College Accounting, 12e (Slater)
Chapter 10 Purchases and Cash Payments
10.1 Learning Objective 10-1
1) Net purchases are:
A) Purchases + Purchases Returns and Allowances.
B) Purchases – Purchases Discount – Purchases Returns and Allowances.
C) Purchases – Freight – Purchases Returns and Allowances.
D) Purchases + Freight-in.
2) If a display rack was purchased for the store, which of the following accounts would be increased?
A) Store Equipment
B) Purchases
C) Cash
D) Capital
3) When merchandise is bought for resale, which of the following accounts would be increased?
A) Store Equipment
B) Purchases
C) A/R
D) Capital
4) When merchandise is bought for resale, which of the following accounts would be decreased?
A) Store Equipment
B) Purchases
C) Cash
D) Capital
5) Purchases is a(n):
A) cost.
B) asset.
C) liability.
D) revenue.
6) A cost account is treated the same as:
A) an asset.
B) Capital.
C) a revenue.
D) an expense.
7) Jackie’s Online Service on April 30 has the following account balances:
Sales
$25,000
Sales Returns and Allowances
5,000
Purchases
14,000
Freight-In
1,000
Purchases Returns and Allow.
2,000
Purchases Discounts
1,400
Net purchases for the period are:
A) $10,600.
B) $9,600.
C) $12,600.
D) $14,000.
8) Jackie’s Online Service on April 30 has the following account balances:
Sales
$25,000
Sales Returns and Allowances
5,000
Purchases
14,000
Freight-In
1,000
Purchases Returns and Allow.
2,000
Purchases Discounts
???
If net purchases for the period are $11,000, what is the amount in the Purchases Discounts account?
A) $3,000
B) $4,000
C) 2,000
D) $1,000
9) Jackie’s Online Service on April 30 has the following account balances:
Sales
$25,000
Sales Returns and Allowances
5,000
Purchases
???
Freight-In
1,000
Purchases Returns and Allow.
2,000
Purchases Discounts
1,500
If net purchases for the period are $14,000, what is the amount of gross purchases?
A) $18,500
B) $15,500
C) $17,500
D) $16,500
10) A characteristic of Purchases Returns and Allowances is:
A) it has a normal credit balance.
B) it increases when merchandise is returned.
C) it decreases cost.
D) All of the above are correct.
11) Clothes’ R Us bought some new clothes 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) None of these are correct.
12) 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 unpacks the goods.
13) Purchases Discount:
A) is a contra-cost account.
B) has a normal debit balance.
C) decreases Net Income.
D) All of the above are correct.
14) 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.
15) On November 30, Janoch’s Dog Kennel purchased $600 of merchandise on account from the Ganster
Company. The goods were shipped F.O.B. shipping point. The freight charge of $40 was paid by Ganster
Company and added to the invoice. The amount to record in the Purchases account is:
A) $600.
B) $640.
C) $560.
D) $550.
16) The entry to record a purchase of $5,000 on account, terms of 2/10, n/30, would include a:
A) debit to Purchases Discount for $100.
B) credit to Accounts Payable for $5,000.
C) debit to Accounts Payable for $5,000.
D) credit to Cash for $5,000.
17) Purchase Discounts are taken on:
A) shipping expense.
B) Purchases Returns and Allowances.
C) Purchases.
D) All of the above are correct.
18) A form used with a business by the requesting department asking the purchasing department to buy
specific goods is called a:
A) purchase order.
B) purchase requisition.
C) purchase invoice.
D) debit memorandum.
19) 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.
20) The term F.O.B. means:
A) free on board.
B) freight or bill.
C) freight order billing.
D) found on base.
21) A purchase discount was recorded as a credit to the Purchases account and a debit to Accounts
Payable. This error will cause:
A) net income to be overstated.
B) net income to be understated.
C) net income to not be affected.
D) total assets to be overstated.
22) 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 Purchase Returns and Allowances. This error will cause:
A) net income to be overstated.
B) net income to be understated.
C) net income to not be affected.
D) total assets to be understated.
23) The return of merchandise was recorded as a debit to Accounts Receivable and a credit to Purchases
Returns and Allowances. 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.
24) 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 discount.
D) purchases returns.
25) A purchase discount correctly taken was debited to Purchases at the time the entry was recorded. This
error will cause:
A) net income to be overstated.
B) net income to be understated.
C) net income to not be affected.
D) total assets to be overstated.
26) The freight 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) net income to not be affected.
D) total liabilities to be overstated.
27) 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 credit to Supplies and a debit to Purchases.
28) A characteristic of Purchases is:
A) it has a debit normal balance.
B) it reduces net income.
C) that it is used to record the purchase of merchandise to be resold.
D) All of the above are correct.
29) Which of the following transactions will cause one asset to be debited and another to be credited
when the periodic inventory system is in use?
A) Purchased merchandise on account
B) Purchased merchandise for cash.
C) Purchased office supplies for cash
D) Purchased office supplies on account
30) Which of the following transactions will cause a liability to be credited and a cost account to be
debited when the periodic 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
31) Purchases:
A) decrease net income.
B) increase net income.
C) have no effect on net income.
D) Not enough information provided.
32) Purchases discounts:
A) decrease net income.
B) increase net income.
C) have no effect on net income.
D) Not enough information provided.
33) Purchases Returns and Allowances:
A) decrease net income.
B) increase net income.
C) have no effect on net income.
D) Not enough information provided.
34) 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.
35) 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.
36) Hardware Restoration had net purchases of $50,000. If Purchases Returns and Allowances are $10,000
and Purchases Discounts are $1,500, what are gross purchases?
A) $38,500
B) $50,000
C) $61,500
D) $40,000
37) R&R Lumber reports Purchases of $60,000. If Purchases Returns and Allowances are $6,000 and
Purchases Discounts are $1,500, what are the net Purchases?
A) $54,000
B) $52,500
C) $67,500
D) $58,500
38) Heidi’s Accessories bought 50 necklaces for $10 each on account. The invoice included a 6% sales tax
and payment terms of 2/10, n/30. In addition, 5 necklaces were returned prior to payment. The entry to
record the purchase would include:
A) a debit to Accounts Payable for $530.
B) a debit to Accounts Payable for $500.
C) a debit to Purchases for $530.
D) a debit to Purchases for $500.
39) The Purchases Discount account normally has a debit balance and is a contra-cost account.
40) The account Freight-In accumulates the shipping costs to the seller.
41) 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.
42) Purchases Discounts are not taken on freight costs.
43) The Purchases Returns and Allowances account normally has a credit balance.
44) A receiving report is used to notify the company of the quantity and condition of the goods received.
45) The seller’s sales invoice is the buyer’s purchase invoice.
46) Payment for merchandise should not be made until approval is given.
47) Purchase discounts are given to the buyer from the supplier for early payment on account.
48) An invoice approval form is used by accounting to check the invoice before approving it for payment.
49) On September 6, Mark purchased merchandise for his electric store. The invoice was for $35,000 plus
freight of $750, terms 2/15, n/30. The freight was included on the invoice. On September 10, Mark
returned merchandise for $5,000 credit. On September 19, Mark paid the amount owed. Fill in the blanks
below.
a) The credit to Accounts Payable on September 6 is ________.
b) The debit to Freight-In on September 6 is ________.
c) The debit to Accounts Payable on September 10 is ________.
d) The credit to Purchases Discount on September 19 is ________.
e) The credit to Cash on September 19 is ________.
50) 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 $400 of merchandise on account from Larsen’s Accessories, terms
2/10, 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:
A) $392.
B) $408.
C) $400.
D) $440.
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) net income to be understated.
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.
10.3 Learning Objective 10-3
1) A debit memorandum increases which account on the buyer’s books?
A) Accounts Payable
B) Purchases Returns and Allowances
C) Sales Returns and Allowances
D) Accounts Receivable
2) A debit memorandum increases which account on the seller’s books?
A) Accounts Payable
B) Purchases Returns and Allowances
C) Sales Returns and Allowances
D) Accounts Receivable
3) A debit memorandum decreases which account on the seller’s books?
A) Accounts Payable
B) Purchases Returns and Allowances
C) Sales Returns and Allowances
D) Accounts Receivable
4) A debit memorandum decreases which account on the buyer’s books?
A) Accounts Payable
B) Purchases Returns and Allowances
C) Sales Returns and Allowances
D) Accounts Receivable
5) The normal balance for Purchases Returns and Allowances is:
A) a debit.
B) a credit.
C) It does not have a normal balance.
D) zero.
6) The entry to record returned merchandise to Vans Company is:
A) debit Purchases Returns and Allowances; credit Accounts Payable in the general ledger.
B) debit Accounts Payable; credit Purchases.
C) debit Accounts Payable/Vans Company in the accounts payable subsidiary ledger and debit Accounts
Payable in the general ledger; credit Purchases Returns and Allowances.
D) debit Purchases; credit Accounts Payable.
7) Tyler returned $500 of merchandise within the discount period. The entry to record the return is to:
A) debit Purchases for $500; credit Accounts Payable for $500.
B) debit Purchases for $500; credit Purchases Returns and Allowances for $500.
C) debit Accounts Payable/Suppliers Name for $500; credit Purchases Returns and Allowances for $500.
D) debit to Accounts Payable for $500, credit Purchases Discount for $500.
8) Which of the following accounts is a contra-cost account?
A) Accumulated Depreciation
B) Purchases Returns and Allowances
C) Sales Returns and Allowances
D) Sales Discount
9) Returned merchandise under the periodic inventory method. This will be recorded with:
A) a debit to Accounts Payable and a credit to Purchases Returns and Allowances.
B) a debit to Merchandise Inventory and a credit to Purchases.
C) a credit to Accounts Payable and a debit to Merchandise Inventory.
D) a debit to Accounts Payable and a credit to Merchandise Inventory.
10) Returned merchandise paid for within the discount period for a Cash refund. This will be recorded
with:
A) a credit to a liability.
B) a credit to an asset.
C) a debit to a liability.
D) a debit to an asset.
11) Heidi’s Accessories bought 50 necklaces for $10 each on account. The invoice included a 6% sales tax
and payment terms of 2/10, n/30. In addition, 5 necklaces were returned prior to payment. The entry to
record the return would include:
A) a debit to Accounts Payable for $50.00.
B) a debit to Accounts Payable for $53.00.
C) a debit to Purchases Returns and Allowances for $50.00.
D) a debit to Purchases Returns and Allowances for $53.00.
12) Individual amounts are recorded during the month to the accounts payable ledger.
13) The buyer issues a debit memorandum to indicate that a previous purchase amount is being reduced
because goods were returned or an allowance was requested.
14) If a debit memorandum is issued, the buyer will reduce their accounts receivable.
15) Determine the amount to be paid within the discount period for purchase with an invoice price of
$10,000, subject to credit terms of 2/10, n/30.
$ ________
16) Determine the total cost of a purchase paid for within the discount period with an invoice price of
$7,000 and credit terms of 2/10, n/30 when $1,500 has already been returned for credit. The goods were
purchased with freight terms of F.O.B shipping point and freight of $50.
$ ________
17) Determine the amount to be paid within the discount period for purchase with an invoice price of
$5,000 and credit terms of 2/10, n/30 when $500 has already been returned for credit.
$ ________