161)
On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual
inventory system and the gross method of accounting for sales. On March 15, Babson returns some
of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise
returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The
amount that Klein receives from Babson on March 20 is:
A) $7,200. B) $7,800. C) $7,056. D) $7,644. E) $7,044.
162)
On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual
inventory system and the gross method of accounting for sales. On March 15, Babson returns some
of the merchandise. The selling price of the merchandise is $600 and the cost of the merchandise
returned is $350. Babson pays the invoice on March 20, and takes the appropriate discount. The
journal entry that Klein makes on March 20 is:
A)
Cash
7,056
Accounts receivable
7,056
B)
Cash
7,800
Accounts receivable
7,800
C)
Cash
7,644
Sales discounts
156
Accounts receivable
7,800
D)
Cash
4,500
Accounts receivable
4,500
E)
Cash
7,056
Sales discounts
144
Accounts receivable
7,200
163)
Zenith Company’s Merchandise Inventory account at year-end has a balance of $91,820, but a
physical count reveals that only $90,450 of inventory exists. The adjusting entry to record this
$1,370 of inventory shrinkage is:
A)
Purchases discounts
1,370
Cost of goods sold
1,370
B)
Inventory shrinkage expense
1,370
Cost of goods sold
1,370
C)
Merchandise inventory
1,370
Inventory shrinkage expense
1,370
D)
Cost of goods sold
90,450
Merchandise inventory
90,450
E)
Cost of goods sold
1,370
Merchandise inventory
1,370
164)
All of the following statements regarding sales returns and allowances are true except:
A)
Sales returns and allowances estimates are typically made as period-end adjustments.
B)
When sales returns and allowances adjustments are made to sales, an estimate must also be
made for the cost side.
C)
The Inventory Returns Estimated account is a current liability account.
D)
New revenue recognition rules require sellers to report sales net of expected returns and
allowances for annual periods.
E)
Sales Refund Payable is a current liability account.
165)
In its first year of business, Borden Corporation had sales of $2,000,000 and cost of goods sold of
$1,200,000. Borden expects returns in the following year to equal 8% of sales. The adjusting entry
or entries to record the expected sales returns is (are):
A)
Sales returns and allowances
160,000
Sales
160,000
Cost of Goods Sold
96,000
Inventory Returns Estimated
96,000
B)
Sales Refund Payable
160,000
Accounts receivable
160,000
C)
Sales
2,000,000
Sales Refund Payable
160,000
Accounts receivable
1,840,000
D)
Sales Returns and Allowances
160,000
Sales Refund Payable
160,000
Inventory Returns Estimated
96,000
Cost of goods sold
96,000
E)
Accounts Receivable
2,000,000
Sales
2,000,000
166)
In the current year, Borden Corporation had sales of $2,000,000 and cost of goods sold of
$1,200,000. Borden expects returns in the following year to equal 8% of sales. The unadjusted
balance in Inventory Returns Estimated is a debit of $6,000, and the unadjusted balance in Sales
Refund Payable is a credit of $10,000. The adjusting entry or entries to record the expected sales
returns is (are):
A)
Sales Returns and Allowances
150,000
Sales Refund Payable
150,000
Inventory Returns Estimated
90,000
Cost of goods sold
90,000
B)
Sales
2,000,000
Sales Refund Payable
160,000
Accounts receivable
1,840,000
C)
Accounts Receivable
2,000,000
Sales
2,000,000
D)
Sales Refund Payable
150,0000
Accounts receivable
150,000
E)
Sales returns and allowances
150,000
Sales
150,000
Cost of Goods Sold
90,000
Inventory Returns Estimated
90,000
167)
Netherland Corporation has the following unadjusted balances: Accounts Receivable, $80,000
(debit), and Allowance for Sales Discounts $300 (credit). Of the receivables, $50,000 of them are
within the 2% discount period, and Netherland expects buyers to take $1,000 in future-period
discounts ($50,000 × 2%) arising from this period’s sales. The adjusting entry to estimate sales
discounts is (are):
A)
Accounts Receivable
80,000
Sales
80,000
B)
Sales Discounts
700
Allowance for Sales Discounts
700
C)
Sales Discounts
50,000
Sales
50,000
Cost of Goods Sold
1,000
Inventory Returns Estimated
1,000
D)
Sales Discounts
1,000
Allowance for Sales Discounts
1,000
E)
Sales Discounts
1,000
Accounts receivable
1,000
168)
An expense resulting from failing to take advantage of cash discounts when using the net method
of recording purchases is called:
A)
Trade discounts.
B)
Discounts earned.
C)
Purchases discounts.
D)
Discounts lost.
E)
Sales discounts.
169)
A company that uses the net method of recording purchases and a perpetual inventory system
purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200
worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record
the payment on July 28 is:
A)
Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
B)
Debit Cash $1,600; credit Accounts Payable $1,600.
C)
Debit Merchandise Inventory $1,600; credit Cash $1,600.
D)
Debit Accounts Payable $1,568; debit Discounts Lost $32; credit Cash $1,600.
E)
Debit Accounts Payable $1,800; credit Cash $1,800.
170)
Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On
May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to
record this purchase is:
A)
Merchandise Inventory
15,000
Accounts Payable
15,000
B)
Accounts Payable
15,000
Merchandise Inventory
15,000
C)
Merchandise Inventory
14,700
Accounts Payable
14,700
D)
Purchases
14,700
Accounts Payable
14,700
E)
Purchases
15,000
Accounts Payable
15,000
171)
The net method of recording purchases refers to recording:
A)
Specified amounts and timing of payments that a buyer agrees to in return for being granted
credit.
B)
Purchases at the invoice price less any cash discounts.
C)
Inventory at the lower of cost or market.
D)
Purchases at the full invoice price, without deducting any cash discounts.
E)
Inventory at its selling price.
172)
On March 12, Klein Company sold merchandise in the amount of $7,800 to Babson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,500. Klein uses the perpetual
inventory system and the net method of accounting for sales. On March 15, Babson returns some of
the merchandise, which is not defective. The selling price of the returned merchandise is $600 and
the cost of the merchandise returned is $350. The entry(ies) that Klein must make on March 15 is
(are):
A)
Accounts receivable
600
Sales returns and allowances
600
B)
Sales returns and allowances
350
Accounts receivable
350
C)
Sales returns and allowances
588
Accounts receivable
588
Merchandise inventory
350
Cost of goods sold
350
D)
Accounts receivable
600
Sales returns and allowances
600
Cost of Goods Sold
350
Merchandise inventory
350
E)
Sales returns and allowances
588
Accounts receivable
588
Merchandise inventory
343
Cost of goods sold
343
173)
On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic
inventory system and the net method of accounting for sales. The journal entry or entries that Ryan
will make on September 12 is (are):
A)
Accounts receivable
5,684
Sales
5,684
Cost of goods sold
4,000
Merchandise Inventory
4,000
B)
Accounts receivable
5,800
Sales
5,800
C)
Accounts receivable
5,800
Sales
5,800
Cost of Goods Sold
4,000
Merchandise inventory
4,000
D)
Sales
5,800
Accounts receivable
5,800
E)
Accounts receivable
5,684
Sales
5,684
174)
On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Johnson uses the periodic
inventory system and the net method of accounting for purchases. The journal entry that Johnson
will make on September 12 is:
A)
Merchandise inventory
5,800
Accounts payable
5,800
B)
Purchases
5,800
Accounts payable
5,800
C)
Merchandise inventory
5,684
Accounts payable
5,684
D)
Purchases
5,684
Accounts payable
5,684
E)
Accounts payable
4,000
Merchandise inventory
4,000
175)
On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic
inventory system and the net method of accounting for sales. Johnson pays the invoice on
September 18, and takes the appropriate discount. The journal entry that Ryan makes on September
18 is:
A)
Cash
5,684
Sales discounts
116
Accounts receivable
5,800
B)
Cash
5,684
Accounts receivable
5,684
C)
Cash
5,800
Accounts receivable
5,800
D)
Cash
4,000
Accounts receivable
4,000
E)
Cash
3,920
Sales discounts
80
Accounts receivable
4,000
176)
On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Johnson uses the periodic
inventory system and the net method of accounting for purchases. Johnson pays the invoice on
September 18, and takes the appropriate discount. The journal entry that Johnson makes on
September 18 is:
A)
Sales
4,000
Sales Refund Payable
80
Accounts receivable
3,920
B)
Purchases
5,684
Cash
5,684
C)
Accounts payable
5,684
Cash
5,684
D)
Sales
5,800
Sales Refund Payable
116
Accounts receivable
5,684
E)
Cash
5,684
Purchases discounts
116
Accounts payable
5,800
177)
On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic
inventory system and the net method of accounting for sales. On September 14, Johnson returns
some of the non-defective merchandise, which is restored to inventory. The selling price of the
returned merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries
that Ryan must make on September 14 is (are):
A)
Sales returns and allowances
500
Accounts receivable
500
B)
Sales returns and allowances
490
Accounts receivable
490
Merchandise inventory
350
Cost of goods sold
350
C)
Sales returns and allowances
350
Accounts receivable
350
D)
Sales returns and allowances
490
Accounts receivable
490
E)
Sales returns and allowances
490
Accounts receivable
490
Merchandise inventory
343
Cost of goods sold
343
178)
On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company,
with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic
inventory system and the net method of accounting for sales. On September 14, Johnson returns
some of the merchandise. The selling price of the merchandise is $500 and the cost of the
merchandise returned is $350. Johnson pays the invoice on September 18, and takes the
appropriate discount. The journal entry that Ryan makes on September 18 is:
A)
Cash
5,684
Sales discounts
116
Accounts receivable
5,800
B)
Cash
5,194
Sales discounts
106
Accounts receivable
5,300
C)
Cash
5,800
Accounts receivable
5,800
D)
Cash
5,684
Accounts receivable
5,684
E)
Cash
5,194
Accounts receivable
5,194
_____
1. A measure of a company’s ability to pay its current liabilities that
excludes less liquid current assets such as inventory and prepaid expenses.
_____
2. A widely used income statement format that lists cost of goods sold as
another expense and shows only one subtotal for total expenses.
_____
3. The point of transfer from seller to buyer that takes place when the
goods arrive at the buyer’s place of business.
_____
4. Products a company owns and intends to sell.
_____
5. The expenses that support a company’s overall operations and include
costs related to accounting, human resource management and financial
management.
_____
6. The point of transfer from seller to buyer that takes place when goods
depart the seller’s place of business.
_____
7. Inventory losses that can occur as a result of theft or deterioration and
require an adjusting entry to account for those losses.
_____
8. An income statement format that shows detailed computations of net
sales and other costs and expenses, and reports subtotals for various classe
of items.
_____
9. A given percent deducted from a list price often granted to customers
purchasing large quantities of merchandise.
_____
10. The expenses of promoting sales by displaying and advertising
merchandise, making sales, and delivering goods to customers.
SHORT ANSWER QUESTIONS
179)
Match the following definitions and terms by placing the letter for the terms A through J in the
blank space next to the best definition.
A. Trade discount F. Acid-test ratio
B. General and administrative expenses G. Merchandise inventory
C. FOB shipping point H. Selling expenses
D. Single-step income statement I. Multiple-step income statement
E. FOB destination J. Inventory shrinkage
s
180)
Match the following terms with the appropriate definition.
A. Debit memorandum
B. Credit period
C. Credit terms
D. Credit memorandum
E. Discount period
F. Gross profit
G. Periodic inventory system
H. Perpetual inventory system
I. Sales discount
J. Purchase discount
_____
1. An inventory accounting method that continually updates accounting
records for inventory available for sale and inventory sold.
_____
2. An inventory accounting method that updates the accounting records for
merchandise transactions only at the end of a period.
_____
3. The time period in which reduced payment can be made by the buyer
because of a cash discount offered by a seller of goods on credit.
_____
4. A notification that informs the seller of a debit made to the seller’s
account payable in the buyer’s records.
_____
5. A cash discount granted, from the view of the purchaser intended to
encourage buyers to pay amounts owed earlier.
_____
6. A notification that informs a buyer of a seller’s credit to a buyer’s
account.
_____
7. A cash discount granted from the view of the seller, indicated in the
credit terms on the invoice.
_____
8. The calculation of net sales less cost of goods sold.
_____
9. The description of the amounts and timing of payments from a buyer to
a seller for a purchase.
_____
10. The amount of time allowed before full payment is due.
ESSAY QUESTIONS
181)
Identify and explain the key components of a merchandiser’s net income.
182)
Describe the difference between wholesalers and retailers.
183)
Describe the key attributes of inventory for a merchandising company.