Chapter 5 Review

When customers pay using bank credit cards like MasterCard, these transactions are usually recorded as cash sales.

• True

• False

Answer explanation

True. When customers use bank credit cards like MasterCard, the transactions are treated as cash sales because the funds are transferred immediately, similar to cash transactions.

On April 5, a customer purchases goods with credit terms 2/10, n/30. By which date should the invoice be paid to receive the discount?

• April 13

• April 14

• April 15

• April 16

Answer explanation

The credit terms 2/10, n/30 mean a 2% discount is available if paid within 10 days. Since the purchase was on April 5, the discount period ends on April 15. Therefore, the invoice should be paid by April 15 to receive the discount.

A company purchases goods costing $4,000 with terms FOB shipping point, 3/15, n/45, and incurs $150 in freight charges. If the payment is made within the discount period, what is the amount of the purchases discount?

• $120

• $121.50

• $123

• $125

Answer explanation

The purchase discount is calculated on the goods cost of $4,000. With terms 3/15, the discount is 3% of $4,000, which equals $120. The freight charges are not included in the discount calculation.

Euro Co. sold goods to Yen Co. on account, $18,000, terms 3/10, n/30. Yen Co. paid the invoice within the discount period. What is the sales amount to be recorded?

• $18,000

• $17,460

• $17,640

• $17,820

Answer explanation

Yen Co. receives a 3% discount for early payment. The discount amount is $18,000 x 0.03 = $540. Therefore, the sales amount recorded is $18,000 - $540 = $17,460.

When a customer returns goods previously purchased on credit, the seller records the return by issuing a

• sales receipt

• purchase order

• credit memo

• debit note

• none of these

Answer explanation

When a customer returns goods purchased on credit, the seller issues a credit memo to document the return and adjust the customer's account balance. This is the correct method for recording such transactions.

How should a buyer record the return of goods purchased on credit?

• debit to Accounts Payable; a credit to Inventory

• debit to Inventory; a credit to Accounts Payable

• debit to Cash; a credit to Inventory

• debit to Sales; a credit to Cash

Answer explanation

When goods purchased on credit are returned, the buyer debits Accounts Payable to reduce the liability and credits Inventory to reflect the return of goods. Thus, the correct entry is debit to Accounts Payable; a credit to Inventory.

In a perpetual inventory system, what is the correct journal entry when merchandise is returned to a supplier on account?

• debit Inventory; credit Accounts Payable

• debit Accounts Payable; credit Inventory

• debit Purchases; credit Accounts Payable

• debit Cash Discounts; credit Inventory

Answer explanation

In a perpetual inventory system, returning merchandise to a supplier reduces inventory and decreases accounts payable. Therefore, the correct entry is to debit Accounts Payable and credit Inventory.

Hampton Sports Store buys goods with a catalog list price of $50,000. The store receives a 25% trade discount and credit terms of 3/10, n/30. What amount should Hampton debit to the Inventory account?

• $37,500

• $48,500

• $50,000

• $36,375

Answer explanation

Hampton receives a 25% trade discount on $50,000, reducing the price to $37,500. After applying the 3% discount for early payment, the final amount debited to Inventory is $36,375.

A sales invoice included the following information: merchandise price, $15,000; terms 2/15, n/30; FOB destination with prepaid freight of $1,200 included in the invoice. Assuming that a credit for merchandise returned of $800 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

• $15,116

• $15,184

• $15,176.40

• $15,177

When goods are shipped FOB shipping point and the buyer pays the freight charges, the seller

• records a freight expense

• records a freight revenue

• makes no journal entry for the freight

• reduces the cost of goods sold

Answer explanation

When goods are shipped FOB shipping point, ownership transfers to the buyer at the shipping point. Since the buyer pays the freight, the seller does not incur a freight expense or revenue, thus makes no journal entry for the freight.