If the merchandise costs $3,500, insurance in transit costs $250, tariff costs $75, processing the purchase order by the purchasing department costs $50, and the company receiving dock personnel cost $25, what is the total cost charged to the merchandise?

A. $3,500

B. $3,825

C. $3,875

D. $3,850

B. $3,825

$3,500 + $250 + $50 + $25 = $3,825

Emma Co. sold Isabella Co. merchandise on account FOB shipping point, 2/10, net 30, for $15,000. Emma Co. prepaid the $750 shipping charge. Using the perpetual inventory method, which of the following entries will Isabella Co. make to record payment of the merchandise if Isabella Co. pays within the discount period?

A. Accounts Payable-Emma Co.  $15,000        

              Freight In                                   $750

              Cash                                           $14,250

B. Accounts Payable-Emma Co.   $15,750

              Merchandise Inventory                $300

              Cash                                           $16,050

C. Accounts Payable-Emma Co.  $15,750           

              Merchandise Inventory                $300

              Cash                                           $15,450

D. Accounts Payable-Emma Co. $15,000

              Freight In                                   $750

              Cash                                           $15,750

C. Accounts Payable-Emma Co. (15,000 + 750 = 15,750) $15,750

         Merchandise Inventory       (15,000 x .02 = 300)  $300

         Cash                             (15,750 - 300 = 15,450) $15,450

Isaac Co. sells merchandise on credit to Sonar Co in the amount of $5,700. The invoice is dated on April 1 with terms of 1/15, net 45. What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?

A. $114, April 16

B. $57, April 16

C. $114, April 15

D. $57, April 15

D. $57, April 15

$5,700 x .01 = $57

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

A. revenue statement

B. single-step statement

C. multiple-step statement 

D. report-form statement

Under a perpetual inventory system

A. increases in inventory resulting from purchases are debited to Purchases

B. the purchase returns and allowances account is credited when goods are returned to vendors

C. accounting records continuously disclose the amount of inventory

D. there is no need for a year-end physical count

Generally, the revenue account for a merchandising business is entitled

A. Gross Profit

B. Sales

C. Gross Sales

D. Fees Earned

Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately

A. 2%

B. 36%

C. 20%

D. 24%

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

A. FOB shipping point

B. FOB n/30

C. FOB destination

D. FOB buyer

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

A. n/30

B. FOB shipping point

C. FOB destination

D. consigned

If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are

A. n/30

B. consigned

C. FOB shipping point

D. FOB destination

Cost of Merchandise Sold is often the largest expense on a merchandising company income statement.

True

False

Sales Discounts is a revenue account with a credit balance.

True

False

Freight-in is considered a cost of purchasing inventory.

True

False

The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a downward sequence is called the report form.

True

False

A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the cash discount.

True

False

Freight in is the amount paid by the company to deliver merchandise sold to a customer.

True

False

Other income and expenses are items that are not related to the primary operating activity.

True

False

Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are recorded.

True

False

Discounts taken by the buyer for early payment of an invoice are credited to Sales Discounts by the buyer.

True

False

In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.

True

False

Which of the following items should not be included in the cost of ending merchandise inventory?

A. purchased units in transit, shipped FOB shipping point

B. purchased units in transit, shipped FOB destination

C. units on hand in the warehouse

D. sold units in transit, not invoiced and shipped FOB destination

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

A. journalizes a reduction for the cost of the merchandise.

B. journalizes a reimbursement to the seller.

C. does not take a discount.

D. makes no journal entry for the freight.

Merchandise is sold for cash. The selling price of the merchandise is $5,000 and the sale is subject to a 7% state sales tax. The journal entry to record the sale would include

A. A credit to Cash for $5,000.

B. A credit to Sales for $5,350.

C. A credit to Sales Tax Payable for $350.

D. None of these answers are correct.

C. A credit to Sales Tax Payable for $350.

5,000 x .07 = 350

Merchandise with an invoice price of $3,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September 12, assuming the discount is taken?

A. $2,744

B. $3,136

C. $2,940 

D. $3,140

C. $2,940 

3,000 x .02 = 60

3,000 - 60 = 2,940 

Which of the following items would affect the cost of merchandise inventory acquired during the period?

A. quantity discounts

B. cash discounts

C. freight-in

D. all of these costs

FOB (free on board) Shipping Point 

(Definition)

Freight terms in which the buyer pays the freight costs from the shipping point to the final destination.

FOB (free on board) Destination

(Definition)

Freight terms in which the seller pays the freight costs from the shipping point to the buyer’s final destination.

Under the periodic inventory system, freight paid when purchasing merchandise FOB shipping point is debited to Freight In, Transportation In, or a similar account.

True

False

True

Purchase Discounts

(Definition)

Discounts taken by the buyer for early payment of an invoice.

Purchases Returns and Allowances

(Definition)

From the buyer’s perspective, returned merchandise or an adjustment for defective merchandise.