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Based on the information below, illustrate the effects on theaccounts and financial statements (Balance Sheet and IncomeStatement) of the seller and buyer:

1. Seller sells Buyer on account merchandise costing $300 for$500, terms 2/10, net 30, FOB destination. The transportationcharge is $50.

2.Buyer returns as defective $100 worth of the $500 merchandisereceived. The seller’s cost of this merchandise is $60.

3.Buyer pays within the discount period.

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Hubert Koch
Hubert KochLv2
28 Sep 2019

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1. Inventory is classified on the balance sheet as a

a.current liability

b.long-term asset

c.current asset

d.long-term liability

 

2. What is the term applied to the excess of sales over the cost of goods sold?

a.net income

b.gross profit

c.operations

d.gross sales

 

3. The inventory system employing accounting records that continuously disclose the amount of inventory is called

a.periodic

b.retail

c.perpetual

d.physical

 

4. Calculate the gross profit for Jefferson Company based on the following:

Sales                          $764,000

Selling Expenses         $42,500

Cost of Goods Sold      $538,000

a.$183,500

b.$721,500

c.$495,500

d.$226,000

 

5. Calculate income from operations for Jonas Company based on the following data:

Sales                          $764,000

Selling Expenses         $52,500

Cost of Goods Sold      $538,000

a.$226,000

b.$711,500

c.$485,500

d.$173,500

 

6. The primary difference between the periodic and perpetual inventory systems is that a

a.periodic system keeps a record showing the inventory on hand at all times

b.periodic system determines the inventory on hand only at the end of the accounting period

c.periodic system records the cost of the sale on the date the sale is made

d.periodic system provides an easy means to determine inventory shrinkage

 

7. In credit terms of 3/15, n/45, the "3" represents the

a.percent of the cash discount

b.full amount of the invoice

c.number of days when the entire amount is due

d.number of days in the discount period

 

8. Which of the following accounts has a normal credit balance?

a.Inventory

b.Accounts Receivable

c.Sales

d.Delivery Expense

 

9. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

a.debit to Inventory

b.debit to Accounts Payable

c.credit to Sales

d.credit to Inventory

 

10. Which of the following accounts usually has a debit balance?

a.Sales

b.Inventory

c.Accounts Payable

d.Sales Tax Payable

 

11. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

a.n/30

b.consigned

c.FOB shipping point

d.FOB destination

 

12. When goods are shipped FOB destination and the seller pays the freight charges, the buyer

a.does not take a discount

b.journalizes a reduction for the cost of the merchandise

c.makes no journal entry for the freight

d.journalizes a reimbursement to the seller

 

13. When the perpetual inventory system is used, the inventory sold is debited to

a.Supplies Expense

b.Cost of Goods Sold

c.Sales

d.Inventory

 

14. Generally, the revenue account for a merchandising business is entitled

a.Gross Sales

b.Sales

c.Gross Profit

d.Fees Earned

1.) X sold Y merchandise on account FOB shipping point, 3/10,net 30, for $10,000. X prepaid the $200 shipping charge. Using theperpetual inventory method, which of the following entries will Ymake if Y pays within the discount period?

Accounts Payable-X, debit $9,900; Cash, credit $9,900

Accounts Payable-X, debit $10,000; Transportation In, credit$200; Cash, credit $9,800

Accounts Payable-X, debit $9,700; Merchandise Inventory, debit$200; Cash, credit $9,900

Accounts Payable-X, debit $9,700; Transportation In, debit $200;Cash, credit $9,900

2.) Merchandise with an invoice price of $4,000 is purchasedsubject to terms of 2/10, n/30, FOB destination. Transportationcosts paid by the seller totaled $150. What is the cost of themerchandise, assuming the discount is taken?

$4,070

$3,920

$4,067

$4,150

3.) A sales invoice included the following information:merchandise price, $1,000; transportation, $200; terms 1/10, n/eom,FOB shipping point. Assuming that a credit for merchandise returnedof $300 is granted prior to payment, that the transportation isprepaid by the seller, and that the invoice is paid within thediscount period, what is the amount of cash received by theseller?

$693

$893

$990

$700

4.) X sold Y merchandise on account FOB shipping point, 2/10,net 30, for $10,000. X prepaid the $200 shipping charge. Which ofthe following entries does X make to record this sale?

Accounts Receivable debit $9,800; Sales credit $9,800; AccountsReceivable debit $200; Cash credit $200

Accounts Receivable debit $10,400; Sales credit $10,400

Accounts Receivable debit $10,000; Sales credit $10,000

Accounts Receivable debit $10,000; Sales credit $10,000;Transportation Out debit $200; Cash credit $200

problem 4-26A Comprehensive cycle problem: Perpetual system LO4-2,

At the beginning of 2016, the Redd Company had the followingbalances in Its accounts:

cash 6.900

Inventory 15,000

Land 7,000

Common Stock 15,000

Retaind Earnings 13,900
l . purchased inventory that cost $5,200 on account from RossCompany under terms 1/10. 11/30. The merchandise was delivered FOBshipping point. Freight costs of S]90 '*ere paid incash.During 2016, the company experienced the followingevents:

2. Returned $400 of the inventory that it had purchased becausethe inventory was damaged In transit. The seller agreed to pay thereturn freight cost.

3. Paid the amount due on its account payable to Ross Companywithin the cash discount period.

4. Sold inventory that had cost $6,800 for $12, 100 on account,under terms 2/10, n/45.

5. Received merchandise returned from a customer. Themerchandise originally cost $900 and was sold to the customer for$1 ,680 cash, The customer was paid Sl ,680 cash for the returnedmerchandise.

6. Delivered goods FOB destination in Event 4. Freight costs of$140 were paid in cash.

7. Collected the amount due on the account receivable within thediscount period.

8. Sold the land for $8,500.

9. Recognized accrued interest income of $600.

10. Took a physical count indicating that $13,400 of inventorywas on hand at the end of the accounting period.

used, When an event has more than one part, use letters todistinguish the etyeets of each part. The first event is recordedas an example

b. Record the events in general journal format.

c. Open ledger T-accounts, and post the beginning balances andthe events to the accounts.

Prepare a multistep income statement, a statement of changes instockholders' equity, a bal. ance sheet, and a statement of cashflows.

e. Record and post the closing entries, and prepare apost-closing trial balance.

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