Question

1. Under the perpetual inventory system, inventory becomes part of cost of goods sold when a company

a. receives payment from the customer

b. purchases the inventory

c. sells the inventory

d. pays for the inventory

2. In credit terms of 4/13, n/45, the "4" represents the

a. number of days in the discount period

b. number of days when the entire amount is due

c. full amount of the invoice

d. percent of the cash discount

3. Merchandise with a sales price of $3,500 is sold on account with terms 2/10, n/60.  The journal entry to record the sale would include a

a. debit to Cash for $3,500

b. credit to Sales for $3,430

c. debit to Accounts Receivable for $3,500

d. debit to Merchandise Inventory for $70

4. Kline Goods purchases merchandise with a catalog list price of $40,000.  The retailer receives a 25% trade discount and credit terms of 2/10, n/30.  What amount should Kline debit to the Merchandise Inventory account?

a. $29,200

b. $29,400

c. $30,000

d. none of the above

Answer 1

Answer :-

1) The Correct Answer is Option C - sells the inventory

Explanation :-

Under the perpetual inventory system, inventory becomes part of cost of goods sold when a company sells the inventory.

Under the perpetual inventory system , at the time of sells if Merchandise Inventory two transactions are recorded

a) Account Receivable / Cash ...Dr.

To Sales

b) Cost of good sold ......Dr.

To Merchandise Inventory

When Inventory sold it becomes part of Cost of good sold , it doesn't matter whether payments received or not.

2) The Correct Answer is Option D - percent of the Cash Discount.

Explanation :-

In credit terms of 4/13, n/45, the "4" represents the percent of cash discount. the " 13" represent the number of days in the discount period and the " 45 " represent number of days when the entire amount is due.

In credit terms of 4/13 means 4% Cash Discount is given when payment received in 13 days.

3) The Correct Answer is Option B - credit to Sales for $3,430

Explanation :-

Journal entry to record the sale are as follows -

Account Receivable .........Dr.	$3,430
To Sales { $3,500 - ($3,500 × 2% Discount)}		$3,430

4) The Correct Answer is Option B - $29,400

Explanation :-

In the question it was given that, retailer receives a 25% trade discount -

Merchandise Inventory Price after receiving trade discount = $40000 - ($40,000 × 25% )

Merchandise Inventory Price after receiving trade discount = $30,000

Amount should Kline debit to the Merchandise Inventory account = $30,000 - ($30,000 × 2% Cash discount)

amount should Kline debit to the Merchandise Inventory account = $29,400