PA (QUIZ 6,7)

Randolf Company purchased merchandise with an invoice price of $3,000 and credit terms of 3/10, n/30. Assuming a 360-day year, what is the implied annual interest rate inherent in the credit terms?

• 60%

• 54%

• 72%

• 36%

Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on account includes a

• debit to Cash

• credit to Sales Returns and Allowances

• debit to Merchandise Inventory

• credit to Merchandise Inventory

Merchandise with a sales price of $5,000 is sold on account with terms 2/10, n/30. The journal entry to record the sale would include a

• debit to Accounts Receivable for $4,880

• debit to Sales Discounts for $100

• debit to Cash for $5,000

• credit to Sales for $5,000

Which of the following items would not affect the cost of merchandise inventory acquired during the period?

• sales commissions

• quantity discounts

• freight in

• sales discounts

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

• FOB n/30

• FOB destination

• FOB buyer

• FOB shipping point

What does "2/10" mean, with respect to "credit terms of 2/10, n/30"?

• Interest of 2 percent will be charged if the invoice is paid after 10 days from the date on the invoice.

• A discount of 10 percent will be allowed if the invoice is paid within two days of the invoice date.

• A discount of 2 percent will be allowed if the invoice is paid within 10 days of the invoice date.

• Interest of 10 percent will be charged if invoice is paid after two days.

A company using the perpetual inventory system purchased inventory worth $500,000 on account with credit terms of 3/15, n/45. Defective inventory of $50,000 was returned 3 days later, and the accounts were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the payment would be ________.

• $500,000 debit to Accounts Payable, $486,500 credit to Cash, and $13,500 credit to Merchandise Inventory

• $500,000 debit to Accounts Payable and $500,000 credit to Cash

• $450,000 debit to Accounts Payable and $450,000 credit to Cash

• $463,500 debit to Accounts Payable, $13,500 credit to Merchandise Inventory, and $450,000 credit to Cash

A merchandising company's operating cycle begins with the purchase of merchandise and ends with the collection of cash from the sale.

• True

• False

Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.

• True

• False

Merchandise inventory refers to products that a company owns and plans to sell to customers.

• True

• False