Question 1
A sales invoice included the following information: merchandise price, $5,000; freight, $900; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $700 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?
Answer
$5,157
$4,300
$4,257
$4,950
Question 2
Anthony Company sold Madison Company merchandise on account FOB shipping point, 2/10, net 30, for $20,000. Anthony prepaid the $300 shipping charge. Which of the following entries does Anthony make to record this sale?
Answer
Accounts Receivable-Madison, debit $20,000; Sales, credit $20,000
Accounts Receivable-Madison, debit $20,000; Sales, credit $20,000, and
Accounts Receivable-Madison, debit $300; Cash, credit $300
Accounts Receivable-Madison, debit $20,500; Sales, credit $20,500
Accounts Receivable-Madison, debit $20,000; Sales, credit $20,000, and
Freight Out, debit $300; Cash, credit $300
Question 3
Cumberland Co. sells $1,200 of inventory to Hancock Co. for cash. Cumberland paid $850 for the merchandise. Under a perpetual inventory system, which of the following journal entry(ies) would be recorded?
Answer
Cash $1,200 Dr, Merchandise Inventory $850 Cr
Cash $1,200 Dr, Sales $1,200 Cr, Cost of Merchandise Sold $850 Dr, Merchandise Inventory $850 Cr.
Cash $1,200 Dr, Sales $1,200 Cr
Accounts Receivable $1,200 Dr, Sales $1,200 Cr, Cost of Merchandise Sold $850 Dr, Merchandise Inventory $850 Cr.
Question 4
Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as
Answer
Purchases discount
Sales discount
Trade discount
Early payment discount
Question 5
Dorman Co. sold merchandise to Smith Co. on account, $18,000, terms 2/15, net 45. The cost of the merchandise sold is $15,500. Dorman Co. issued a credit memo for $1,750 for merchandise returned that originally cost $1,400. The Smith Co. paid the invoice within the discount period. What is amount of net sales from the above transactions?
Answer
$16,250
$14,100
$15,925
$13,818
Question 6
Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
Answer
selling expenses
general expenses
other expenses
administrative expenses
Question 7
Generally, the revenue account for a merchandising business is entitled
Answer
Sales
Net Sales
Gross Sales
Gross Profit
Question 8
Gross profit is equal to:
Answer
sales plus (sales discounts and sales returns and allowances) plus cost of merchandise sold
sales plus sales returns and allowances less sales discounts less cost of merchandise sold
sales plus sales discounts less sales returns and allowances less cost of merchandise sold
sales less (sales discounts and sales returns and allowances) less cost of merchandise sold
Question 9
If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
Answer
FOB shipping point
FOB destination
FOB n/30
FOB buyer
Question 10
If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
Answer
FOB shipping point
FOB destination
FOB n/30
FOB seller
Question 11
If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
Answer
consigned
n/30
FOB shipping point
FOB destination
Question 12
If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
Answer
n/30
FOB shipping point
FOB destination
consigned
Question 13
In credit terms of 3/15, n/45, the “3” represents the
Answer
number of days in the discount period
full amount of the invoice
number of days when the entire amount is due
percent of the cash discount
Question 14
Inventory shortage is recorded when
Answer
merchandise is returned by a buyer.
merchandise purchased from a seller is incomplete or short.
merchandise is returned to a seller.
there is a difference between a physical count of inventory and inventory records.
Question 15
Merchandise inventory is classified on the balance sheet as a
Answer
Current Liability
Current Asset
Long-Term Asset
Long-Term Liability
Question 16
Merchandise with an invoice price of $5,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September 12, assuming the discount is taken?
Answer
$5,200
$5,096
$4,704
$4,900
Question 17
Multiple-step income statements show
Answer
gross profit but not income from operations
neither gross profit nor income from operations
both gross profit and income from operations
income from operations but not gross profit
Question 18
Office salaries, depreciation of office equipment, and office supplies are examples of what type of expense?
Answer
selling expense
miscellaneous expense
administrative expense
other expense
Question 19
Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
Answer
debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
debit to Cash and a credit to Sales
debit to Cash, credit to Credit Card Expense, and a credit to Sales
debit to Sales, debit to Credit Card Expense, and a credit to Cash
Question 20
The arrangements between buyer and seller as to when payments for merchandise are to be made are called
Answer
credit terms
net cash
cash on demand
gross cash
Question 21
The inventory system employing accounting records that continuously disclose the amount of inventory is called
Answer
retail
periodic
physical
perpetual
Question 22
The proper journal entry to record the receipt of inventory purchased on account in a perpetual inventory system would be:
Answer
Jan 1 Inventory 540.00
Accounts Payable 540.00
Jan 1 Office Supplies 540.00
Accounts Payable 540.00
Jan 1 Purchases 540.00
Accounts Payable 540.00
Jan 1 Purchases 540.00
Accounts Receivable 540.00
Question 23
When the perpetual inventory system is used, the inventory sold is debited to
Answer
supplies expense
cost of merchandise sold
merchandise inventory
sales
Question 24
Under a perpetual inventory system
Answer
accounting records continuously disclose the amount of inventory
increases in inventory resulting from purchases are debited to Purchases
there is no need for a year-end physical count
the purchase returns and allowances account is credited when goods are returned to vendors
Question 25
A chart of accounts for a merchandising business
Answer
usually is the same as the chart of accounts for a service business
usually requires more accounts than does the chart of accounts for a service business
usually is standardized by the FASB for all merchandising businesses
always uses a three-digit numbering system
