alpha Company bought inventory from Omega Company,FOB shipping point.On December 31,the last day of the accounting year,the goods were on a truck owned by Theta,Inc. ,exactly halfway between Alpha and Omega.Which company should include these goods in its December 31 inventory?
A)Omega
B)Alpha
C)Theta
D)Alpha and Omega should each include half of the goods in inventory.

Accepted Answer

Since the goods were shipped FOB shipping point,title has passed to Alpha and thus they are Alpha's inventory on its balance sheet.

Question 4

In a perpetual system,when inventory is sold on account:
A)Sales Revenue is increased and Accounts Receivable is decreased.
B)Sales Revenue,Cost of Goods Sold,and Accounts Receivable are increased while Inventory is decreased.
C)Sales Revenue and Accounts Receivable are increased,and Cost of Goods Sold and Inventory are decreased.
D)Sales Revenue is increased and Inventory is decreased.

Accepted Answer

When a company makes a sale on account under the perpetual system,it will increase Accounts Receivable,an asset account,and increase Sales Revenue,a revenue account.In addition,because a perpetual inventory system updates these accounts,it will increase Cost of Goods Sold,an expense account,and decrease Inventory,an asset account.

Question 5

If merchandise costing $500 is sold on account for $620,how is this transaction recorded when using a perpetual inventory system?
A)Debit Accounts Receivable,credit Sales Revenue for $620;debit Cost of Goods Sold,and credit Inventory for $500.
B)Debit Accounts Receivable and credit Sales Revenue for $620.
C)Debit Cash and credit Sales Revenue for $620;debit Cost of Goods Sold and credit Inventory for $500.
D)Debit Accounts Receivable and credit Sales Revenue for $620;debit Inventory and credit Cost of Goods Sold for $500.

Accepted Answer

The company will debit Accounts Receivable (to increase that asset account)and credit Sales Revenue (to increase that revenue account)for $620.In addition,because a perpetual inventory system updates these accounts,it will debit Cost of Goods Sold (to increase that expense account)and credit Inventory (to decrease that asset account)for $500.

Question 6

In a perpetual inventory system,paying transportation charges on goods purchased FOB shipping point would have which of the following effects?
A)Decrease Operating Expenses
B)Increase Selling,General,and Administrative Expenses
C)Decrease Cost of Goods Sold
D)Increase Inventory

Accepted Answer

Payment of the transportation charges would be debited to Inventory (assets increase)and credited to Cash (assets decrease).

Question 7

The journal entry to record taking a discount when paying for goods previously purchased on account:
A)decreases assets and liabilities.
B)increases assets and stockholders' equity.
C)decreases liabilities and increases in stockholders' equity.
D)decreases assets and stockholders' equity.

Accepted Answer

The journal entry includes a debit to Accounts Payable for the original cost (to decrease this liability account)and a credit to Cash for the discounted amount (to decrease this asset account)and Inventory for the amount of the discount (to decrease this asset account).

Question 8

Glenrosa Company bought inventory FOB shipping point from Monterosa Company for $8,200 cash,including shipping charges.On December 31,the last day of the accounting year,the goods were on a truck owned by Common Carrier,Inc. ,and not expected to arrive until January 3.Which company should include these goods in its December 31 inventory?
A)Glenrosa should include the $8,200 in its inventory.
B)Glenrosa owns the inventory,but Common Carrier has possession of it.Each of them should include half of the inventory,$4,100 each.
C)Common Carrier should include the $8,200 in its inventory,since the inventory is on its truck.
D)Glenrosa owns the inventory,but Common Carrier has possession of it.Neither of them can include the $8,200 in its December 31 inventory.

Accepted Answer

Glenrosa owns and should report the inventory as an asset on its balance sheet.

Question 9

The journal entry to record taking a discount when paying for goods previously purchased on account includes a:
A)credit to two asset accounts.
B)credit to a liability account.
C)debit to an asset account.
D)debit to an expense account.

Accepted Answer

The journal entry includes a debit to Accounts Payable for the original cost (to decrease this liability account)and a credit to Cash for the discounted amount (to decrease this asset account)and Inventory for the amount of the discount (to decrease this asset account).

Question 10

A company using a perpetual inventory system made the following entry: Debit Accounts Payable for $3,000,credit Inventory for $60,and credit Cash for $2,940.What does this entry reflect?
A)A purchase of inventory at a discount.
B)A return of inventory for credit.
C)A sale of inventory on account.
D)A payment within the discount period for inventory previously purchased on credit.

Accepted Answer

When a perpetual inventory system is used,a purchase discount taken is recorded as a deduction to the Inventory account.Accounts Payable is debited for the full amount owed and cash is credited for the actual amount paid.

Question 11

The journal entry to record the payment within the discount period for goods previously purchased on account causes:
A)equity to decrease.
B)total stockholders' equity to increase.
C)total assets to decrease.
D)total assets to increase.

Accepted Answer

The journal entry includes a debit to Accounts Payable for the original cost (to decrease this liability account)and a credit to Cash for the discounted amount (to decrease this asset account)and Inventory for the amount of the discount (to decrease this asset account).

Question 12

A sale is recorded when goods leave the seller's shipping department when the merchandise is shipped:
A)Goods in transit,shipped collect.
B)FOB destination.
C)FOB shipping point.
D)Freight-out,seller shipped.

Accepted Answer

When the sales agreement specifies FOB shipping point,the sale is recorded when the goods leave the seller's shipping department.

Question 13

On July 1,Darin Company sold inventory costing $5,000 to Dee Company for $6,000,terms 3/10,n/30.Both companies use a perpetual inventory system.What journal entry will be recorded by Dee Company on July 1?
A)Debit Purchases and credit Accounts Payable for $6,000.
B)Debit Inventory and credit Accounts Receivable for $6,000.
C)Debit Inventory and credit Accounts Payable for $6,000.
D)Debit Cost of Goods Sold and credit Inventory for $4,500.

Accepted Answer

Using a perpetual inventory system,the purchaser records purchases on credit by debiting Inventory and crediting Accounts Payable.

Question 14

Glenrosa Company bought inventory from Monterosa Company,FOB destination.On December 31,the last day of the accounting year,the goods were on a truck owned by Common Carrier,Inc. ,and not expected to arrive until January 2.Which company should include these goods in its December 31 inventory?
A)Monterosa
B)Glenrosa
C)Common Carrier
D)None of them should include these goods in inventory.

Accepted Answer

Since the goods were in transit,title has not passed to Glenrosa and thus they are Monterosa's inventory on its balance sheet.

Question 15

On July 1,Darin Company sold inventory costing $5,000 to Dee Company for $6,000,terms 3/10,n/30.Both companies use the perpetual inventory system.Dee Company pays the invoice on July 8 and takes the appropriate discount.What journal entry will be recorded by Dee Company on July 8?
A)Debit Accounts Payable and credit Cash for $6,000
B)Debit Accounts Payable for $5,820,credit Inventory for $180,and credit Cash for $6,000
C)Debit Accounts Payable for $6,000,credit Cash for $5,820,and credit Inventory for $180
D)Debit Cost of Goods Sold and credit Cash for $5,000

Accepted Answer

Debit Accounts Payable for $6,000,credit Inventory for $180 (or $6,000 × 0.03),and credit Cash for $5,820 (or $6,000 − $180).

Question 16

Which of the following costs should be added to the buyer's Inventory account?
A)Freight-in costs with terms FOB shipping point
B)Freight-out costs with terms FOB destination
C)Freight-in costs with terms FOB destination
D)Freight-out costs with terms FOB shipping point

Accepted Answer

If the terms of sale are FOB shipping point,ownership of the goods transfers to the purchaser at the shipping point,so the purchaser would pay the transportation cost.This transportation cost (also called freight-in)is recorded as an addition to the purchaser's Inventory account because it is a cost the purchaser incurs to obtain the inventory.In general,a purchaser should include in the Inventory account any costs needed to get the inventory into a condition and location ready for sale.Costs that are incurred after the inventory has been made ready for sale,such as freight-out to deliver goods to customers,should be treated as selling expenses.

Question 17

Inventory cost consists of purchase price:
A)plus freight-in.
B)plus freight-out.
C)less freight-in.
D)less freight-out.

Accepted Answer

If the terms of sale are FOB shipping point,ownership of the goods transfers to the purchaser at the shipping point,so the purchaser would pay the transportation cost.This transportation cost (also called freight-in)is recorded as an addition to the purchaser's Inventory account because it is a cost the purchaser incurs to obtain the inventory.In general,a purchaser should include in the Inventory account any costs needed to get the inventory into a condition and location ready for sale.Costs that are incurred after the inventory has been made ready for sale,such as freight-out to deliver goods to customers,should be treated as selling expenses.

Question 18

When using a perpetual inventory system,the Cost of Goods Sold is recorded:
A)each time a sale is made.
B)at the end of each month.
C)at the end of the accounting period.
D)at the end of each day.

Accepted Answer

Inventory records are updated each time an item is sold,returned or bought when using a perpetual inventory system.

Question 19

Assume that a company uses a perpetual inventory system and records the return of inventory previously purchased on account with a debit to Accounts Payable and a credit to Inventory.This entry is:
A)incorrect and will cause assets to be overstated.
B)incorrect and will cause assets to be understated.
C)incorrect and will cause liabilities to overstated.
D)correct.

Accepted Answer

This entry is correct.

Question 20

The purchase of merchandise on account in a perpetual system is recorded with a debit to ________ and a credit to ________.
A)Inventory;Accounts Payable
B)Accounts Payable;Inventory
C)Inventory;Accounts Receivable
D)Accounts Receivable;Inventory

Accepted Answer

The entry to record a purchase of inventory on account includes a debit to Inventory (to decrease this asset account)and a credit to Accounts Payable (to increase this liability account).

Quiz 6: Merchandising Operations and the Multistep Income Statement

Harvard,Inc.paid an invoice for $1,000,with discount terms of 2/7,n/30,within the discount period and will write a check in the amount of:

Alpha Company bought inventory from Omega Company,FOB shipping point.On December 31,the last day of the accounting year,the goods were on a truck owned by Theta,Inc. ,exactly halfway between Alpha and Omega.Which company should include these goods in its December 31 inventory?

In a perpetual system,when inventory is sold on account:

If merchandise costing $500 is sold on account for $620,how is this transaction recorded when using a perpetual inventory system?

In a perpetual inventory system,paying transportation charges on goods purchased FOB shipping point would have which of the following effects?

The journal entry to record taking a discount when paying for goods previously purchased on account:

The journal entry to record taking a discount when paying for goods previously purchased on account includes a:

A company using a perpetual inventory system made the following entry: Debit Accounts Payable for $3,000,credit Inventory for $60,and credit Cash for $2,940.What does this entry reflect?

The journal entry to record the payment within the discount period for goods previously purchased on account causes:

A sale is recorded when goods leave the seller's shipping department when the merchandise is shipped:

On July 1,Darin Company sold inventory costing $5,000 to Dee Company for $6,000,terms 3/10,n/30.Both companies use a perpetual inventory system.What journal entry will be recorded by Dee Company on July 1?

Glenrosa Company bought inventory from Monterosa Company,FOB destination.On December 31,the last day of the accounting year,the goods were on a truck owned by Common Carrier,Inc. ,and not expected to arrive until January 2.Which company should include these goods in its December 31 inventory?

On July 1,Darin Company sold inventory costing $5,000 to Dee Company for $6,000,terms 3/10,n/30.Both companies use the perpetual inventory system.Dee Company pays the invoice on July 8 and takes the appropriate discount.What journal entry will be recorded by Dee Company on July 8?

Which of the following costs should be added to the buyer's Inventory account?

Inventory cost consists of purchase price:

When using a perpetual inventory system,the Cost of Goods Sold is recorded:

Assume that a company uses a perpetual inventory system and records the return of inventory previously purchased on account with a debit to Accounts Payable and a credit to Inventory.This entry is:

The purchase of merchandise on account in a perpetual system is recorded with a debit to and a credit to .