ACG 2021 Ch. 5 FSU Test Questions
and All Correct Answers.
wholesalers - Answer merchandising companies that sell to retailers
merchandisers - Answer companies that buy and sell merchandise
service companies - Answer companies that do not sell merchandise, sell their services to
customers
retailers - Answer companies that sell directly to consumers
which of the following ordinarily has the shortest operating cycle? - Answer service
companies because they do not purchase or produce inventory
when using the periodic inventory system a physical inventory count is used to determine -
Answer cost of goods sold
Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of
merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the
merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July
21? - Answer Credit to Cash for $1,600
The discount terms are 2/10, n/30 which indicates a 2% discount if paid within 10 days but the
full amount is due otherwise. Since the bill is paid after the discount period, the full invoice
amount is $2,000 minus the returned goods of $400, or $1,600. The entry to record payment
will debit Accounts Payable for $1,600 and credit Cash for $1,600.
Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with
credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on
March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record
receipt of the payment? - Answer $1,274 debit to Cash, $26 debit to Sales Discount, and
$1,300 credit to Accounts Receivable
This entry correctly accounts for the check Oscar would be writing for this invoice after
adjustment for the returned merchandise and the discount. ($1,800 - $500) - [($1,800 - $500) ×
2%] = $1,274.
Marsh, Inc. uses the perpetual inventory system. It paid for freight costs to ship merchandise to
a customer. Besides the cash account, what account will Marsh record? - Answer freight-out
, The entry to record the payment of freight costs for goods shipped to a customer requires a
debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory; it is a
delivery expense and appears among the operating expenses on the income statement. In
contrast, freight-in is used to record the shipping costs associated with acquiring inventory
(note: when using a perpetual inventory system, the shipping cost associated with acquiring
inventory is debited to Inventory).
Helix Company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10,
n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit
terms? - Answer 36%
The company buying merchandise can wait 10 days and still receive a 2% discount. Otherwise, it
can wait an additional 20 days and pay the full invoice amount without being overdue. In other
words, a 20-day difference produces 2% interest. An interest rate of 2% in 20 days is equivalent
to an interest rate of 36% in 360 days (i.e., 2% x 360/20).
Tommy's Market uses a perpetual inventory system to record the following events involving a
recent purchase of inventory:
i. On July 1, purchased merchandise for $50,000, terms 1/10, n/30.
ii. On July 3, paid freight costs of $300 on merchandise purchased.
iii. On July 6, returned $1,200 of merchandise to the supplier.
iv. On July 9, paid the amount due to the supplier.
As a result of these events, Tommy's Market Company's inventory - Answer increased by
$48,612.
[(Purchase - purchase returns) x (100% - discount percentage]
[(50,000 - 1,200) x 99% + 300 = 48,612
The Sales Returns and Allowances account is classified as a(n) - Answer contra revenue
account.
Contra revenue accounts include:
1. Sales discounts
2. Sales returns and allowances
Contra revenue accounts are used to compute net sales. Both normally have debit balances
while revenue normally has a credit balance.
Under the perpetual system, cash freight costs incurred by the buyer for the transporting of
goods being received is recorded in which account? - Answer Inventory
and All Correct Answers.
wholesalers - Answer merchandising companies that sell to retailers
merchandisers - Answer companies that buy and sell merchandise
service companies - Answer companies that do not sell merchandise, sell their services to
customers
retailers - Answer companies that sell directly to consumers
which of the following ordinarily has the shortest operating cycle? - Answer service
companies because they do not purchase or produce inventory
when using the periodic inventory system a physical inventory count is used to determine -
Answer cost of goods sold
Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of
merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the
merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July
21? - Answer Credit to Cash for $1,600
The discount terms are 2/10, n/30 which indicates a 2% discount if paid within 10 days but the
full amount is due otherwise. Since the bill is paid after the discount period, the full invoice
amount is $2,000 minus the returned goods of $400, or $1,600. The entry to record payment
will debit Accounts Payable for $1,600 and credit Cash for $1,600.
Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with
credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on
March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record
receipt of the payment? - Answer $1,274 debit to Cash, $26 debit to Sales Discount, and
$1,300 credit to Accounts Receivable
This entry correctly accounts for the check Oscar would be writing for this invoice after
adjustment for the returned merchandise and the discount. ($1,800 - $500) - [($1,800 - $500) ×
2%] = $1,274.
Marsh, Inc. uses the perpetual inventory system. It paid for freight costs to ship merchandise to
a customer. Besides the cash account, what account will Marsh record? - Answer freight-out
, The entry to record the payment of freight costs for goods shipped to a customer requires a
debit to Freight-out and a credit to cash. Freight-out is not part of the cost of inventory; it is a
delivery expense and appears among the operating expenses on the income statement. In
contrast, freight-in is used to record the shipping costs associated with acquiring inventory
(note: when using a perpetual inventory system, the shipping cost associated with acquiring
inventory is debited to Inventory).
Helix Company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10,
n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit
terms? - Answer 36%
The company buying merchandise can wait 10 days and still receive a 2% discount. Otherwise, it
can wait an additional 20 days and pay the full invoice amount without being overdue. In other
words, a 20-day difference produces 2% interest. An interest rate of 2% in 20 days is equivalent
to an interest rate of 36% in 360 days (i.e., 2% x 360/20).
Tommy's Market uses a perpetual inventory system to record the following events involving a
recent purchase of inventory:
i. On July 1, purchased merchandise for $50,000, terms 1/10, n/30.
ii. On July 3, paid freight costs of $300 on merchandise purchased.
iii. On July 6, returned $1,200 of merchandise to the supplier.
iv. On July 9, paid the amount due to the supplier.
As a result of these events, Tommy's Market Company's inventory - Answer increased by
$48,612.
[(Purchase - purchase returns) x (100% - discount percentage]
[(50,000 - 1,200) x 99% + 300 = 48,612
The Sales Returns and Allowances account is classified as a(n) - Answer contra revenue
account.
Contra revenue accounts include:
1. Sales discounts
2. Sales returns and allowances
Contra revenue accounts are used to compute net sales. Both normally have debit balances
while revenue normally has a credit balance.
Under the perpetual system, cash freight costs incurred by the buyer for the transporting of
goods being received is recorded in which account? - Answer Inventory
