Question 1

Jackson Co. sold merchandise on account to S. Thomas, invoice no. 121, for $125.50, plus 5% sales tax. Which of the following is true about the journal entry to record this transaction?

Accepted Answer

The journal entry to record the sale on account to S. Thomas would be:

Debit Accounts Receivable $125.50
Credit Sales $125.50
Debit Sales Tax Payable $6.275
Credit Sales $6.275

This is because the sale amount of $125.50 is credited to the Sales account and the corresponding increase in Accounts Receivable (the amount owed by S. Thomas) is debited. Additionally, the sales tax of 5% ($6.275 = $125.50 * 0.05) is credited to the Sales account (as it is a part of the sale revenue) and is debited to the Sales Tax Payable liability account. Therefore, the correct option is C.

Question 2

Jackson Company uses the perpetual inventory system. It sold merchandise to Jenny. After one month, Jenny returned $250 worth of the merchandise which had a cost of $150. Which of the following journal entries records the cost of merchandise returned?

Accepted Answer

The cost of merchandise returned is recorded as a debit to Merchandise Inventory and a credit to Cost of Goods Sold to reflect the decrease in inventory and the corresponding increase in cost. Option A records a sales return, but does not account for the cost side of the transaction. Option B records the cost of merchandise sold, rather than returned. Option D records a credit to Merchandise Inventory, but does not account for the corresponding decrease in Accounts Receivable.

Question 3

Lasalle Co. sold merchandise on account in the amount of $550. The sales tax rate is 6.5%. What is the amount credited to the Sales Tax Payable account.

Accepted Answer

To calculate the sales tax payable, first, we need to multiply the sales amount by the sales tax rate:
Sales tax payable = $550 x 6.5% = $35.75
Therefore, the correct answer is B, $35.75.

Question 4

Which of the following is a characteristic of the sales returns and allowance account?

Accepted Answer

The sales returns and allowance account tracks returns from customers, which may result in a decrease in sales revenue. It is a contra revenue account and has a debit balance, as opposed to a credit balance.

Question 5

XYZ Motors makes a sale of $15,600 on account. The sales tax rate is 8%. What is the amount debited to Accounts Receivable in the general journal on the sale of merchandise?

Accepted Answer

The amount debited to Accounts Receivable includes both the sale amount and the sales tax. The sales tax is 8% of $15,600, which is $1,248. Therefore, the total debited amount is $15,600 (sale amount) + $1,248 (sales tax) = $16,848.

Question 6

Which of the following is an example of good internal controls over purchases?

Accepted Answer

Good internal controls over purchases include proper authorization before purchases are made. This ensures that only authorized personnel are able to make purchasing decisions and reduces the risk of fraud or unauthorized purchases. B, C, and D do not necessarily provide effective controls over purchases. Payment based on the purchase order alone may not be sufficient, as the order could potentially be fraudulent or unauthorized. The person who orders should be authorized for payment, but this alone does not provide enough separation of duties. Involving the person who writes the check in the purchasing process can increase the risk of fraud, as this person could potentially manipulate the process to benefit themselves.

Question 7

When goods are shipped FOB shipping point, which of the following is NOT true?

Accepted Answer

In an FOB (Free On Board) shipping point arrangement, the buyer assumes responsibility for freight costs and liability during transportation as soon as the goods leave the seller's premises. Therefore, it is not true that the seller assumes responsibility for all freight costs.

Question 8

A company's written offer to buy goods:

Accepted Answer

A purchase order is a formal written offer from a buyer to a supplier to purchase goods. It specifies the type, quantity, and price of the goods being requested and sets the terms and conditions for the sale. A purchase requisition is a document used to request goods or services needed by a department or company, but it is not a formal offer to buy. An offer for goods may refer to a general marketing offer, not a specific purchase offer. A purchase source document is a record of the source from which goods were purchased, not a formal offer to buy goods.

Question 9

A form used by business to inform customers that their account balance has been reduced is:

Accepted Answer

A Credit Memorandum is issued by a business to its customers to indicate a reduction in the amount that the customer owes to the business, often due to a return or a refund.

Question 10

J. Smith purchases merchandise from Hi-View Industries for $25,250 on account. Upon inspection of the merchandise received, J. Smith discovers damaged goods in the amount of $1,000 and requests to return the damaged merchandise to Hi-View Industries. What source document would Hi-View industries use for the journal entry to process this return?

Accepted Answer

Hi-View Industries would use a Credit Memorandum as the source document to process the return of the damaged merchandise. A Credit Memorandum is used to document the return of goods to a supplier and serves as evidence of the supplier’s agreement to grant a credit to the buyer for merchandise returned. It documents a decrease in the amount owed to the supplier and would result in a credit to J. Smith's account.

Question 11

A schedule of Accounts Receivable is prepared from:

Accepted Answer

The Accounts Receivable Subsidiary Ledger contains the detailed information about individual customer balances and transactions, which can be used to prepare the schedule of Accounts Receivable. The other options (Trial Balance, Balance Sheet, and Accounts Receivable Control Account) do not provide sufficient detail about individual customer balances.

Question 12

An account in the general ledger that summarizes the balances found in the subsidiary ledger(s) is:

Accepted Answer

A controlling account summarizes the balances found in the subsidiary ledger(s) and is part of the general ledger. It provides a control mechanism to ensure that the total of all the subsidiary ledgers equals the balance in the controlling account.

Question 13

Hi-View Industries, sells merchandise to Action Powersports on account. As terms of the deal, Hi-View Industries will coordinate the shipment, but Action Powersports is responsible for paying the shipping costs. This is an example of:

Accepted Answer

FOB Shipping Point means that the buyer (Action Powersports) is responsible for paying the shipping costs and assumes ownership of the merchandise as soon as it leaves Hi-View Industries' shipping dock. This is in contrast to FOB Destination where the seller (Hi-View Industries) would be responsible for paying the shipping costs until the merchandise reaches its final destination. Freight-In and Freight-Out refer to the costs of shipping merchandise either into or out of a company's location, respectively, and are not directly related to FOB terms.

Question 14

A subsidiary ledger that contains individual accounts of creditors.

Accepted Answer

The Accounts Payable Ledger is a subsidiary ledger that contains individual accounts of creditors. It is used to keep track of the amounts owed to each creditor and payments made to them. The other options, Purchase Journal and Vendor Ledger, refer to different types of records and do not specifically pertain to the individual accounts of creditors. The term "creditor ledger" is not commonly used in accounting.

Question 15

What is the correct entry to record sales tax collected?

Accepted Answer

Sales tax collected is a liability account until it is remitted to the state. Therefore, the correct entry is to debit Sales Tax Payable and credit Sales Revenue.

Question 16

Jimmie Jones purchases merchandise from GPS Industries for $15,500 on account. The terms were FOB Destination with freight costs of $100. Upon inspection of the merchandise received, Jimmie Jones discovers damaged goods in the amount of $2,500 and requests to return the damaged merchandise to GPS Industries. Once the return is processed, what is the new balance owed by Jimmie Jones?

Accepted Answer

The original purchase was $15,500. After returning the damaged goods worth $2,500, the balance owed is $15,500 - $2,500 = $13,000. The freight cost does not affect the balance owed as it is FOB Destination, meaning GPS Industries covers the freight cost.

Question 17

Special journals are books of original entry that help simplify the recording process. Which is NOT an example of a special journal?

Accepted Answer

The General Journal is not a special journal because it is used for all types of transactions that do not fit in the other special journals. It is a book of original entry but not considered a special journal.

Question 18

Jones Co. sells merchandise to J. Smith on account. As the seller Jones Co. pays the cost of transportation to delivery the goods and will not be reimbursed from J. Smith. This is an example of:

Accepted Answer

FOB Destination means that the seller (Jones Co.) is responsible for the cost of transportation until the goods are delivered to J. Smith, who is the buyer on account. Therefore, the seller pays the cost of transportation and will not be reimbursed from J. Smith.

Question 19

Merchandising companies include

Accepted Answer

Merchandising companies can include both wholesalers (who sell products in bulk to retailers) and retailers (who sell products to consumers).

Question 20

Under the perpetual inventory system, the sale of goods is recorded with two entries. One entry debits Cash or Accounts Receivable and credits sales. The second entry

Accepted Answer

The second entry in the perpetual inventory system records the cost of goods sold, which is debited to the Cost of Goods Sold account, and the amount of inventory sold is credited to the Merchandise Inventory account. This helps to keep track of the inventory levels and the cost of goods sold in real-time.

Quiz 9: Sales and Purchases