BAT CH5 03

If a customer agrees to keep merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales

• discount.
• return.
• contra asset.
• allowance.

The HST collected on a sale of merchandise is recorded as

• a selling expense.
• sales tax payable.
• sales revenue.
• cost of goods sold.

When goods are returned that relate to a prior cash sale,

• the Sales Returns and Allowances account should not be used.
• the Cash account will be credited.
• Sales Returns and Allowances will be credited.
• Accounts Receivable will be credited.

A quantity discount is

• an incentive for customers to pay quickly.
• recorded as a contra revenue account.
• considered to be a sales allowance.
• a cash savings to the purchaser.

Tokyo Company sells merchandise on account for $1,200 to Thomas Company. Thomas Company returns $400 (cost $250) of merchandise that was damaged, along with a cheque to settle the account. What entry does Tokyo Company make upon receipt of the cheque?

• DR Cash 800 CR Accounts Receivable 800
• DR Cash 784 DR Sales Returns and Allowances 416 CR Accounts Receivable 1,200
• DR Cash 800 DR Sales Returns and Allowances 400 DR Inventory 250 CR Accounts Receivable 1,200 CR Cost of Goods Sold 250
• DR Cash 1,200 CR Sales Returns and Allowances 400 CR Accounts Receivable 800

Which of the following would be classified as a contra account?

• Sales
• Sales Returns and Allowances
• Merchandise Inventory
• Supplies Expense

Which of the following accounts has a normal credit balance?

• Sales Returns and Allowances
• Delivery Expense
• Sales
• Selling Expense

Northend Electric returned to Southerby Inc. 5 damaged fuses. Southerby accepted the return and refunded the $200 Northend had paid for the order. To record this return, Southerby’s accountant must

• debit Cash and credit Sales for $200.
• debit Sales and credit Cash for $200.
• debit Sales Returns and Allowances and credit Cash for $200.
• debit Sales Returns and Allowances and credit Accounts Receivable for $200.

In a perpetual inventory system, the Merchandise Inventory account should equal the actual merchandise on hand

• at all times
• only after the physical inventory account has occurred.
• only at the beginning of the accounting period.
• only at the end of the accounting period.

Taking a physical inventory count involves all of the following except

• counting the units on hand.
• applying unit costs to the total inventory on hand for each item of inventory.
• evaluating whether inventory needs to be written off as obsolete.
• totalling the cost of each item of inventory to determine the total cost of goods on hand.