Question

1. The following statements regarding merchandise inventory are true except:

Multiple Choice

A. Merchandise inventory is reported on the balance sheet as a current asset.

B. Merchandise inventory refers to products a company owns and intends to sell.

C. Merchandise inventory may include the costs of freight in and making them ready for sale.

D. Merchandise inventory appears on the balance sheet of a service company.

E. Purchasing merchandise inventory is part of the operating cycle for a business.

2. Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:

Multiple Choice

A. $8,167.50.

B. $9,652.50.

C. $9,750.00.

D. $8,250.00.

E. $8,152.50.

3. Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:

Multiple Choice

A. Merchandise Inventory 15,000

Accounts Payable 15,000

B. Accounts Payable 15,000

Merchandise Inventory 15,000

C. Purchases 15,000

Accounts Payable 15,000

D. Purchases 14,700

Accounts Payable 14,700

E. Merchandise Inventory 14,700

Accounts Payable 14,700

4. On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic inventory system and the net method of accounting for sales. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Ryan makes on September 18 is:

Multiple Choice

A. Cash 5,800

Accounts receivable 5,800

B. Cash 4,000

Accounts receivable 4,000

C. Cash 3,920

Sales discounts 80

Accounts receivabl 4,000

D. Cash 5,684

Accounts receivable 5,684

E. Cash 5,684

Sales discounts 116

Accounts receivable 5,800

5. Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:

Multiple Choice

A. Debit Accounts Payable $1,500; credit Cash $1,500.

B. Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500.

C. Debit Merchandise Inventory $1,500; credit Sales Returns $1,500.

D. Debit Merchandise Inventory $1,500; credit Cash $1,500.

E. Debit Accounts Payable $1,500; credit Purchase Returns $1,500.

6. On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Jepson uses the periodic inventory system and the gross method of accounting for purchases. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is:

Multiple Choice

A.Purchase. 5,684

Cash 5,684

B. Accounts payable. 5,800

Merchandise inventory 116

Cash 5,684

C. Accounts payable. 5,800

Purchases discounts 116

Cash 5,684

D. Cash 5,684

Accounts receivable 5,684

E. Cash 5,684

Purchases discounts. 116

Accounts payable 5,800

Answer 1

1. The following statements regarding merchandise inventory are true except:

Correct Answer: D. Merchandise inventory appears on the balance sheet of a service company.
This is because a service company does not deal in merchandise. It renders or provides services. Hence, no merchandise inventory would be available on Balance Sheet.

2. Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:

Correct Answer: A. $8,167.50.

This is because 1% discount would be availed by the company as payment is made within 10 days of discount term.
Discount = (9750 – 1500) x 1% = $ 82.5
Net payment made = 9750 – 1500 – 82.5 = 8167.50

3. Morgan, Inc. uses a perpetual inventory system and the net method of recording purchases. On May 12, a merchandise purchase of $15,000 was made on credit, 2/10, n/30. The journal entry to record this purchase is:

Correct Answer: E. Merchandise Inventory 14,700 [debit] Accounts Payable 14,700 [credit]
This is because of NET Method being used. Purchases are recorded at value net of discount. 15000 – (15000 x 2%) = 15000 – 300 = $ 14700

4. On September 12, Ryan Company sold merchandise in the amount of $5,800 to Johnson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Ryan uses the periodic inventory system and the net method of accounting for sales. Johnson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Ryan makes on September 18 is:

Correct Answer: D. Cash 5,684 [debit] Accounts receivable 5,684 [credit]

This is because of Net Method. Since payment is done within discount term, no discount will be foregone. Net cash received = 5800 – (5800 x 2%)

5. Juniper Company uses a perpetual inventory system and the gross method of accounting for purchases. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 26, it paid the full amount due. The correct journal entry to record the merchandise return on August 11 is:

Correct Answer: B. Debit Accounts Payable $1,500; credit Merchandise Inventory $1,500.

This is because Inventory amount and accounts payable account has to be decreased.

6. On September 12, Vander Company sold merchandise in the amount of $5,800 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Jepson uses the periodic inventory system and the gross method of accounting for purchases. Jepson pays the invoice on September 18, and takes the appropriate discount. The journal entry that Jepson makes on September 18 is:

Correct Answer: C. Accounts payable. 5,800 [debit] Purchases discounts 116 [Credit] Cash 5,684 [Credit]

Cash Paid = 5800 – (5800 x 2%) = $ 5,684