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If goods are shipped FOB destination,the seller does not record revenue from the sale until the goods arrive at their destination because the transaction is not complete until that point.

A) True
B) False

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The credit terms 2/10,n/30 are interpreted as:


A) 2% cash discount if the amount is paid within 10 days,or the balance due in 30 days.
B) 10% cash discount if the amount is paid within 2 days,or the balance due in 30 days.
C) 30% discount if paid within 2 days.
D) 30% discount if paid within 10 days.
E) 2% discount if paid within 30 days.

F) B) and D)
G) All of the above

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A merchandiser's classified balance sheet reports merchandise inventory as an investment.

A) True
B) False

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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 5,800 Accounts receivable 5,800\begin{array}{|l|r|r|}\hline \text { Cash } & 5,800 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}
B)  Cash 4,000 Accounts receivable 4,000\begin{array}{|l|r|r|}\hline \text { Cash } & 4,000 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}
C)  Cash 3,920 Sales discounts 80 Accounts receivable 4,000\begin{array}{|l|r|r|}\hline \text { Cash } & 3,920 & \\\hline \text { Sales discounts } & 80 & \\\hline \text { Accounts receivable } & & 4,000 \\\hline\end{array}
D)  Cash 5,684 Accounts receivable 5,684\begin{array}{|l|r|r|}\hline \text { Cash } & 5,684 & \\\hline \text { Accounts receivable } & & 5,684 \\\hline\end{array}
E)  Cash 5,684 Sales discounts 116 Accounts receivable 5,800\begin{array}{|l|r|r|}\hline \text { Cash } & 5,684 & \\\hline \text { Sales discounts } & 116 & \\\hline \text { Accounts receivable } & & 5,800 \\\hline\end{array}

F) All of the above
G) B) and E)

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In a perpetual inventory system,the Merchandise Inventory account must be closed at the end of the accounting period.

A) True
B) False

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A seller usually prepares a ________ to confirm a buyer's return or allowance,and informs the buyer of the seller's credit to the buyer's Account Receivable on the seller's books.

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Purchase allowances refer to a price reduction (allowance)granted to a buyer of defective or unacceptable merchandise.

A) True
B) False

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Reductions in the selling price of merchandise sold to customers,often involving damaged or defective merchandise that a customer is willing to purchase with a decrease in the selling price is referred to as________.

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The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.

A) True
B) False

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When purchases are recorded at net amounts,any discounts lost as a result of late payments are reported as an operating expense.

A) True
B) False

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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)  Sales 5,800 Accourits receivable 5,800\begin{array} { | l | r | r | } \hline \text { Sales } & 5,800 & \\\hline \text { Accourits receivable } & & 5,800 \\\hline\end{array}
B)  Accourts receivable 5,684 Sales 5,684 Cost of goods sold 4,000 Merchandise Irventory 4,000\begin{array} { | l | r | r | } \hline \text { Accourts receivable } & 5,684 & \\\hline \text { Sales } & & 5,684 \\\hline \text { Cost of goods sold } & 4,000 & \\\hline \text { Merchandise Irventory } & & 4,000 \\\hline\end{array}
C)  Accourits receivable 5,800 Sales 5,800\begin{array} { | l | r | r | } \hline \text { Accourits receivable } & 5,800 & \\\hline \text { Sales } & & 5,800 \\\hline\end{array}
D)  Accourts receivable 5,800 Sales 5,800 Cost of goods Sold 4,000 Merchandise irventory 4,000\begin{array} { | l | r | r | } \hline \text { Accourts receivable } & 5,800 & \\\hline \text { Sales } & & 5,800 \\\hline \text { Cost of goods Sold } & 4,000 & \\\hline \text { Merchandise irventory } & & 4,000 \\\hline\end{array}
E)  Accounts receivable 5,684 Sales 5,684\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 5,684 & \\\hline \text { Sales } & & 5,684 \\\hline\end{array}

F) A) and C)
G) C) and D)

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Inventory Returns Estimated,which reflects an adjustment to inventory for expected future returns,is a liability account reported in the balance sheet,usually under Current Liabilities.

A) True
B) False

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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)  Sales returns and allowances 588 Accounts receivable 588 Merchandise inventory 350 Cost of goods sold 350\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 588 & \\\hline \text { Accounts receivable } & & 588 \\\hline \text { Merchandise inventory } & 350 & \\\hline \text { Cost of goods sold } & & 350 \\\hline\end{array}
B)  Sales returns and allowances 588 Accounts receivable 588 Merchandise inventory 343 Cost of goods sold 343\begin{array}{|l|r|r|}\hline \text { Sales returns and allowances } & 588 & \\\hline \text { Accounts receivable } & & 588 \\\hline \text { Merchandise inventory } & 343 & \\\hline \text { Cost of goods sold } & & 343 \\\hline\end{array}
C)  Accounts receivable 600 Sales returns and allowances 600\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowances } & & 600 \\\hline\end{array}
D)  Accounts receivable 600 Sales returns and allowances 600 Cost of Goods Sold 350 Merchandise inventory 350\begin{array}{|l|r|r|}\hline \text { Accounts receivable } & 600 & \\\hline \text { Sales returns and allowances } & & 600 \\\hline \text { Cost of Goods Sold } & 350 & \\\hline \text { Merchandise inventory } & & 350 \\\hline\end{array}
E)  Sales retums and allowances 350 Accounts receivable 350\begin{array}{|l|r|r|}\hline \text { Sales retums and allowances } & 350 & \\\hline \text { Accounts receivable } & & 350 \\\hline\end{array}

F) B) and E)
G) B) and D)

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The liquidity of a company can be measured using the current ratio and the ________,which only includes the most liquid current assets in its calculation.

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________ are the amounts and timing of payment from a buyer to a seller.

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FOB destination means that the buyer accepts ownership when the goods arrive at the buyer's place of business.

A) True
B) False

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If a company sells merchandise with credit terms 2/10 n/60,the credit period is 10 days and the discount period is 60 days.

A) True
B) False

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Cost of goods sold is also called cost of sales.

A) True
B) False

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Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases.The company purchased $9,750 of merchandise on August 7 with terms 1/10,n/30.On August 11,it returned $1,500 worth of merchandise.On August 16,it paid the full amount due.The correct journal entry to record the payment on August 16 is:


A) Debit Merchandise Inventory $8,250; credit Cash $8,250.
B) Debit Cash $8,250; credit Accounts Payable $8,250.
C) Debit Accounts Payable $8,250; credit Merchandise Inventory $82.50; credit Cash $8,167.50.
D) Debit Accounts Payable $9,750; credit Merchandise Inventory $97.50; credit Cash $9,652.50.
E) Debit Accounts Payable $8,167.50; credit Cash $8,167.50.

F) A) and E)
G) A) and D)

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A company had net sales of $545,000 and cost of goods sold of $345,000.Its gross margin equals $890,000.

A) True
B) False

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