Question

8. Which of the following accounts has a normal debit balance? a. Accounts Payable b. Sales Returns and Allowances c. Sales d. Interest Revenue 9. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a a. debit to Sales b. debit to Merchandise Inventory c. credit to Merchandise Inventory d. credit to Sales 10. A retailer purchases merchandise with a catalog list price of $15,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account? a. $4,500 b. $10,500 c. $10,290 d. $14,700 11. If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as a. FOB shipping point b. FOB destination C. FOB n/30 d. FOB buyer Inventory shortage is recorded when a. merchandise is returned by a buyer. b. merchandise purchased from a seller is incomplete or short. c. merchandise is returned to a seller. d. there is a difference between a physical count of inventory and inventory records. 13. The two most widely used methods for determining the cost of inventory are a. FIFO and LIFO b. FIFO and average c. LIFO and average d. gross profit and average 14. Under which method of cost flows is the inventory assumed to be composed of the most recent costs? a. average cost b. last-in, first-out c. first-in, first-out d. weighted average

Answer 1

As per HOMEWORKLIB POLICY and guideline, the first-four MCQs are answered below:

8.

Answer: b

Out of the choices given, the account “sales returns and allowances” has debit balance only; this is the contra of “sales revenue”; since sales revenue has normal credit balance, the sales returns and allowance account has normal debit balance for making contra adjustment.

9.

Answer: b

Merchandise Inventory should be debited, since the purchase increases inventory and it becomes an increase in asset.

Sales account should not be affected, because a purchase doesn’t mean that it has been sold.

10.

Answer: b

This would be the amount after deducting trade discount only. The credit term “2/10, n/30” should not be considered here – this would be applicable when the payment is made.

Required amount = Catalog price × (1 – trade discount)

                            = 15,000 × (1 – 0.30)

                            = 15,000 × 0.70

                            = 10,500

11.

Answer: b

This is called “FOB destination”.

Seller delivers goods at the buyer’s place, which is also called the destination.

“FOB” means free on board – once the goods are received, the buyer has to pay the relevant freight cost.