Learning Objective 5-1
1) A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer.
Answer: TRUE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : What Are Merchandising Operations? (H1)
2) A retailer purchases goods from a manufacturer and sells them to customers.
Answer: TRUE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : What Are Merchandising Operations? (H1)
3) The term “inventory,” for a merchandiser, refers to ________.
- A) raw materials that are used for production
- B) equipment that are used in production process
- C) the cost of goods sold
- D) goods held for sale to customers
Answer: D
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : What Are Merchandising Operations? (H1)
4) An entity that buys goods and sells them to customers at a markup is a ________.
- A) merchandiser
- B) service provider
- C) manufacturer
- D) producer
Answer: A
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : What Are Merchandising Operations? (H1)
5) On the income statement, a merchandising company reports the cost of merchandise inventory that has been sold to customers.
Answer: TRUE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
6) On the income statement, a service company reports the cost of merchandise inventory that has been sold to customers.
Answer: FALSE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
7) The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company then sells the inventory to a customer.
Answer: FALSE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
8) The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company collects cash from customers.
Answer: TRUE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
9) Gross profit is the extra amount the company receives from the customer for merchandise sold over what the company paid to the vendor.
Answer: TRUE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
10) Which of the following line items will appear on the income statement of a merchandiser but not of a service company?
- A) Salaries Expense
- B) Depreciation Expense
- C) Cost of Goods Sold
- D) Supplies Inventory
Answer: C
Diff: 1
LO: 5-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : The Operating Cycle of a Merchandising Business
11) Gross profit is calculated as the difference between net sales revenue and ________.
- A) purchases
- B) cost of goods sold
- C) cost of merchandise inventory
- D) selling and administrative expenses
Answer: B
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
12) Best Value Company started its operations on January 1, 2017. It engages in buying and selling different types of electronic gadgets. The first step in its operating cycle would be to ________.
- A) collect cash from customers
- B) sell goods to customers
- C) purchase inventory from vendors
- D) record the sales in accounts
Answer: C
Diff: 2
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
13) The main expense of a merchandiser is usually ________.
- A) cost of goods sold
- B) current assets
- C) selling and administrative expenses
- D) production overhead
Answer: A
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
14) ________ are the expenses that occur in an entity’s major line of business.
- A) Interest expense
- B) Interest revenue
- C) Operating expenses
- D) Loss on sale of plant asset
Answer: C
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : The Operating Cycle of a Merchandising Business
15) List the three steps, in order of occurrence, of the operating cycle of a merchandising business.
Answer:
- The operating cycle begins when the company purchases inventory from an individual or business, called a vendor.
- The company then sells the inventory to a customer.
- Finally, the company collects cash from the customers.
Diff: 2
LO: 5-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : The Operating Cycle of a Merchandising Business
16) G-mart, a small-scale grocer, wants to introduce an inventory system to track its inventory. G-mart does not currently use optical scanning registers and computer systems. The perpetual inventory system is most suitable for its operations.
Answer: FALSE
Diff: 1
LO: 5-1
AACSB: Information technology
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
17) When a company uses a perpetual inventory system, all merchandise transactions are updated as and when they occur. However, the inventory account may not show the current balance at all times.
Answer: TRUE
Diff: 2
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
18) Even in a perpetual inventory system that updates the inventory account as and when transactions occur, the business must count its inventory at least once in a year.
Answer: TRUE
Diff: 2
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
19) In a periodic inventory system, the Cost of Goods Sold account is continuously updated as and when sales occur.
Answer: FALSE
Diff: 2
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
20) The perpetual inventory system keeps a running record of inventory and cost of goods sold.
Answer: TRUE
Diff: 1
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
21) Merchandise inventory accounting systems can be broadly categorized into two types. They are ________.
- A) FIFO and LIFO
- B) perpetual and periodic
- C) wholesale and retail
- D) manufacturer and producer
Answer: B
Diff: 1
LO: 5-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
22) Which of the following is not recorded in a modern perpetual inventory system?
- A) units purchased and cost amount
- B) units sold and sales and cost amounts
- C) customer account numbers and balances owed from the sale of merchandise inventory
- D) the quantity of merchandise inventory on hand and its cost
Answer: C
Diff: 2
LO: 5-1
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
23) Which of the following statements is not correct?
- A) In a perpetual inventory system, the “cash register” at the store is a computer terminal that records sales and updates inventory records.
- B) Even in a perpetual inventory system, a business must count inventory at least one a year.
- C) Restaurants and small retail stores often use the periodic inventory system.
- D) In a periodic inventory system, merchandise inventory and purchasing systems are integrated with the records for Accounts Receivable and Sales Revenue.
Answer: D
Diff: 2
LO: 5-1
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems
Learning Objective 5-2
1) An invoice is a request by the seller for payment from the purchaser.
Answer: TRUE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : How Are Purchases of Merchandise Inventory Recorded in a Perpetual Inventory System? (H1)
2) An invoice is also known as a bill.
Answer: TRUE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : How Are Purchases of Merchandise Inventory Recorded in a Perpetual Inventory System? (H1)
3) The Merchandise Inventory account is an expense account that is used only for goods purchased that the business owns and intends to resell to customers.
Answer: FALSE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase of Merchandise Inventory
4) The Merchandise Inventory account is an asset account that is used only for goods purchased that the business owns and intends to resell to customers.
Answer: TRUE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase of Merchandise Inventory
5) The Merchandise Inventory account is an expense account that is used for goods purchased that the business owns and intends to resell to customers, as well as for purchase of office supplies and equipment.
Answer: FALSE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase of Merchandise Inventory
6) Which of the following entries would be made to record the purchase of inventory on account, if a company uses the perpetual inventory system?
- A) a debit to Purchases and a credit to Accounts Payable
- B) a debit to Accounts Payable and a credit to Purchases
- C) a debit to Merchandise Inventory and a credit to Accounts Payable
- D) a debit to Accounts Payable and a credit to Merchandise Inventory
Answer: C
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase of Merchandise Inventory
7) A company using the perpetual inventory system purchased merchandise on account for $5,000. Give the journal entry to record this transaction.
Answer:
| Merchandise Inventory | 5,000 | |
| Accounts Payable | | 5,000 |
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase of Merchandise Inventory
8) A purchase discount is the amount offered to the purchaser for delaying the payment to the seller.
Answer: FALSE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
9) Credit terms of a merchandising company are 1/15, net 40. This means that the buyer can receive a discount of 1% if the invoice is paid within 40 days of the invoice date.
Answer: FALSE
Diff: 2
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
10) Nurix Company sold goods on credit terms n/20 to Jelly Harper Company. This means no discounts are offered, and the amount of the invoice is due 20 days after the invoice date.
Answer: TRUE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
11) The purchase discount amount is calculated on the amount of the invoice minus the returns and allowances.
Answer: TRUE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
12) Purchase discounts are calculated on the amount of the merchandise purchased including freight costs.
Answer: FALSE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
13) Under the perpetual inventory system, when a purchaser makes payment within the discount period, the amount of discount will be credited to the Merchandise Inventory account.
Answer: TRUE
Diff: 2
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
14) Credit terms of 2/10, n/30 indicate that a discount of 2% will be given if payment is made within 10 days of the invoice date. Otherwise, the total invoice amount is due within 30 days of the invoice date.
Answer: TRUE
Diff: 1
LO: 5-2
AACSB: Analytical thinking
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
15) What does “2/10” mean, with respect to “credit terms of 2/10, n/30”?
- A) A discount of 2 percent will be allowed if the invoice is paid within 10 days of the invoice date.
- B) Interest of 2 percent will be charged if the invoice is paid after 10 days from the date on the invoice.
- C) A discount of 10 percent will be allowed if the invoice is paid within two days of the invoice date.
- D) Interest of 10 percent will be charged if invoice is paid after two days.
Answer: A
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
16) A company that uses the perpetual inventory system purchases inventory for $61,000 on account, with terms of 3/10, n/30. Which of the following is the journal entry to record the payment made within 10 days?
- A) a debit to Accounts Payable for $61,000, a credit to Cash for $59,170, and a debit to Merchandise Inventory for $1,830
- B) a debit to Accounts Payable for $61,000, a credit to Merchandise Inventory for $1,830, and a credit to Cash for $59,170
- C) a debit to Merchandise Inventory for $1,830, a debit to Accounts Payable for $61,000, and a credit to Cash for $62,830
- D) a debit to Accounts Payable for $59,170, a debit to Merchandise Inventory for $1,830, and a credit to Cash for $61,000
Answer: B
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
17) A company that uses the perpetual inventory system purchased inventory for $910,000 on account with terms of 4/7, n/20. Which of the following correctly records the payment made 15 days after the date of invoice?
A)
| Cash | 910,000 | |
| Accounts Payable | | 910,000 |
B)
| Accounts Payable | 910,000 | |
| Merchandise Inventory | | 910,000 |
C)
| Accounts Payable | 910,000 | |
| Cash | | 910,000 |
D)
| Accounts Payable | 910,000 | |
| Merchandise Inventory | | 36,400 |
| Cash | | 873,600 |
Answer: C
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
18) A company using the perpetual inventory system purchased inventory worth $21,000 on account with terms of 3/10, n/30. Defective inventory of $1,000 was returned two days later, and the accounts were appropriately adjusted. If the invoice is paid within 10 days, the amount of the purchase discount that would be available to the company is ________.
- A) $600
- B) $660
- C) $630
- D) $620
Answer: A
Diff: 3
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
19) A company using the perpetual inventory system purchased inventory worth $540,000 on account with credit terms of 2/15, n/45. Defective inventory of $40,000 was returned 2 days later, and the accounts were appropriately adjusted. If the company paid the invoice 20 days later, the journal entry to record the payment would be ________.
- A) $540,000 debit to Accounts Payable and $540,000 credit to Cash
- B) $500,000 debit to Accounts Payable and $500,000 credit to Cash
- C) $540,000 debit to Accounts Payable, $530,000 credit to Cash, and $10,000 credit to Merchandise Inventory
- D) $530,000 debit to Accounts Payable, $10,000 credit to Merchandise Inventory, and $500,000 credit to Cash
Answer: B
Diff: 3
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
20) The terms of an invoice are 3/10, n/25. This means that a ________.
- A) discount of 10 percent is allowed if the invoice is paid within three days
- B) discount of 3 percent is allowed if the invoice is paid within 10 days
- C) discount of 25 percent is allowed if the invoice is paid within 10 days
- D) discount of 3 percent is allowed if the invoice is paid after 25 days
Answer: B
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
21) An invoice of $800 for merchandise purchased is showing 2/15, n/30 as terms of credit. If the invoice is paid on or before the fifteenth day, the amount to be paid is ________.
- A) $784
- B) $800
- C) $816
- D) $819
Answer: A
Explanation: A)
Purchases $800
Discount (16)
Net amount due $784
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
22) An invoice, with payment terms of 6/10, n/30, was issued on April 28 for $230.00. If the payment was made on May 12, the amount of payment will be ________. (Round your answer to the nearest cent.)
- A) $230.00
- B) $207.00
- C) $216.20
- D) $224.00
Answer: A
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
23) Under the perpetual inventory system, discounts taken on an invoice by the buyer would be ________.
- A) debited to Merchandise Inventory
- B) credited to Merchandise Inventory
- C) debited to Cost of Goods Sold
- D) credited to Cost of Goods Sold
Answer: B
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Discounts
24) A company purchased inventory for $2,200 on account, and recorded the following journal entry:
| Merchandise Inventory | 2,200 | |
| Accounts payable | | 2,200 |
The vendor’s invoice showed terms of 3/10, n/30. Give the journal entry for the payment of the invoice 17 days after the invoice date.
Answer:
| Accounts Payable | 2,200 | |
| Cash | | 2,200 |
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
25) A company purchased inventory for $100,000 on account and recorded it as follows:
| Merchandise Inventory | 100,000 | |
| Accounts Payable | | 100,000 |
The vendor’s invoice showed terms of 3/10, net 30. Give the journal entry for the payment of the invoice seven days after the invoice date, assuming that the vendor uses the perpetual inventory system.
Answer:
| Accounts Payable | 100,000 | |
| Merchandise Inventory | | 3,000 |
| Cash | | 97,000 |
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Discounts
26) Defective, damaged, or otherwise unsuitable merchandise that is returned to the seller is referred to as purchase allowances by the purchaser.
Answer: FALSE
Diff: 2
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Returns and Allowances
27) If purchase allowances are granted, the buyer need not return the goods to the seller.
Answer: TRUE
Diff: 2
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Returns and Allowances
28) Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.
Answer: TRUE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Returns and Allowances
29) Under the perpetual inventory system, purchase returns or allowances are debited to the Merchandise Inventory account by the purchaser.
Answer: FALSE
Diff: 2
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Returns and Allowances
30) On January 21, 2016, Bessant Company received merchandise from Mullies Company. On that date, it found a few of these goods to be damaged. On January 22, it returned the damaged goods to the seller. Such returns will be treated as ________ by Bessant.
- A) purchase returns
- B) sales returns
- C) purchase allowances
- D) sales allowances
Answer: A
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Returns and Allowances
31) Under the perpetual inventory system, when a wholesaler returns the goods purchased on account, the ________ account is credited.
- A) Accounts Receivable
- B) Merchandise Inventory
- C) Cost of Goods Sold
- D) Accounts Payable
Answer: B
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Purchase Returns and Allowances
32) A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $700 to the vendor. Which of the following would be the correct journal entry to record these returns?
A)
| Purchase Returns | 700 | |
| Accounts Payable | | 700 |
B)
| Accounts Payable | 700 | |
| Purchase Returns | | 700 |
C)
| Merchandise Inventory | 700 | |
| Accounts Payable | | 700 |
D)
| Accounts Payable | 700 | |
| Merchandise Inventory | | 700 |
Answer: D
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Returns and Allowances
33) Oscar Packers received an allowance from the vendor for an amount of $400. Give the journal entry for this transaction. The company uses a perpetual inventory system.
Answer:
| Accounts Payable | 400 | |
| Merchandise Inventory | | 400 |
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Purchase Returns and Allowances
34) If goods are sold on terms FOB shipping point, the ________.
- A) seller normally pays the transportation costs
- B) buyer normally pays the transportation costs
- C) buyer and the seller split the transportation costs
- D) shipping company bears the transportation cost
Answer: B
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
35) A company purchased inventory for $2,000 from a vendor on account, FOB shipping point, with terms of 2/10, n/30. The company paid $100 cash for freight in. Prepare the journal entry to record payment of the invoice within 10 days by the purchaser. (Assume a perpetual inventory system.)
Answer:
| Accounts Payable | 2,000 | |
| Merchandise Inventory | | 40 |
| Cash | | 1,960 |
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
36) Complete the following table to show how FOB terms apply to merchandise inventory purchased by a merchandiser.
| FOB Term | When does the title to the goods transfer to the buyer? | Who pays the freight? |
| Shipping Point | | |
| Destination | | |
Answer:
| FOB Term | When does the title to the goods transfer to the buyer? | Who pays the freight? |
| Shipping Point | When the goods leave the seller’s place of business (shipping point) | Buyer |
| Destination | At the delivery destination point | Seller |
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
37) Under the terms FOB destination, title to the merchandise will pass to the purchaser when the goods are received by the purchaser.
Answer: TRUE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
38) Freight out is an addition to the Merchandise Inventory account if the seller uses the perpetual inventory system.
Answer: FALSE
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
39) The term “freight out” refers to ________.
- A) transportation costs on purchases
- B) cost of inventory purchased
- C) costs that are not actually paid in cash
- D) transportation costs on sales
Answer: D
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
40) VB Specialty Foods, a grocery merchandiser, purchased goods and paid transportation to bring them to the company warehouse. The transportation cost is known as ________.
- A) freight out
- B) selling expense
- C) freight in
- D) cost of goods sold
Answer: C
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
41) Which of the following is true of freight in?
- A) It is an administrative expense.
- B) It is a selling expense.
- C) It is the transportation cost on purchases.
- D) It is the transportation cost on sales.
Answer: C
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
42) Under which of the following terms will the buyer be required to pay transportation costs?
- A) FOB destination
- B) FOB shipping point
- C) freight out
- D) freight in
Answer: B
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
43) FOB destination refers to a situation where title to goods while in transit belongs to the ________.
- A) buyer
- B) seller
- C) transport agency
- D) insurance agency
Answer: B
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
44) A company purchased inventory for $3,000 from a vendor on account, FOB shipping point, with terms of 2/10, n/30. The company paid $100 cash for freight in. The entry to record payment of invoice within 2 days by the purchaser would include ________. (Assume a perpetual inventory system.)
- A) a debit to Accounts Payable for $2,940 and a credit to Cash for $2,940
- B) a debit to Accounts Payable for $3,000, a debit to Merchandise Inventory for $100, and a credit to Cash for $2,900
- C) a debit to Accounts Payable for $3,000, a credit to Merchandise Inventory for $60, and a credit to Cash for $2,940
- D) a debit to Accounts Payable for $2,940, a debit to Merchandise Inventory for $60, and a credit to Cash for $3,000
Answer: C
Diff: 3
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
45) A company purchased inventory for $74,000 from a vendor on account, FOB shipping point, with terms of 3/10, n/30. The company paid the shipper $1,500 cash for freight in. The company paid the vendor nine days after the sale. If there was no beginning inventory, the cost of inventory would be ________. (Assume a perpetual inventory system.)
- A) $73,280
- B) $75,500
- C) $70,280
- D) $72,500
Answer: A
Explanation: A) Cost of Purchases $74,000
Less: Discount ($75,000 × 3%) 2,220
Net Purchases 71,780
Add: Freight-in 1,500
Cost of Inventory $73,280
Diff: 3
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
46) A company purchased inventory for $3,000 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 damaged goods worth $200. The invoice was then paid eight days after the purchase. Assuming that there was no beginning inventory balance, the cost of inventory would be ________. (Assume a perpetual inventory system.)
- A) $2,744
- B) $2,844
- C) $2,900
- D) $2,940
Answer: B
Explanation: B)
Cost of Purchase $3,000
Less: Purchase Returns 200
Less: Purchase Discount 56
Plus: Freight In 100
Net Cost of Inventory Purchased $2,844
Diff: 3
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
47) A company has purchased inventory and received an invoice that requires the buyer to pay the transportation costs for delivering the merchandise. The terms are ________.
- A) FOB destination
- B) FOB shipping point
- C) FOB, 2/10, n/30
- D) FOB in transit
Answer: B
Diff: 1
LO: 5-2
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Transportation Costs
48) A merchandiser, following the perpetual inventory system, has the following transactions during August, 2017:
Date Transaction Amount
Aug. 5 Purchased inventory on account $300,000
Aug. 9 Paid for transportation of goods purchased 25,000
Aug. 10 Returned defective merchandise to the seller 20,000
Aug. 15 Paid for goods purchased on August 5 ?
Credit terms of invoice are 2/15, n/45. Give journal entries for the above transactions.
Answer:
Date Accounts and Explanation Debit Credit
Aug. 5 Merchandise Inventory 300,000
Accounts Payable 300,000
Aug. 9 Merchandise Inventory 25,000
Cash 25,000
Aug. 10 Accounts Payable 20,000
Merchandise Inventory 20,000
Aug. 15 Accounts Payable 280,000
Cash 274,400
Merchandise Inventory 5,600
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
49) Reid Art Supply Company uses a perpetual inventory system. The company had the following transactions during August 2017:
Aug. 5: Purchased $2,900 of merchandise on account. Freight and credit terms were FOB shipping point, 3/15, n/60.
Aug. 9: Paid transportation costs of $440 for the Aug. 5 purchase.
Aug. 10: Returned $600 of defective merchandise that had been purchased on Aug. 5.
Aug. 15: Paid for the merchandise purchased on Aug. 5.
Give journal entries for August 10 and 15.
Answer: Journal entry on Aug. 10
| Accounts Payable | 600 | |
| Merchandise Inventory | | 600 |
Journal entry on Aug. 15
| Accounts Payable | 2,300 | |
| Merchandise Inventory | | 69 |
| Cash | | 2,231 |
Diff: 2
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
50) Portian Merchandisers has purchased merchandise on account and paid $450 for freight in. Give the journal entry for freight paid. (Assume a perpetual inventory system.)
Answer:
| Merchandise Inventory | 450 | |
| Cash | | 450 |
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Transportation Costs
51) WAXS-D, merchandisers of musical instruments, has provided the following details:
| Mar. 5 | Inventory purchased on account | $725,000 |
| Mar. 8 | Freight in | 35,000 |
| Mar. 13 | Purchase returns | 55,000 |
| Mar. 14 | Allowances by vendor | 12,000 |
| Mar. 20 | Payment made to vendor for purchases on March 5 | ? |
Credit terms are: 4/20, n/45, FOB shipping point. Calculate the net cost of inventory purchased assuming that there are no other inventory-related transactions during the month.
- A) $713,000
- B) $665,280
- C) $658,000
- D) $666,680
Answer: D
Explanation: D)
Net Cost of Inventory Purchased
Purchases $725,000
Less: Purchase Returns and Allowances 67,000
Less: Purchase Discounts 26,320
Plus: Freight In 35,000
Net Cost of Inventory Purchased $666,680
Diff: 1
LO: 5-2
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Cost of Inventory Purchased
Learning Objective 5-3
1) An amount that a merchandiser earns by selling its inventory is known as sales revenue or sales.
Answer: TRUE
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sale of Merchandise Inventory
2) Under the perpetual inventory system, two journal entries are used to record the sales of merchandise. One entry records the Sales Revenue and another entry records the Cost of Goods Sold.
Answer: TRUE
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sale of Merchandise Inventory
3) A company sold merchandise with a cost of $238 for $440 on account. The seller uses the perpetual inventory system. The entry to record the cost of merchandise sold would include ________.
- A) a debit to Sales Revenue and a credit to Cash for $440
- B) a debit to Cash and a credit to Sales Revenue for $440
- C) a debit to Cost of Goods Sold and a credit to Merchandise Inventory for $238
- D) a debit to Merchandise Inventory for $238 and a credit to Cost of Goods Sold for $238
Answer: C
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
4) Owens Jewelers uses the perpetual inventory system. On April 2, Owens sold merchandise with a cost of $5,500 for $7,000 to a customer on account with terms of 1/15, n/30. Which of the following journal entries correctly records the sales revenue?
A)
| Sales Revenue | 7,000 | |
| Accounts Receivable | | 7,000 |
B)
| Sales Revenue | 7,000 | |
| Cost of Goods Sold | | 7,000 |
C)
| Accounts Receivable | 5,500 | |
| Sales Revenue | | 5,500 |
D)
| Accounts Receivable | 7,000 | |
| Sales Revenue | | 7,000 |
Answer: D
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
5) Landon Jewelers uses the perpetual inventory system. On April 2, Landon sold merchandise with a cost of $3,500 for $8,000 to a customer on account with terms of 1/15, n/30. The journal entry to record the cost of goods sold would be:
A)
| Cost of Goods Sold | 3,500 | |
| Accounts Receivable | | 3,500 |
B)
| Sales Revenue | 3,500 | |
| Cost of Goods Sold | | 3,500 |
C)
| Cost of Goods Sold | 3,500 | |
| Merchandise Inventory | | 3,500 |
D)
| Merchandise Inventory | 3,500 | |
| Cost of Goods Sold | | 3,500 |
Answer: C
Explanation: A)
| Cost of Goods Sold | 3,500 | |
| Accounts Receivable | | 3,500 |
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
6) Under the perpetual inventory system, the journal entry to record cost of goods sold:
A)
| Cost of Goods Sold | XX | |
| Sales | | XX |
B)
| Merchandise Inventory | XX | |
| Sales | | XX |
C)
| Cost of Goods Sold | XX | |
| Merchandise Inventory | | XX |
D)
| Sales | XX | |
| Merchandise Inventory | | XX |
Answer: C
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
7) On November 1, 2016, Everett Janitorial Supply sold merchandise with a cost of $3,200 for $5,000, FOB destination, and payment terms of 2/10, n/30. The company uses a perpetual inventory system. Give journal entries to record the sales revenue.
Answer:
| Accounts Receivable | 5,000 | |
| Sales Revenue | | 5,000 |
| Cost of Goods Sold | 3,200 | |
| Merchandise Inventory | | 3,200 |
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
8) Journalize the following transactions for a merchandiser that uses the perpetual inventory system.
On January 8, inventory was sold for $6,000 on account. Credit terms were 3/15, n/30 (cost $4,500). On January 17, cash was received in full settlement of the January 8 sale.
Answer:
| Jan. 8 | Accounts Receivable | 6,000 | |
| Sales | | 6,000 |
| | | |
| Cost of Goods Sold | 4,500 | |
| Merchandise Inventory | | 4,500 |
| | | |
| Jan. 17 | Cash | 5,820 | |
| Sales Discounts ($6,000 × .03) | 180 | |
| Accounts Receivable | | 6,000 |
Diff: 2
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
9) Journalize the following transaction for a merchandiser that uses the perpetual inventory system.
Sold goods for cash, $1,200 (cost $750).
Answer:
| Cash | 1,200 | |
| Sales | | 1,200 |
| | |
| Cost of Goods Sold | 750 | |
| Merchandise Inventory | | 750 |
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
10) Office Supplies Express uses a perpetual inventory system. Journalize the following sales transactions for this company. Explanations are not required.
| July 3 | Sold $15,400 of merchandise on account, credit terms are 2/10, n/30. Cost of goods is $9,300. |
| July 7 | Received a $750 sales return from the customer. Cost of the goods is $435. |
| July 12 | Office Supplies receives payment for the customer for the amount due from the July 3 sale. |
Answer:
| Date | Accounts and Explanation | Debit | Credit |
| Jul. 3 | Accounts Receivable | 15,400 | |
| Sales Revenue | | 15,400 |
| | | |
| Cost of Goods Sold | 9,300 | |
| Merchandise Inventory | | 9,300 |
| | | |
| Jul. 7 | Sales Returns and Allowances | 750 | |
| Accounts Receivable | | 750 |
| | | |
| Merchandise Inventory | 435 | |
| Cost of Goods Sold | | 435 |
| | | |
| Jul. 12 | Cash ($14,650 – $293) | 14,357 | |
| Sales Discounts ($14,650 × 0.02) | 293 | |
| Accounts Receivable ($15,400 − $750) | | 14,650 |
Diff: 2
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
11) Rally Auto Supplies uses a perpetual inventory system. Journalize the following sales transactions for this company. Explanations are not required.
| June 10 | Sold $14,800 of merchandise on account, credit terms are 3/15, n/30. Cost of goods is $6,200. |
| June 14 | Received a $900 sales return from the customer. Cost of the goods is $400. |
| June 23 | Rally Auto Supplies receives payment for the customer for the amount due from the June 10 sale. |
Answer:
| Date | Accounts and Explanation | Debit | Credit |
| Jun. 10 | Accounts Receivable | 14,800 | |
| Sales Revenue | | 14,800 |
| | | |
| Cost of Goods Sold | 6,200 | |
| Merchandise Inventory | | 6,200 |
| | | |
| Jun. 14 | Sales Returns and Allowances | 900 | |
| Accounts Receivable | | 900 |
| | | |
| Merchandise Inventory | 400 | |
| Cost of Goods Sold | | 400 |
| | | |
| Jun. 23 | Cash ($13,900 − $417) | 13,483 | |
| Sales Discounts ($13,900 × 0.03) | 417 | |
| Accounts Receivable ($15,400 − $750) | | 13,900 |
Diff: 2
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sale of Merchandise Inventory
12) A reduction in the amount of cash received from a customer for early payment is known as a sales discount.
Answer: TRUE
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Discounts
13) A company sold merchandise for $24,000 on account with terms of 5/15, n/30. The company uses a perpetual inventory system. After two days, it received defective merchandise worth $4,000. The journal entry to record the cash receipt for the sale if the payment is received within 10 days of the invoice date would include ________.
- A) a debit to Cash for $20,000, a credit to Merchandise Inventory for $1,000, and a credit to Sales Revenue for $19,000
- B) a debit to Cash for $19,000, a debit to Sales Discount for $1,000, and a credit to Accounts Receivable for $20,000
- C) a debit to Cash for $20,000, a debit to Merchandise Inventory for $4,000, and a credit to Accounts Receivable for $24,000
- D) a debit to Sales Revenue for $24,000, a credit to Accounts Receivable for $20,000, and a credit to Sales Discounts for $4,000
Answer: B
Diff: 2
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sales Discounts
14) A company sold merchandise for $4,000 on account with terms of 4/15, n/30. The company uses a perpetual inventory system. Defective merchandise of $200 was returned two days later. If the payment was received after 30 days, the journal entry to record the cash receipt will include ________.
- A) a debit to Cash for $3,840 and a credit to Accounts Receivable for $3,840
- B) a debit to Cash for $3,800 and a credit to Accounts Receivable for $3,800
- C) a credit to Sales Revenue for $3,800 and a debit to Cash for $3,800
- D) a credit to Cost of Goods Sold for $4,000 and a debit to Sales Revenue for $4,000
Answer: B
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sales Discounts
15) The Sales Discounts account is a contra account to the ________ account.
- A) Purchases
- B) Sales Revenue
- C) Merchandise Inventory
- D) Sales Returns and Allowances
Answer: B
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Discounts
16) When a customer returns goods to the seller, the seller debits the Purchase Returns account.
Answer: FALSE
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Returns and Allowances
17) When a merchandiser records sales returns, Accounts Receivable is credited. (Assume the seller uses the perpetual inventory system.)
Answer: TRUE
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Returns and Allowances
18) A sales allowance is recorded with a credit to Accounts Payable.
Answer: FALSE
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Returns and Allowances
19) When a seller grants a sales allowance, the customer does not return any goods to the seller.
Answer: TRUE
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Returns and Allowances
20) Under the perpetual inventory system, what is the difference between a sales return and a sales allowance?
- A) A sales return reduces the amount receivable from the customer, but a sales allowance does not.
- B) A sales return involves an adjustment to Merchandise Inventory, but a sales allowance does not.
- C) A sales return requires a debit to Sales Returns and Allowances, but a sales allowance does not.
- D) A sales return is not deducted from sales revenue to calculate net sales, but a sales allowance is deducted from sales revenue.
Answer: B
Diff: 2
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sales Returns and Allowances
21) The normal balances of Sales, Sales Discounts, and Sales Returns and Allowances are ________.
- A) debit, credit, and credit, respectively
- B) debit, debit, and credit, respectively
- C) credit, debit, and debit, respectively
- D) credit, credit, and debit, respectively
Answer: C
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Returns and Allowances
22) Under a perpetual inventory system, merchandise returned by a customer to the seller is recorded as a ________ in the books of seller.
- A) sales return
- B) sales allowance
- C) sales discount
- D) purchase return
Answer: A
Diff: 1
LO: 5-3
AICPA Functional: Measurement
PE Question Type: Concept
H2 : Sales Returns and Allowances
23) A merchandiser sold merchandise inventory on account. The journal entry to record sales allowances in the books of the merchandiser, using the perpetual inventory system would be:
A)
| Sales Returns and Allowances | XX | |
| Accounts Receivable | | XX |
B)
| Merchandise Inventory | XX | |
| Sales Revenue | | XX |
C)
| Cost of Goods Sold | XX | |
| Sales Returns and Allowances | | XX |
D)
| Sales Returns and Allowances | XX | |
| Cash | | XX |
Answer: A
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sales Returns and Allowances
24) Under the perpetual inventory system, the journal entries to record sales returns (the original sale was on account) would be:
A)
| Accounts Payable | XX | |
| Merchandise Inventory | | XX |
| | |
| Merchandise Inventory | XX | |
| Cost of Goods Sold | | XX |
B)
| Cost of Goods Sold | XX | |
| Merchandise Inventory | | XX |
| | |
| Merchandise Inventory | XX | |
| Accounts Payable | | XX |
C)
| Accounts Receivable | XX | |
| Sales | | XX |
| | |
| Sales | XX | |
| Cost of Goods Sold | | XX |
D)
| Sales Returns and Allowances | XX | |
| Accounts Receivable | | XX |
| | |
| Merchandise Inventory | XX | |
| Cost of Goods Sold | | XX |
Answer: D
Diff: 1
LO: 5-3
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2 : Sales Returns and Allowances
25) Fashion Jewelers uses the perpetual inventory system. On April 2, Fashion sold goods with a cost of $5,500 for $14,000 with terms of 4/15, n/30. On April 4, the customer reported damaged goods and Fashion granted a $2,000 sales allowance. On April 10, Fashion received the payment for the sale. Give the journal entry that will be recorded on April 10 by Fashion.
A)
| Cash | 11,520 | |
| Sales Discount | 480 | |
| Accounts Receivable | | 12,000 |
B)
| Cash | 12,000 | |
| Accounts Receivable | | 12,000 |
C)
| Accounts Receivable | 12,000 | |
| Sales | | 12,000 |
D)
| Cash | 12,000 | |
| Sales Discount | | 480 |
| Accounts Receivable | | 11,520 |
