College Accounting, 12e (Slater)
Chapter 9 Sales and Cash Receipts
9.1 Learning Objective 9-1
1) Merchants who buy goods from wholesalers for resale to customers are:
A) merchandisers.
B) retailers.
C) service companies.
D) None of the above are correct.
2) Merchandise is:
A) the same as inventory.
B) an asset.
C) the same as gross sales.
D) Both A and B are correct.
3) Gross sales equals:
A) net sales minus sales discount.
B) sales discount less net income.
C) the total of cash sales and credit sales.
D) net income plus gross profit.
4) A contra-revenue account with a debit balance for returned goods is called:
A) Sales Returns and Allowances.
B) Sales Discount.
C) the credit period.
D) the discount period.
5) A characteristic of Sales Returns and Allowances is that:
A) it has a debit balance.
B) it tracks returns from customers.
C) it is a contra-revenue account.
D) All of these answers are correct.
6) The time frame when customers are allowed to pay their bills and still be eligible for a discount is the:
A) credit period.
B) discount period.
C) closing period.
D) due date.
7) The length of time the customer is allowed to repay the bill is the:
A) discount period.
B) closing period.
C) credit period.
D) due date.
8) A reduction given to customers for early payment is a:
A) sales returns and allowance.
B) purchase discount.
C) sales discount.
D) purchase return.
9) A characteristic of the account, Sales Discount, is:
A) debit balance.
B) contra-revenue account.
C) records the cash discounts granted to customers.
D) All of the above are correct.
10) Credit terms of 1/10, n/30 mean that:
A) 1% discount is allowed if the bill is paid within between 10 and 30 days.
B) a 1% discount is allowed if the bill is paid within 30 days.
C) a 1% discount is allowed if the bill is paid after 10 days.
D) a 1% discount is allowed if the customer pays the bill within 10 days, or the entre amount is due
within 30 days.
11) Net sales equal:
A) gross sales.
B) gross sales – sales returns and allowances.
C) gross sales – sales returns and allowances – sales discounts.
D) sales discounts.
12) Sales Tax Payable is a:
A) liability account with a debit balance.
B) liability account with a credit balance.
C) contra-asset account with a debit balance.
D) contra-asset account with a credit balance.
13) The liability account used to record sales tax owed is:
A) Sales Tax Expense.
B) Prepaid Taxes.
C) Sales Tax Payable.
D) Sales.
14) The normal balance of the Sales Returns and Allowances account is:
A) a credit.
B) a debit.
C) zero.
D) It doesn’t have a normal balance.
15) The side that increases the balance of the Sales Discount account is:
A) a credit.
B) a debit.
C) zero.
D) It does not have a normal balance.
16) Hardware Restoration reports net sales of $50,000. If sales returns and allowances are $10,000 and
sales discounts are $1,500, what are gross sales?
A) $50,000
B) $61,500
C) $58,500
D) $38,500
17) R&R Lumber reports gross sales of $70,000. If sales returns and allowances are $10,000 and sales
discounts are $3,000, what are the net sales?
A) $83,000
B) $63,000
C) $57,000
D) $70,000
18) Kristi’s pottery sold 200 tiles at $25.00 each to a charge customer, terms 1/10, n/30. Which entry is
required to record this transaction?
A) Debit Cash for $5,000; credit Tile Sales for $5,000
B) Debit Accounts Receivable for $4,050; credit Tile Sales for $4,050
C) Debit Accounts Receivable for $4,050; debit Sales Discount for $50.00, and credit Tile Sales for $5,000
D) Debit Accounts Receivable for $5,000; credit Tile Sales for $5,000
19) Lisa’s Blankets and Bedding had a sale of $350 to a charge customer, terms 1/15, n/30. Lisa should
record this transaction as follows:
A) debit Accounts Receivable $350; credit Sales $350.
B) debit Cash $350; credit Sales $350.
C) debit Accounts Receivable $346.50; debit Sales Discounts $3.50; credit Sales $350.
D) debit Sales $350; credit Accounts Receivable $350.
20) Unlimited Materials sold goods for $2,000 plus 6% sales tax to a charge customer, terms n/30. Which
entry is required to record this transaction?
A) Debit Accounts Receivable for $2,120; credit Sales Tax Payable $120 and credit Sales for $2,000
B) Debit Cash for $2,000; credit Sales for $2,000
C) Debit Accounts Receivable for $2,000; credit Sales for $2,000
D) Debit Accounts Receivable $2,120; credit Sales, $2,120
21) Secret Trails received payment in full within the credit period for horse boarding for $900 plus 6%
sales tax. Terms of the sale were 2/10, n/30. Which entry is required to record this payment?
A) Debit Cash, $900; credit Accounts Receivable Sales, $900
B) Debit Cash, $936; debit Sales Discount $18; credit Accounts Receivable, $954
C) Debit Cash, $954; credit Sales, $954
D) Debit Cash, $936; credit Sales, $936
22) Urban Camping sold goods for $200 to a charge customer. The customer returned for credit $90 worth
of goods. Which entry is required to record the return transaction?
A) Debit Sales Returns and Allowances $90; credit Accounts Receivable for $90
B) Debit Sales Returns and Allowances for $90; credit Sales for $90
C) Debit Sales $90; credit Sales Returns and Allowances $90
D) Debit Accounts Receivable $90; credit Sales Returns and Allowances for $90
23) Monica’s Closet received payment in full for goods sold within the discount period on a $500 sales
invoice, terms 2/10, n/30. Which entry records this payment?
A) Debit Accounts Receivable; credit Sales for $500
B) Debit Cash; credit Accounts Receivable for $500
C) Debit Cash for $490, debit Sales Discount for $10; and credit Sales for $500
D) Debit Cash for $490, debit Sales Discount for $10; and credit Accounts Receivable for $500
24) Medeco sold goods for $100 to a charge customer. The customer returned for credit $25 worth of
goods. Terms of the sale were 1/10, n/30. If the customer pays the amount owed within the discount
period, what is the amount the customer should pay?
A) $74.25
B) $75.00
C) $100.00
D) $90.00
25) Zach returned $200 of merchandise to Secret Trails. His original purchase was $400, with terms 1/10,
n/30. If Justin pays the balance of his account after the discount period, how much should he pay?
A) $204.00
B) $196.00
C) $200.00
D) $400.00
26) The arrangements between buyer and seller as to when payments for merchandise are to be made are
called:
A) credit terms.
B) net cash.
C) cash on demand.
D) gross cash.
27) The contra-revenue accounts include:
A) Sales Tax Payable.
B) Sales Returns and Allowances.
C) Sales Discount.
D) Both B and C are correct.
28) A sales discount correctly taken by the charge customer was debited to Sales at the time the entry was
recorded. This error will cause:
A) the net income for the period to be overstated.
B) the net income for the period to be understated.
C) the sales discount account to be understated.
D) the sales account to be overstated.
29) Merchandise sold on credit was returned for credit and recorded with a debit to Sales Returns and
Allowances and a credit to Accounts Payable. This error will cause:
A) the net income for the period to be overstated.
B) the net income for the period to be understated.
C) the assets to be overstated.
D) the liabilities to be understated.
30) The document indicating to the customer that the seller is reducing the amount owed by the customer
is:
A) credit memorandum.
B) sales discount.
C) sales returns and allowances.
D) schedule of accounts receivable.
31) Sold merchandise on account would be recorded with:
A) a debit to an asset account.
B) a debit to a liability account.
C) a debit to Capital.
D) None of these are correct.
32) Customer returned merchandise for credit. This will be recorded with:
A) a debit to an asset account.
B) a debit to a liability account.
C) a credit to an asset account.
D) None of these are correct.
33) A wholesale customer returned merchandise having already paid for it within the cash discount
period. The return will be recorded with:
A) a credit to an asset account.
B) a credit to a liability account.
C) a credit to Capital.
D) None of these are correct.
34) The total of all cash sales and credit sales equals:
A) net sales.
B) gross sales.
C) sales discount.
D) sales returns and allowances.
35) Sales discounts are not taken on which of the following?
A) Sales Tax
B) Freight
C) Merchandise returned
D) Sales Discounts are not taken on any of the above.
36) Sue’s Jewelry sold 20 necklaces for $25 each to a credit customer. 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 original sale would include:
A) a debit to Accounts Receivable for $530.
B) a debit to Accounts Receivable for $500.
C) a debit to Sales for $530.
D) a debit to Sales for $500.
37) Logan’s Art studio was moving and sold furniture that was no longer needed for cash. The entry
would include:
A) a credit to Sales.
B) a debit to Sales.
C) a credit to Furniture.
D) a debit to Furniture.
38) The normal balance of Sales Tax Payable is a credit.
39) Net Sales equals Gross Sales – Sales Returns and Allowances – Cash Sales.
40) If management wanted to determine if customers were returning goods at a higher rate than usual it
could use the Sales Returns and Allowances account to analyze the information.
41) The time a customer is granted to pay the bill is the discount period.
42) Sales tax collected by the seller increases the seller’s total revenue.
43) Terms of 3/10, n/30 means that a customer is allowed a 10% discount in 30 days.
44) Sales Returns and Allowances is a contra-asset.
45) Sales is a revenue account.
46) Sales Discounts is an expense account.
47) If a customer returns merchandise, the income for that period will be reduced.
48) The Sales Returns and Allowances account is contra-revenue.
49) Sales Tax Payable represents an asset on the books of the seller.
50) Sales Discounts and Sales Returns and Allowances are expense accounts.
51) When a customer returns defective office supplies the Sales Returns and Allowances account will be
debited.
52) Use the following information to answer the questions below:
Sales $75,400
Sales Discount 1,500
Sales Returns and Allowances 900
Transportation Expense 700
The Net Sales are ________.
53) Compare and discuss a discount period versus a credit period.
54) Determine the amount of net sales given:
gross sales = $200,000
sales discounts = $25,000
sales returns and allowances = $40,000
$ ________
55) If cash flow is so important to merchandisers, why do they extend credit to their customers?
56) Calculate gross sales:
net sales = $100,000
sales returns and allowances – $25,000
sales discounts – $20,000
accounts receivable – $12,000
57) Explain why the account Sales Tax Payable is credited when a sale is made subject to a sales tax?
58)
Column 1
Column 2
Column 3
Sales
Column 1
Column 2
Column 3
Sales
revenue
credit
income statement
59)
Column 1
Column 2
Column 3
Professional Fees Earned
Column 1
Column 2
Column 3
Professional Fees Earned
revenue
credit
income statement
60)
Column 1
Column 2
Column 3
Sales Returns and
Allowances
Column 1
Column 2
Column 3
Sales Returns and
Allowances
revenue
debit
income statement
61)
Column 1
Column 2
Column 3
Cleaning Expense
Column 1
Column 2
Column 3
Cleaning Expense
expense
debit
income statement
62)
Column 1
Column 2
Column 3
Sales Discounts
Column 1
Column 2
Column 3
Sales Discounts
revenue
debit
income statement
63)
Column 1
Column 2
Column 3
Store Rent Expense
Column 1
Column 2
Column 3
Store Rent Expense
expense
debit
income statement
64)
Column 1
Column 2
Column 3
Sales Tax Payable
Column 1
Column 2
Column 3
Sales Tax Payable
liability
credit
balance sheet
65)
Column 1
Column 2
Column 3
Owner’s Capital
Column 1
Column 2
Column 3
Owner’s Capital
owner’s equity
credit
balance sheet
66)
Column 1
Column 2
Column 3
Store Supplies
Column 1
Column 2
Column 3
Store Supplies
asset
debit
balance sheet
9.2 Learning Objective 9-2
1) If a credit memorandum is issued, what account will be increased on the seller’s books?
A) Accounts Receivable
B) Accounts Payable
C) Sales Discount
D) Sales Returns and Allowances
2) If a credit memorandum is issued, what account will be decreased on the seller’s books?
A) Accounts Receivable
B) Accounts Payable
C) Sales Discount
D) Sales Returns and Allowances
3) Sue’s Jewelry sold 30 necklaces for $25 each to a credit customer. 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 Sales Returns and Allowances for $132.50.
B) a debit to Sales Returns and Allowances for $125.00.
C) a credit to Sales Tax Payable for $7.50.
D) a debit to Accounts Receivable for $132.50.
4) Sales Returns and Allowances is a contra-revenue account with a normal credit balance.
5) The credit period is longer than the discount period.
6) Explain why, when a customer returns merchandise after it was paid for, he/she may or may not
receive credit equal to the invoice value of the merchandise returned.