Question 1

Who is responsible for the freight costs when the terms are FOB shipping point?

Accepted Answer

FOB shipping point means that the buyer is responsible for the freight costs once the goods leave the seller's shipping dock. Therefore, the answer is the buyer.

Question 2

Pierce Company sold to Stanton Company merchandise on account FOB shipping point,2/10,net 30,for $20,000.Pierce prepaid the $500 shipping charge.Which of the following entries does Pierce make to record this sale?

Accepted Answer

FOB shipping point means that the buyer (Stanton Company) takes ownership and responsibility for the goods once they are given to the carrier. Therefore, Pierce Company would record the sale once the goods are shipped. The amount of the sale is $20,000, but since there is a discount offered for paying early, Pierce would credit Sales for $19,600 ($20,000 - 2% discount of $400). Pierce also prepaid the shipping charge of $500, so they would debit Accounts Receivable-Stanton for $19,600 and debit Delivery Expense for $500. They would then credit Cash for $500. The total debits ($20,100) must equal the total credits ($20,100).

Question 3

Cumberland Co.sells $2,000 of inventory to Hancock Co.for cash.Cumberland paid $1,250 for the merchandise.Under a perpetual inventory system,which of the following journal entryies would be recorded?

Accepted Answer

Under a perpetual inventory system, the cost of merchandise sold must be recognized at the time of the sale. The journal entry to record the sale and cost of goods sold would be to debit Cash for $2,000 (the amount received from the sale), credit Sales for $2,000 (the full amount of the sale), debit Cost of Merchandise Sold for $1,250 (the cost of goods sold), and credit Merchandise Inventory for $1,250 (the reduction in inventory). Thus, option B is the correct choice. Options A and C do not recognize the cost of goods sold at the time of the sale, and option D records an accounts receivable rather than a cash sale.

Question 4

If the seller is to pay the freight costs of delivering merchandise,the delivery terms are stated as

Accepted Answer

FOB destination means that the seller is responsible for the freight costs until the merchandise is delivered to the buyer's specified destination.

Question 5

A chart of accounts for a merchandising business

Accepted Answer

Merchandising businesses require additional accounts to track inventory, cost of goods sold, and sales revenue. Therefore, their chart of accounts usually requires more accounts than a service business.

Question 6

Emma Co.sold to Isabella Co.merchandise on account FOB shipping point,2/10,net 30,for $15,000.Emma Co.prepaid the $750 shipping charge.Using the perpetual inventory method,which of the following entries will Isabella Co.make to record payment of the merchandise if Isabella Co.pays within the discount period?

Accepted Answer

Isabella Co. will record the invoice amount of $15,000 and the prepaid shipping charge of $750, which totals to $15,750. Since they are paying within the discount period, they will take the 2% discount on the invoice amount, which is $300 (2% of $15,000). Therefore, the cash paid will be $15,450 ($15,750 - $300). The entry to record the payment will be to debit Accounts Payable-Emma Co. for $15,450 and credit Cash for $15,450.

Question 7

When goods are shipped FOB destination and the seller pays the freight charges,the buyer

Accepted Answer

When goods are shipped FOB (Free On Board) destination, the seller owns the goods during transit and is responsible for the freight charges. The buyer does not make any journal entry for the freight because the seller bears the shipping costs.

Question 8

Norfolk Sporting Goods purchases merchandise with a catalog list price of $30,000.The retailer receives a 30% trade discount and credit terms of 2/10,n/30.What amount should Norfolk debit to the Merchandise Inventory account?

Accepted Answer

The trade discount rate is 30%, which means Norfolk Sporting Goods only needs to pay 70% of the catalog list price.

30,000 x 0.7 = 21,000

This is the amount that Norfolk Sporting Goods needs to pay for the merchandise. However, if the payment is made within 10 days, they can take a 2% discount off the cost of the goods.

21,000 x 0.98 = 20,580

Therefore, the amount that Norfolk Sporting Goods should debit to the Merchandise Inventory account is $20,580.

Question 9

A sales invoice included the following information: merchandise price,$12,000; terms 1/10,n/eom; FOB shipping point with prepaid freight of $900 added to the invoice.Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period,what is the amount of cash that should be received by the seller?

Accepted Answer

Cash received = Sales - Sales discount + Prepaid freight - Cost of merchandise returned = $12,000 - (1% × $12,000) + $900 - [$500 - (1% × $500)] = $12,000 - $120 + $900 - ($500 - $5) = $12,780 - $495 = $12,285

Question 10

To encourage a buyer to pay before the end of the credit period,the seller may offer a

Accepted Answer

A purchases discount is an incentive offered to buyers who pay for their purchases within a certain time period. This can encourage buyers to pay before the end of the credit period and help the seller manage their cash flow more effectively. A sales discount, trade discount, or payment discount would not be as effective in encouraging early payment.

Question 11

In recording the cost of merchandise sold for cash,based on data available from perpetual inventory records,the journal entry is

Accepted Answer

The answer of In recording the cost of merchandise sold...

Question 12

Kaden Co.sells merchandise on credit to Jase Co.in the amount of $9,600.The invoice is dated on July 15 with terms of 1/15,net 45.If Jase Co.chooses not to take the discount,by when should the payment be made?

Accepted Answer

If Jase Co. chooses not to take the discount, they must pay the full amount within 45 days from the invoice date, which would be August 29.

Question 13

Who is responsible for the freight cost when the terms are FOB destination?

Accepted Answer

When the terms are FOB destination, the seller is responsible for the freight cost.

Question 14

The amount of the total cash paid to the seller for merchandise purchased for consumption would normally include

Accepted Answer

The total cash paid to the seller for merchandise purchased for consumption would normally include both the list price of the merchandise and the sales tax. Therefore, option C, which includes both the list price and the sales tax, is the correct choice. Options A and D are incorrect because they only include either the list price or the list price minus the sales tax, which would not give the total amount paid to the seller. Option B is also incorrect because it only includes the sales tax and not the list price.

Question 15

If the buyer is to pay the freight costs of delivering merchandise,delivery terms are stated as

Accepted Answer

FOB shipping point means that the buyer is responsible for the freight costs and assumes the risk of loss once the goods leave the seller's premises.

Question 16

Taking advantage of a 2/10,n/30 purchases discount is equal to a yearly savings rate of approximately

Accepted Answer

The answer of Taking advantage of a 2/10,n/30 purchases discount...

Question 17

Merchandise is sold for cash.The selling price of the merchandise is $6,000 and the sale is subject to a 7% state sales tax.The journal entry to record the sale would include a credit to

Accepted Answer

The sales tax payable is calculated as 7% of $6,000, which is $420. This amount is credited to the sales tax payable account.

Question 18

If title to merchandise purchases passes to the buyer when the goods are shipped from the seller,the terms are

Accepted Answer

FOB shipping point means that title to the merchandise passes to the buyer once it is shipped from the seller.

Question 19

Jacob Co.sells merchandise on credit to Isaiah Co.in the amount of $9,700.The invoice is dated on May 1 with terms of 1/15,net 45.What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?

Accepted Answer

The answer of Jacob Co.sells merchandise on credit to Isaiah...

Question 20

Which of the following accounts usually has a debit balance?

Accepted Answer

Merchandise Inventory is an asset account, and assets usually have a debit balance.

Quiz 5: Accounting for Merchandising Businesses