Question 1

Ace Electronics,which uses a perpetual inventory system,recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable,along with a debit to Inventory and a credit to Cost of Goods Sold.What business event must have taken place?
A) The customer received a damaged product, but kept the product and asked for a reduction in the price.
B) The customer received a damaged product and returned it.
C) The customer received a discount because the invoice was paid on time.
D) The customer sent in a partial payment and promised to pay the balance next month.

Accepted Answer

A debit to Sales Returns & Allowances and a credit to Accounts Receivable indicate that a customer returned a product and received either a refund or a credit towards future purchases. Additionally, a debit to Inventory and a credit to Cost of Goods Sold indicate that the returned product was removed from inventory and the cost of the product was recognized as an expense. Option A would only result in a debit to Sales Returns and Allowances and a credit to Accounts Receivable, as no inventory would be affected. Option C would result in a discount being taken off the original sale, but not a return of inventory. Option D involves a partial payment, but not a return of inventory.

Question 2

Acme Enterprises,which uses a perpetual inventory system,recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable.(No other accounts were affected.)What business event must have taken place?
A) The customer received a damaged product, but kept the product and asked for a reduction in the price.
B) The customer received a damaged product and returned it.
C) The customer received a discount because the invoice was paid on time.
D) The customer sent in a partial payment and promised to pay the balance next month.

Accepted Answer

The entry indicates a reduction in sales revenue due to a return or allowance. A debit to Sales Returns & Allowances and a credit to Accounts Receivable suggests the customer kept the product but received a price reduction, which aligns with option A.

Question 3

The following account balances appeared on the company's trial balance at year-end:

The amount of net sales reported on the income statement would be:
A) $57,200.
B) $64,200.
C) $56,000.
D) $55,700.

Accepted Answer

The answer of The following account balances appeared on the...

Question 4

XYZ Company sold merchandise for $5,000,with payment terms of 2/10,n/30.If the customer pays within the discount period and takes the discount,XYZ will receive:
A) $4,900
B) $5,000
C) $3,500
D) $100

Accepted Answer

If the customer takes the discount, they would pay 2% of $5,000 ($100) less, which would be $4,900. Therefore, XYZ Company would receive $4,900.

Question 5

Sales Returns and Allowances are reported on the:
A) income statements as a contra-revenue account
B) balance sheet as a contra-inventory account
C) income statement as a reduction to Cost of Goods Sold
D) balance sheet as a reduction to Gross Profit

Accepted Answer

Sales Returns and Allowances are reported on the income statement as a contra-revenue account, reducing total sales to reflect the actual revenue earned.

Question 6

Which of the following is the most common wording for a measure of the company's income from regular operating activities,before considering the effects of interest,income taxes,and any nonrecurring items?
A) Income from operations
B) Income from core operations
C) Income from peripheral operations
D) Income before interest, taxes, and nonrecurring items

Accepted Answer

"Income from operations" is the most common wording for a measure of the company's income from regular operating activities, before considering the effects of interest, income taxes, and any nonrecurring items. This term is widely used in financial statements and reports. Option B, "income from core operations," is similar but not as commonly used, while option C, "income from peripheral operations," does not accurately reflect income from regular operating activities. Option D, "income before interest, taxes, and nonrecurring items," is also accurate but not as widely used as option A.

Question 7

Central Company sold goods for $5,000 to Western Company on March 12 on credit.Terms of the sale were 2/10,n/30.At the time of the sale,Central recorded the transaction by debiting Accounts Receivable for $5,000 and crediting Sales Revenue for $5,000.Western paid the balance due,less the discount,on March 21.Central's journal entry on March 21 would include a debit to:
A) Cash for $4,900.
B) Accounts Receivable for $4,900.
C) Cash for $5,000.
D) Accounts Receivable for $5,000.

Accepted Answer

Western Company paid $5,000 less the 2% discount ($5,000 x 2% = $100), so they paid $4,900. Therefore, Central Company would debit Cash for $4,900.

Question 8

Contra-revenue accounts:
A) are balance sheet accounts.
B) increase net income.
C) are increased with a debit.
D) increase net sales.

Accepted Answer

Contra-revenue accounts have a credit balance and are used to offset gross revenue. Examples include sales returns, allowances, and discounts. These accounts are increased with a debit, not a credit, and decrease net sales rather than increase it.

Question 9

A company's trial balance included the following account balances at year-end:

The amount of net sales reported on the income statement would be:
A) $114,400.
B) $128,400.
C) $112,000.
D) $111,400.

Accepted Answer

The answer of A company's trial balance included the following...

Question 10

Multistep income statements:
A) are required for merchandise companies.
B) contain more detail than just listing revenues and expenses.
C) are required when the perpetual inventory method is used.
D) classify Cost of Goods Sold as a selling expense.

Accepted Answer

A multistep income statement includes multiple sections and provides more detail than a simple listing of revenues and expenses. While it is commonly used by merchandise companies, it is not required solely for their use. The perpetual inventory method may be used without requiring a multistep income statement. Cost of Goods Sold is typically classified as a cost of goods sold expense, not a selling expense.

Question 11

If a perpetual inventory system is in use,which of the following statements about transactions with customers is correct?
A) When a customer pays within the discount period, Accounts Receivable is credited for the full amount.
B) If a customer pays within the discount period, Sales Discounts is credited.
C) A sales return is recorded with entries that include a credit to Sales Returns & Allowances.
D) Sales of inventory are recorded by entries that include a credit to Cost of Goods Sold.

Accepted Answer

In a perpetual inventory system, when a customer pays within the discount period, Accounts Receivable is credited for the full amount of the invoice, and the discount is recorded separately.

Question 12

Inventory costing $3,000 is sold for $4,000 on terms 2/10,n/30.If the buyer pays within the discount period,what amount will be reported on the income statement as net sales?
A) $3,920
B) $4,000
C) $1,000
D) $3,200

Accepted Answer

The buyer will receive a 2% discount if they pay within 10 days. The amount of the discount is $4,000 x 2% = $80. The net sales will be $4,000 - $80 = $3,920.

Question 13

Inventory was sold on credit for $3,000,terms 1/10,n/30.How should the seller record the cash collection?
A) Debit Cash for $3,000 and credit Accounts Receivable for $3,000, if collected within the discount period.
B) Debit Cash for $3,000, credit Accounts Receivable for $2,970, and credit Sales Discounts for$30, if collected within the discount period.
C) Debit Cash for $3,000, credit Accounts Receivable for $2,970, and credit Sales Discounts for$30, if collected after the discount period.
D) Debit Cash for $3,000 and credit Accounts Receivable for $3,000, if collected after the discount period.

Accepted Answer

If the payment is collected after the discount period, the full amount of $3,000 is collected, so Cash is debited for $3,000 and Accounts Receivable is credited for $3,000.

Question 14

Sales discounts should appear in the financial statements as a(n):
A) addition to inventory
B) addition to sales
C) operating expense
D) deduction from sales

Accepted Answer

Sales discounts are a deduction from sales revenue as they represent a reduction in the amount that the customer owes. Therefore, they should be reported as a deduction from gross sales on the income statement.

Question 15

Which of the following line items below is present in both the multistep and an income statement in which expenses are simply subtracted from revenues to arrive at net income?
A) Income before income tax expense
B) Income from operations
C) Net income
D) Gross profit

Accepted Answer

Net income is present in both the multistep and the income statement where expenses are simply subtracted from revenues. Although the other line items may be present in both types of income statements, net income is the only line item that is guaranteed to be present in both.

Question 16

Using a perpetual inventory system,what is the correct journal entry when a customer returns a product that was purchased on account?
A) A debit to Sales Returns & Allowances and a credit to Accounts Receivable; and a debit to Inventory and a credit to Cost of Goods Sold
B) A debit to Cash and a credit to Sales Returns & Allowances; and a debit to Inventory and a credit to Cost of Goods Sold
C) A debit to Accounts receivable and a credit to Sales Returns & Allowances; and a debit to Cost of Goods Gold and a credit to Inventory
D) A debit to Sales Returns & Allowances and a credit to Accounts Receivable

Accepted Answer

When a customer returns a product, the sales return is recorded by debiting Sales Returns & Allowances and crediting Accounts Receivable. Additionally, the inventory is increased by debiting Inventory and crediting Cost of Goods Sold to reflect the return of the product to inventory.

Question 17

When a company collects from a customer who pays within the discount period,the company:
A) debits a contra-revenue account.
B) debits a liability account.
C) credits a liability account.
D) debits a revenue account.

Accepted Answer

When a company collects from a customer who pays within the discount period, it debits a contra-revenue account called "Sales Discounts" to record the discount given to the customer.

Question 18

Merchandisers record revenue when they:
A) fulfill their performance obligations by transferring control of the goods to customers
B) deliver the goods and collect the cash from their customers
C) receive cash in advance from their customers
D) receive the order to deliver goods to customers

Accepted Answer

According to the revenue recognition principle, revenue should be recognized when a company fulfills its performance obligations by transferring control of the goods or services to the customer. In the case of merchandisers, revenue should be recorded when they transfer control of the goods to customers. Delivery and cash collection may occur before or after revenue recognition, and receiving cash in advance only affects the timing of when the revenue is recognized, not if it is recognized. Receiving an order does not necessarily mean that revenue should be recognized, as the goods still need to be delivered and control transferred to the customer.

Question 19

Sales Returns & Allowances is a ______ account and is ______ when goods are returned by customers for a refund.
A) contra-asset; debited
B) contra-revenue; credited
C) contra-revenue; debited
D) contra-asset; credited

Accepted Answer

Sales Returns & Allowances is a contra-revenue account as it reduces the revenue earned from sales. When goods are returned by customers for a refund, the contra-revenue account needs to be debited to record the decrease in revenue. Therefore, the correct answer is option C - contra-revenue; debited.

Question 20

Sales Discounts is a ______ account with a normal ______ balance.
A) contra-asset; debit
B) contra-revenue; credit
C) contra-asset; credit
D) contra-revenue; debit

Accepted Answer

The answer of Sales Discounts is a ______ account with...

Quiz 6: Internal Control and Financial Reporting for Cash and Merchandising Operations

Ace Electronics,which uses a perpetual inventory system,recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable,along with a debit to Inventory and a credit to Cost of Goods Sold.What business event must have taken place?

Acme Enterprises,which uses a perpetual inventory system,recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable.(No other accounts were affected.) What business event must have taken place?

The following account balances appeared on the company's trial balance at year-end: The amount of net sales reported on the income statement would be:

XYZ Company sold merchandise for $5,000,with payment terms of 2/10,n/30.If the customer pays within the discount period and takes the discount,XYZ will receive:

Sales Returns and Allowances are reported on the:

Which of the following is the most common wording for a measure of the company's income from regular operating activities,before considering the effects of interest,income taxes,and any nonrecurring items?

Contra-revenue accounts:

A company's trial balance included the following account balances at year-end: The amount of net sales reported on the income statement would be:

Multistep income statements:

If a perpetual inventory system is in use,which of the following statements about transactions with customers is correct?

Inventory costing $3,000 is sold for $4,000 on terms 2/10,n/30.If the buyer pays within the discount period,what amount will be reported on the income statement as net sales?

Inventory was sold on credit for $3,000,terms 1/10,n/30.How should the seller record the cash collection?

Sales discounts should appear in the financial statements as a(n) :

Which of the following line items below is present in both the multistep and an income statement in which expenses are simply subtracted from revenues to arrive at net income?

Using a perpetual inventory system,what is the correct journal entry when a customer returns a product that was purchased on account?

When a company collects from a customer who pays within the discount period,the company:

Merchandisers record revenue when they:

Sales Returns & Allowances is a account and is when goods are returned by customers for a refund.

Sales Discounts is a account with a normal balance.