PACO 501 EXAM 2 FINAL PAPER 2026
QUESTIONS WITH COMPLETE SOLUTIONS
GRADED A+
◉ FOB shipping point. Answer: The seller places the goods free on
board the carrier, and the buyer pays the freight costs.
When the buyer pays the transportation costs, these costs are
considered part of the cost of purchasing inventory.
Ownership of the goods passes to the buyer when the public carrier
accepts the goods from the seller.
◉ FOB destination. Answer: The seller places the goods free on
board to the buyer's place of business, and the seller pays the
freight.
Freight costs incurred by the seller on outgoing merchandise are an
operating expense to the seller.
When the seller pays the freight charges, the seller will usually
establish a higher invoice price for the goods, to cover the expense of
shipping.
,Ownership of the goods remains with the seller until the goods
reach the buyer.
◉ Purchase return. Answer: A return of goods from the buyer to the
seller for cash or credit
◉ Purchase allowance. Answer: A deduction made to the selling
price of merchandise, granted by the seller, so that the buyer will
keep the merchandise
◉ Purchase discounts. Answer: A cash discount claimed by a buyer
for a prompt payment of a balance due
Advantages:
- The purchaser saves money
- The seller is able to shorten the operating cycle by converting the
accounts receivable into cash earlier
The credit terms specify the amount of the cash discount and time
period during which it is offered. Also indicate the length of time in
which the purchaser is expected to pay the full invoice price
, Passing up the discount may be viewed as paying interest for use of
the money.
◉ Internal decision making. Answer: Merchandising companies may
use more than one sales account.
By doing this, company management can monitor sales trends more
closely and respond to changes in sales patterns more strategically.
◉ Sales returns. Answer: Transactions where the seller accepts
goods back from a purchaser
◉ Sales allowances. Answer: Transactions where the seller grants a
reduction in the purchase price (allowance) so that the buyer will
keep the goods
◉ Contra revenue account. Answer: An account that is offset against
a revenue account on the income statement
Ex: Sales Returns and Allowances; Sales Discounts
◉ Sales discounts. Answer: A reduction given by a seller for prompt
payment of a credit sale
QUESTIONS WITH COMPLETE SOLUTIONS
GRADED A+
◉ FOB shipping point. Answer: The seller places the goods free on
board the carrier, and the buyer pays the freight costs.
When the buyer pays the transportation costs, these costs are
considered part of the cost of purchasing inventory.
Ownership of the goods passes to the buyer when the public carrier
accepts the goods from the seller.
◉ FOB destination. Answer: The seller places the goods free on
board to the buyer's place of business, and the seller pays the
freight.
Freight costs incurred by the seller on outgoing merchandise are an
operating expense to the seller.
When the seller pays the freight charges, the seller will usually
establish a higher invoice price for the goods, to cover the expense of
shipping.
,Ownership of the goods remains with the seller until the goods
reach the buyer.
◉ Purchase return. Answer: A return of goods from the buyer to the
seller for cash or credit
◉ Purchase allowance. Answer: A deduction made to the selling
price of merchandise, granted by the seller, so that the buyer will
keep the merchandise
◉ Purchase discounts. Answer: A cash discount claimed by a buyer
for a prompt payment of a balance due
Advantages:
- The purchaser saves money
- The seller is able to shorten the operating cycle by converting the
accounts receivable into cash earlier
The credit terms specify the amount of the cash discount and time
period during which it is offered. Also indicate the length of time in
which the purchaser is expected to pay the full invoice price
, Passing up the discount may be viewed as paying interest for use of
the money.
◉ Internal decision making. Answer: Merchandising companies may
use more than one sales account.
By doing this, company management can monitor sales trends more
closely and respond to changes in sales patterns more strategically.
◉ Sales returns. Answer: Transactions where the seller accepts
goods back from a purchaser
◉ Sales allowances. Answer: Transactions where the seller grants a
reduction in the purchase price (allowance) so that the buyer will
keep the goods
◉ Contra revenue account. Answer: An account that is offset against
a revenue account on the income statement
Ex: Sales Returns and Allowances; Sales Discounts
◉ Sales discounts. Answer: A reduction given by a seller for prompt
payment of a credit sale
