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34) A company using the perpetual inventory system purchased inventory worth $25,000 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 10 days after the invoice date, the amount of the purchase
discount that would be available to the company is ________.
A) $720
B) $780
C) $750
D) $740
35) A company using the perpetual inventory system purchased inventory worth $500,000 on account
with credit terms of 3/15, n/45. Defective inventory of $50,000 was returned 3 days later, and the accounts
were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the
payment would be ________.
A) $500,000 debit to Accounts Payable and $500,000 credit to Cash
B) $450,000 debit to Accounts Payable and $450,000 credit to Cash
C) $500,000 debit to Accounts Payable, $486,500 credit to Cash, and $13,500 credit to Merchandise
Inventory
D) $463,500 debit to Accounts Payable, $13,500 credit to Merchandise Inventory, and $450,000 credit to
Cash
36) Maddy's Gifts received an allowance from the vendor for an amount of $400. Prepare the journal
entry for this transaction. Maddy's uses a perpetual inventory system and purchased the goods on
account. Omit explanation.
37) Cafeteria Supply returned 2 cases of defective warming trays to the vendor for an amount of $600.
Prepare the journal entry for this transaction. Cafeteria Supply uses a perpetual inventory system and
purchased the cases on account. Omit explanation.
38) Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual
inventory system.
39) Freight out is an addition to the Merchandise Inventory account if the seller uses the perpetual
inventory system.
40) Under the terms FOB destination, title to the merchandise will pass to the purchaser when the goods
are received by the purchaser.
41) FOB destination represents a situation in which the buyer takes title to the goods after the goods leave
the seller's place of business.
42) Freight out is the freight on purchased goods.
43) There is a discount on freight in, thus purchase discounts are computed on transportation costs.
44) With the terms FOB shipping point, the freight cost becomes part of the cost of merchandise inventory
for the purchaser. (Assume a perpetual inventory system.)
45) 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
46) 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
47) Vegan 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
48) 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.
49) 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) delivery expense
50) 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
51) A company purchased inventory for $3,000 from a vendor on account, FOB shipping point, with
terms of 2/15, n/30. The company paid $100 cash for freight in. The entry to record the payment of the
invoice within 15 days of the invoice date 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 credit 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
52) 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 $1,600 cash for freight in. The company paid the
vendor nine days after the invoice date. If there was no beginning inventory, the cost of inventory would
be ________. (Assume a perpetual inventory system.)
A) $73,380
B) $75,600
C) $70,180
D) $72,400
53) A company purchased inventory for $2,500 from a vendor on account, FOB shipping point, with
terms of 2/10, n/30. The company paid the shipper $200 cash for freight in. The company then returned
damaged goods worth $400. The invoice was then paid eight days after the invoice date. Assuming that
there was no beginning inventory balance, the cost of inventory would be ________. (Assume a perpetual
inventory system.)
A) $2,058
B) $2,258
C) $2,300
D) $2,450
54) 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
28
55) A merchandiser, following the perpetual inventory system, has the following transactions during
August, 2019:
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. Prepare journal entries for the above transactions. Omit
explanations.
56) Abe's Printing Supply Company uses a perpetual inventory system. The company had the following
transactions during August 2019:
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.
Prepare journal entries for August 10 and 15. Omit explanations.
57) Extreme Discount Merchandisers has purchased merchandise on account and paid $450 for freight in.
Prepare the journal entry for freight paid. (Assume a perpetual inventory system.)
58) 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 of the invoice date, by the purchaser. (Assume a perpetual
inventory system.) Omit explanation.
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
59) 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
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
60) Statewide Computers purchased $280,000 of inventory. Goods of $20,000 were returned. Statewide
received an early discount of $15,000 and paid freight in of $1,000. The net cost of inventory purchased is
$245,000.
