BUAD 111 - Chapter 5

Which of the following statements is correct?

• A service company does not have a Cost of Goods Sold account because it does not sell goods.

• A service company does have a Cost of Goods Sold account because it sells a service.

• A merchandising company does not have a Cost of Goods Sold account because it does not sell goods.

• A merchandising company does not have a Cost of Goods Sold account because it only sells a service.

Sackville Company purchased merchandise from Amherst Company with freight terms of FOB shipping point. The freight costs will be paid by

• Amherst Company.

• Sackville Company.

• the transportation company.

• Amherst and Sackville, who will share the freight costs.

Using a perpetual inventory system, the cost of freight in

• increases the cost of merchandise inventory.

• is always paid by the seller.

• is reflected in an expense account called Freight In.

• reflects the cost of delivering goods to customers.

Selling terms 2/10, n/30 indicates which of the following?

• The purchaser is required to pay the entire bill within 10 days.

• The purchaser can take a 20% discount if they pay within 30 days.

• The purchaser can take a 2% discount if they pay within 10 days.

• The purchaser can take a 2% discount if they pay within 30 days.

The Sales Returns and Allowances account is classified as

• an asset account.

• a contra asset account.

• an expense account.

• a contra revenue account.