College Accounting, 14e (Slater)
Chapter 10 Purchases and Cash Payments
10.1 Learning Objective 10-1
1) A debit memorandum decreases which account on the buyer’s books?
A) Accounts Payable
B) Sales
C) Sales Discount
D) Accounts Receivable
2) A debit memorandum increases which account on the seller’s books?
A) Accounts Payable
B) Merchandise Inventory
C) Sales Returns and Allowances
D) Accounts Receivable
3) A debit memorandum decreases which account on the seller’s books?
A) Accounts Payable
B) Merchandise Inventory
C) Sales Returns and Allowances
D) Accounts Receivable
4) A debit memorandum decreases which account on the buyer’s books?
A) Sales Returns and Allowances
B) Merchandise Inventory
C) Accounts Receivable
D) Sales Discount
5) The normal balance for Merchandise Inventory is:
A) a debit.
B) a credit.
C) zero.
D) It does not have a normal balance.
6) In the perpetual system, freight charges added to the buyer’s invoice are debited to ________ for the
buyer.
A) Sales Discount
B) Merchandise Inventory
C) Sales Returns and Allowances
D) Freight in
7) If a display rack was purchased for the store, which of the following accounts would be increased?
A) Store Equipment
B) Merchandise Inventory
C) Capital
D) Supplies
8) When merchandise is bought for resale, which of the following accounts would be increased?
A) Store Equipment
B) Merchandise Inventory
C) Accounts Payable
D) Supplies Expense
9) Tim returned $600 of merchandise within the discount period. The entry to record the return is to:
A) debit Merchandise Inventory for $600; credit Accounts Payable for $600.
B) debit Merchandise Inventory for $600; credit Sales for $600.
C) debit Accounts Payable for $600; credit Merchandise Inventory for $600.
D) debit to Accounts Payable for $600; credit Sales for $600.
10) Merchandise Inventory is what type of account?
A) Liability
B) Asset
C) Equity
D) Contra-asset
11) When merchandise is bought for resale with cash, which of the following accounts would be
decreased?
A) Store Equipment
B) Accounts Payable
C) Cash
D) B or C are correct
12) Supplies is a(n):
A) cost.
B) asset.
C) contra-revenue.
D) contra-asset.
13) An invoice approval form is used by the:
A) purchasing department.
B) receiving department.
C) shipping department.
D) accounting department.
14) A characteristic of Merchandise Inventory is:
A) it has a normal debit balance.
B) it decreases for the buyer when merchandise is returned.
C) it is an asset.
D) All of the above are correct.
15) Shoes Plus bought some new shoes for its fashion line and is required to pay the freight costs. The
freight terms are:
A) F.O.B. destination.
B) F.O.B. shipping point.
C) 3/10, n/30.
D) B and C are correct.
16) When the term F.O.B. shipping point is used, title passes:
A) when goods reach the halfway point.
B) when goods reach the destination.
C) when goods are shipped.
D) when the buyer signs for the product.
17) A receiving report includes:
A) quantity received.
B) condition of goods.
C) goods received.
D) All of the above are correct.
18) F.O.B. shipping point means:
A) the buyer pays for the freight.
B) the seller pays for the freight.
C) the title passes at time of shipment.
D) Both A and C are correct.
19) On October 31, Janoch’s Dog Kennel purchased $900 of merchandise on account from the Ganster
Company. The goods were shipped F.O.B. shipping point. The freight charge of $110 was paid by Ganster
Company and added to the invoice. The amount to record in the Merchandise Inventory account is:
A) $900.
B) $1,010.
C) $790.
D) $780.
20) The entry to record a purchase of $13,000 on account, terms of 2/10, n/30, would include a:
A) debit to Purchases Discount for $260.
B) credit to Accounts Payable for $13,000.
C) debit to Accounts Payable for $13,000.
D) credit to Cash for $13,000.
21) Discounts are taken on:
A) shipping expense.
B) Merchandise Inventory returned.
C) Merchandise Inventory after returns are taken out.
D) Both A and C are correct.
22) A form used within a business by the requesting department asking the purchasing department to
buy specific goods is called a(n):
A) purchase order.
B) purchase requisition.
C) credit memorandum.
D) employee memorandum.
23) Before paying an invoice, the accounting department must check:
A) the purchase order.
B) the invoice.
C) the receiving report.
D) All of the above are correct.
24) The term F.O.B. means:
A) free on board.
B) freight or bill.
C) freight order billing.
D) freight on board.
25) A discount on merchandise purchased would be a:
A) debit to Accounts Receivable, and a credit to Merchandise Inventory.
B) debit to Merchandise Inventory, and a credit to Accounts Receivable.
C) debit to Accounts Payable, and a credit to Merchandise Inventory.
D) debit to Merchandise Inventory, and a credit to Accounts Payable.
26) Office Supplies (not used for resale) bought on account were returned for credit and recorded with a
debit to Accounts Payable and a credit to Merchandise Inventory. This error will cause:
A) net income to be overstated.
B) net income to be understated.
C) no effect on net income or total assets.
D) total assets to be understated.
27) The return of merchandise was recorded as a debit to Accounts Receivable and a credit to
Merchandise Inventory. This error will cause:
A) net income to be overstated.
B) net income to be understated.
C) total liabilities to be understated.
D) total assets to be overstated.
28) A form used in business to place an order for the buying of goods from a seller is:
A) purchase requisition.
B) purchase order.
C) purchase demand.
D) purchases returns.
29) A discount on a purchase was debited to Merchandise Inventory and a credit to Accounts Payable at
the time the entry was recorded. This error will cause:
A) net income to be overstated.
B) net income to be understated.
C) total assets to be understated.
D) total assets to be overstated.
30) The shipping paid on goods purchased F.O.B. Shipping Point was not recorded. This error will cause:
A) net income to be overstated.
B) net income to be understated.
C) total liabilities to be understated.
D) total liabilities to be overstated.
31) Purchased office supplies on account. This will be recorded with:
A) a debit to Accounts Payable and a credit to Supplies.
B) a debit to Supplies and a credit to Supplies Expense.
C) a debit to Supplies and a credit to Accounts Payable.
D) a debit to Supplies and a credit to Purchases.
32) When purchasing merchandise inventory:
A) a debit entry is made to Merchandise Inventory.
B) no entry is needed.
C) a credit entry is made to Accounts Payable.
D) A and C are correct.
33) Which of the following transactions will cause one asset to be debited and another to be credited
when the perpetual inventory system is in use?
A) Purchased merchandise inventory on account
B) Purchased merchandise inventory for cash
C) Purchased office supplies on account
D) Returned merchandise inventory for credit
34) Which of the following transactions will cause a liability to be credited and an asset account to be
debited when the perpetual inventory system is in use?
A) Recorded the adjustment for depreciation
B) Recorded the adjustment for the consumption of supplies
C) Purchased merchandise inventory on account
D) Purchased office supplies on account
35) A purchase of merchandise inventory for cash:
A) decrease net income.
B) increase net income.
C) increases assets.
D) has no effect on assets.
36) When a 2% discount is taken by a buyer, there is a(n):
A) increase in assets.
B) decrease in assets.
C) increase accounts payable.
D) Not enough information provided.
37) When a buyer returns merchandise that has been previously purchased, there is a(n):
A) decrease net income.
B) decrease in assets.
C) increase accounts payable.
D) Not enough information provided.
38) The term used when the purchaser is responsible for the cost of freight is:
A) F.O.B. shipping point.
B) F.O.B. destination.
C) Freight-In.
D) Purchases.
39) The term used when the seller is responsible for the cost of freight is:
A) F.O.B. shipping point.
B) F.O.B. destination.
C) Freight-In.
D) Purchases.
40) Joy’s Accessories bought 65 necklaces for $12 each on account. The payment terms of 2/10, n/30. In
addition, 13 necklaces were returned prior to payment. The entry to record the initial purchase would
include:
A) a debit to Accounts Payable for $624.
B) a debit to Accounts Payable for $780.
C) a debit to Merchandise Inventory for $780.
D) a debit to Merchandise Inventory for $13.
41) Using the perpetual inventory system, the purchase of merchandise on account would include a:
A) debit to Merchandise Inventory and a credit to Accounts Payable.
B) debit to Accounts Payable and a credit to Merchandise Inventory.
C) debit to Sales and a credit to Accounts Payable.
D) debit to Sales and a credit to Accounts Receivable.
42) The return of merchandise to the supplier for credit using the perpetual inventory system would
include a:
A) debit to Accounts Receivable and a credit to Accounts Payable.
B) debit to Accounts Payable and a credit to Merchandise Inventory.
C) debit to Sales Returns and Allowances and a credit to Merchandise Inventory.
D) debit to Accounts Payable and a credit to Sales Returns and Allowances.
43) The recording of the cost of freight-in under the perpetual inventory system would include a:
A) debit to Freight-In.
B) credit to Merchandise Inventory.
C) debit to Merchandise Inventory.
D) credit to Freight-Out.
44) Returned merchandise for credit under the perpetual inventory method. This will be recorded with:
A) a debit to Accounts Payable and a credit to Sales Returns and Allowances.
B) a debit to Sales Returns and Allowances and a credit to Merchandise Inventory.
C) a credit to Accounts Payable and a debit to Merchandise Inventory.
D) a debit to Accounts Payable and a credit to Merchandise Inventory.
45) The Merchandise account normally has a credit balance.
46) The account Freight-In accumulates the shipping costs to the seller.
47) When the terms are F.O.B. shipping point, the buyer is responsible for the cost of shipping from the
seller’s shipping point to the purchaser’s location, but the title does not pass until it is delivered.
48) Discounts on purchases are not taken on the purchased merchandise plus freight.
49) A buyer taking a discount for early payment is recorded as a credit to Merchandise Inventory.
50) A receiving report is used to notify the company of the quantity and condition of the goods received.
51) The seller’s sales invoice is the buyer’s purchase order.
52) The purchase for merchandise inventory does not require approval before payment is made.
53) Purchase discounts are given to the buyer from the supplier for motivation to increase quantity
purchased.
54) An invoice approval form is used by accounting to check the invoice before approving it for payment.
55) On October 6, Mark purchased merchandise for his electric store. The invoice was for $40,000 plus
freight of $850, terms 1/15, n/30. The freight was included on the invoice. On October 10, Mark returned
merchandise for $5,000 credit. On October 19, Mark paid the amount owed. Fill in the blanks below.
a) The credit to Accounts Payable on October 6 is ________.
b) The debit to Merchandise Inventory on October 6 is ________.
c) The debit to Accounts Payable on October 10 is ________.
d) The credit to Merchandise Inventory on October 19 is ________.
e) The credit to Cash on October 19 is ________.
56) Explain the difference between F.O.B. shipping point and F.O.B. destination.
10.2 Learning Objective 10-2
1) On February 12, Clare purchased $490 of merchandise on account from Larsen’s Accessories, terms
5/10, n/30. The goods were shipped F.O.B. destination. The freight charge was $40. The amount to be
recorded in the Accounts Payable Subsidiary ledger is: (Round your calculation to the nearest whole
dollar.)
A) $466.
B) $515.
C) $490.
D) $530.
2) An entry to record the payment to a vendor was correctly recorded and posted to the general ledger
but was not posted to the subsidiary ledger. This error will cause:
A) net income to be overstated.
B) the vendor account total in the subsidiary to be less than control total.
C) the accounts payable control account to not agree with the subsidiary ledger.
D) the accounts receivable control account to not agree with the subsidiary ledger.
3) To prove the subsidiary ledger agrees with the Accounts Payable controlling account balance, complete
a:
A) trial balance.
B) schedule of accounts payable.
C) purchase order.
D) schedule of accounts receivable.
4) Which account is the controlling account for the amounts owed to individual creditors?
A) Accounts Payable in the general ledger
B) Purchases in the general ledger
C) Accounts Receivable in the subsidiary ledger
D) Accounts Payable in the subsidiary ledger