Question 1

A company that uses the perpetual inventory method purchased inventory for $2,000 from a vendor on account, FOB shipping point, with terms of 2/10, n/30. The company paid the shipper $100 cash for freight in. The company paid the vendor 9 days after the sale. Assuming this was the only transaction affecting inventory, and that there was no beginning balance, what would the cost basis of the inventory be?

Accepted Answer

The cost basis of inventory includes the cost of the goods purchased, plus any additional costs necessary to get the inventory ready for sale. In this case, the cost of the goods is $2,000 and the company paid $100 for freight in, so the total cost of the inventory is $2,100. However, the company received a 2% discount for paying within 10 days, which is $40 ($2,000 x 0.02). Therefore, the cost basis of the inventory is $2,060 ($2,100 - $40).

Question 2

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012:
  Please provide the journal entry on Aug. 15.

Accepted Answer

The answer of Reid Art Supply Company uses a perpetual...

Question 3

Oscar's Packaging shipped goods to a customer and paid the freight out of $400 in cash. Please provide the journal entry for the payment of freight out.

Accepted Answer

The answer of Oscar's Packaging shipped goods to a customer...

Question 4

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012:
  Please provide the journal entry on Aug. 10.

Accepted Answer

The answer of Reid Art Supply Company uses a perpetual...

Question 5

A company purchased inventory for $2,200 on account, and recorded the following journal entry:
  The vendor's invoice showed terms of 3/10, net 30. Please provide the journal entry for the payment of the invoice on the 7th day (using the perpetual inventory method).

Accepted Answer

The answer of A company purchased inventory for $2,200 on...

Question 6

A company uses the perpetual inventory method. To record a sale of merchandise on account will require an entry to record revenue and an entry to record cost of goods sold.

Accepted Answer

Under the perpetual inventory method, the cost of goods sold is continuously updated after every sale, so when a sale of merchandise is made on account, both the revenue and cost of goods sold accounts are affected.

Question 7

Journalize the following transactions (using the perpetual inventory method). Purchased merchandise on account for $4,300.

Accepted Answer

The answer of Journalize the following transactions (using the perpetual...

Question 8

When a company ships goods to a customer and pays for freight out, how is that cost recorded?

Accepted Answer

Freight out, or the cost of shipping goods to customers, is considered an operating expense. It is recorded as a separate expense related to selling and distribution, rather than being included in the cost of inventory or cost of goods sold.

Question 9

A company that uses the perpetual inventory method purchased inventory for $2,000 from a vendor on account, FOB shipping point, with terms of 2/10, n/30. The company paid the shipper $100 cash for freight in. The company then returned $200 of damaged goods and got an allowance from the vendor. The company paid the vendor 8 days after the sale. Assuming this was the only transaction affecting inventory, and that there was no beginning balance, what would the cost basis of the inventory be?

Accepted Answer

- The cost of the inventory purchased is $2,000.
- The company paid for freight in, so the cost basis is increased by $100 to $2,100.
- The company returned $200 of damaged goods and received an allowance from the vendor, so the cost basis is decreased by $200 to $1,900.
- The terms are 2/10, n/30, meaning the company gets a 2% discount if they pay within 10 days. They paid 8 days after the sale, so they get the discount. The discount is 2% x $1,900 = $38, so the cost basis is further decreased by $38 to $1,862.
- The closest answer choice to $1,862 is B ($1,864), so that is the best choice.

Question 10

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012:
  Please provide the journal entry on Aug. 5.

Accepted Answer

The answer of Reid Art Supply Company uses a perpetual...

Question 11

Using the perpetual inventory system, discounts taken on an invoice, such as 3/10, n/30, would be:

Accepted Answer

The answer of Using the perpetual inventory system, discounts taken...

Question 12

A sales allowance is recorded with a debit to Inventory.

Accepted Answer

A sales allowance is a reduction in the selling price of a product offered by a seller to a buyer, usually for reasons such as defects or quality issues. It is recorded as a credit to Sales Revenue and a debit to Accounts Receivable or Cash, not Inventory.

Question 13

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012:
  Please provide the journal entry on Aug. 9.

Accepted Answer

The answer of Reid Art Supply Company uses a perpetual...

Question 14

A company has purchased inventory and receives an invoice that indicates that the buyer must pay the transportation costs of delivering the merchandise. Which of the following will most likely be noted as the delivery terms?

Accepted Answer

FOB shipping point means that the buyer is responsible for the transportation costs and risks from the shipping point. This matches the scenario where the buyer pays for the delivery of the merchandise.

Question 15

A company purchased inventory for $2,200 on account, and recorded the following journal entry:
  The vendor's invoice showed terms of 3/10, n/30. Please provide the journal entry for the payment of the invoice on the 17th day (using the perpetual inventory method).

Accepted Answer

The answer of A company purchased inventory for $2,200 on...

Question 16

Journalize the following transactions (using the perpetual inventory method). Paid $230 cash for freight in on merchandise purchased.

Accepted Answer

The answer of Journalize the following transactions (using the perpetual...

Question 17

A sales return is recorded with a credit to Accounts receivable.

Accepted Answer

A sales return represents a customer returning a product and requesting a refund. When this happens, the company needs to reduce the amount owed by the customer, which is recorded as a credit to the Accounts receivable account.

Question 18

A sales return is recorded with a credit to Inventory.

Accepted Answer

A sales return is recorded with a debit to Sales Returns and Allowances (or a similar account) and a credit to Accounts Receivable or Cash, depending on the original sale. Inventory is adjusted separately, typically with a debit to Inventory and a credit to Cost of Goods Sold if the returned goods are restocked.

Question 19

Compute the amount of payment for an invoice of $5,600, 4/10, n/30 paid on the 7th day.

Accepted Answer

The discount period is 10 days, which gives a discount of 4%. 
The payment date is on the 7th day, which means the discount can be taken. 
The amount of the discount is 0.04 * 5,600 = $224. 
The amount of the payment with the discount is 5,600 - 224 = $5,376.

Question 20

A sales allowance is recorded with a credit to Accounts receivable.

Accepted Answer

A sales allowance is a reduction in the amount owed by a customer for goods or services sold. It is recorded as a credit to Accounts receivable to reduce the amount owed by the customer.

Quiz 5: Merchandising Operations

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012: Please provide the journal entry on Aug. 15.

Oscar's Packaging shipped goods to a customer and paid the freight out of $400 in cash. Please provide the journal entry for the payment of freight out.

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012: Please provide the journal entry on Aug. 10.

A company purchased inventory for $2,200 on account, and recorded the following journal entry: The vendor's invoice showed terms of 3/10, net 30. Please provide the journal entry for the payment of the invoice on the 7th day (using the perpetual inventory method).

A company uses the perpetual inventory method. To record a sale of merchandise on account will require an entry to record revenue and an entry to record cost of goods sold.

Journalize the following transactions (using the perpetual inventory method). Purchased merchandise on account for $4,300.

When a company ships goods to a customer and pays for freight out, how is that cost recorded?

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012: Please provide the journal entry on Aug. 5.

Using the perpetual inventory system, discounts taken on an invoice, such as 3/10, n/30, would be:

A sales allowance is recorded with a debit to Inventory.

Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August, 2012: Please provide the journal entry on Aug. 9.

A company has purchased inventory and receives an invoice that indicates that the buyer must pay the transportation costs of delivering the merchandise. Which of the following will most likely be noted as the delivery terms?

A company purchased inventory for $2,200 on account, and recorded the following journal entry: The vendor's invoice showed terms of 3/10, n/30. Please provide the journal entry for the payment of the invoice on the 17th day (using the perpetual inventory method).

Journalize the following transactions (using the perpetual inventory method). Paid $230 cash for freight in on merchandise purchased.

A sales return is recorded with a credit to Accounts receivable.

A sales return is recorded with a credit to Inventory.

Compute the amount of payment for an invoice of $5,600, 4/10, n/30 paid on the 7th day.

A sales allowance is recorded with a credit to Accounts receivable.