Chapter 5 Special Issues For Merchants

10/12/2019 Chapter 5 - Multiple Choice - principlesofaccounting.
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Chapter 5 - Multiple Choice
Text (http://principlesofaccounting.com/chapter-5/)
Problems (http://principlesofaccounting.com/chapter-5/problems/)
Goals Achievement (http://principlesofaccounting.com/quizzes/chapter-5-goals-achievement/)
Fill in the Blanks (http://principlesofaccounting.com/quizzes/chapter-5- ll-in-the-blanks/)
Multiple Choice (http://principlesofaccounting.com/quizzes/chapter-5-multiple-choice/)
Glossary (http://principlesofaccounting.com/chapter-5/glossary/)
Results
 3 of 8 questions answered correctly
 Your time: 00:07:32
 You have reached 3 of 8 point(s), (37.5%)
VIEW QUESTIONS RESTART QUIZ
1. Question
The Sales account and Purchases account should include: (http://principlesofaccounting.com/chapter-5/the-
merchandising-operation-sales/)
only cash sales and cash purchases of merchandise.
only credit sales and credit purchases of merchandise.
both cash and credit sales and cash and credit purchases of merchandise. 
not only merchandise transactions, but also purchases and sales of other assets used in the business.
CORRECT 
https://www.principlesofaccounting.com/quizzes/chapter-5-multiple-choice/ 1/11
10/12/2019 Chapter 5 - Multiple Choice - principlesofaccounting.com
2. Question
Purchasers of merchandise may be dissatis ed with the quality of goods purchased on account and return the goods
to the seller with an indication that payment will not be forthcoming. In this case, the document prepared by the
purchaser is called: (http://principlesofaccounting.com/chapter-5/purchase-considerations/)
a debit memorandum. 
a credit memorandum. 
a receiving report.
an invoice.
INCORRECT 
a. The purchaser prepares a debit memorandum to indicate that they are “debiting” their Accounts Payable; this
means that they don’t intend to pay for the returned goods. Credit memorandums are prepared by sellers of
merchandise; indicating that the seller does not expect payment for returned items (i.e., crediting Accounts
Receivable). A receiving report is prepared by a purchaser to document the receipt of ordered goods and an
invoice is a document prepared by a seller to inform the purchaser of the amount due for a particular
transaction (i.e., a bill).
3. Question
Bergstrom accepted the return of merchandise by a customer. The merchandise had been sold on account, and
payment had not been received on the date of return. The returned goods retailed for $400 but cost Bergstrom only
$300. The appropriate journal entry for Bergstrom is: (http://principlesofaccounting.com/chapter-5/the-merchandising-
operation-sales/)
Accounts Receivable 400
Sales Returns & Allowances 400

Sales 400
Purchases 300
Purchases 300

INCORRECT 
b. To record the acceptance of returned goods requires an increase in Sales Returns and Allowances (a contra-
revenue account which is increased with a debit) and a reduction of Accounts Receivable (credit). The
Purchases account is not impacted.
4. Question
Which of the following statements is true? (http://principlesofaccounting.com/chapter-5/the-merchandising-operation-

sales/)
Cash discounts are used to reduce the invoice price below the stated list price.
The expression 2/30, n/60, means that a 2% cash discount is available if the invoice is paid within 30 to 60
days.
Cash discounts may not be used in conjunction with trade discounts.
Cash discounts normally apply to the invoice price of the merchandise, excluding freight charges. 
CORRECT 
5. Question
Lux had net purchases of $50,000, ending inventory of $25,000, net sales of $100,000, and gross pro t of $32,000. How
much was Lux’s beginning inventory? (http://principlesofaccounting.com/chapter-5/purchase-considerations/)
$7,000 
$43,000 
$93,000
$143,000
INCORRECT 
b.
Sales – cost of goods sold = gross pro t
$100,000 – cost of goods sold = $32,000
Cost of goods sold = $68,000
Goods available for sale – ending inventory = cost of goods sold
Goods available for sale – $25,000 = $68,000
Goods available for sale = $93,000
Beginning inventory + purchases = goods available for sale;
Beginning inventory + $50,000 = $93,000;

Beginning inventory = $43,000
6. Question
On February 1, Crown Company purchased $2,000 of merchandise, terms 2/10, n/30. Crown uses the gross method of
recording purchases. Payment of the accounts payable was made on February 26. Which of the following journal
entries is appropriate for the February 26 transaction? (http://principlesofaccounting.com/chapter-5/purchase-
considerations/)
Purchases 2,000
Accounts Payable 2,000
Cash 1,960
Purchases Discounts Lost 40
Cash 2,000

Cash 2,000
INCORRECT 
d. The payment of the invoice did not occur within the discount period. Therefore, $2,000 of cash was disbursed
in settlement of the accounts payable. The accounts payable was originally established at its $2,000 gross
amount. Choice “b” is the correct entry if payment had been made within the discount period and the net
method was utilized. Choice “c” is the correct entry if payment had been made outside the discount period and
the net method was utilized. Choice “a” is the correct entry to record the purchase on February 1 (using the
gross method).
7. Question
On March 1, Zekew Company purchased $1,000 of merchandise, terms 1/10, n/30. Zekew uses the net method of
recording purchases. Payment of the accounts payable was made on March 4. Which of the following journal entries is
appropriate for the March 4 transaction? (http://principlesofaccounting.com/chapter-5/purchase-considerations/)
Purchases 990
Cash 990
Accounts Payable 990
Cash 990

Purchases Discounts 10
Cash 990
Cash 1,000
CORRECT 
8. Question
Dodd Company utilizes the periodic inventory accounting system. Dodd had beginning inventory of $59,000, ending
inventory of $37,000, and net purchases of $123,000. Which of the following components should be included in the
year-end closing entries prepared by Dodd? (http://principlesofaccounting.com/chapter-5/purchase-considerations/)
Purchases 123,000
Inventory 123,000
Income Summary 37,000
Inventory 37,000
Income Summary 59,000
Inventory 59,000

All of the above
INCORRECT 
c. One component of the end-of-period entries is to close the Inventory account to Income Summary (for the
beginning balance of the account); choice “c” is the appropriate entry to accomplish this objective. Choice “b” is
backwards — the ending inventory needs to be established in the accounts by debiting Inventory and crediting
Income Summary. Purchases is closed by crediting the account, and debiting Income Summary; therefore, “a” is
not correct.
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Illustrative Entries
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(//www.principlesofaccounting.com/account-types/)
Account Types
 Typical nancial statement accounts with debit/credit rules and disclosure conventions
(//www.principlesofaccounting.com/glossary/)
Glossary
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10/12/2019 Chapter 5 - Multiple Choice - principlesofaccounting.

Chapter 5 - Multiple Choice

Goals Achievement (http://principlesofaccounting.com/quizzes/chapter-5-goals-achievement/)

Fill in the Blanks (http://principlesofaccounting.com/quizzes/chapter-5- ll-in-the-blanks/)

Multiple Choice (http://principlesofaccounting.com/quizzes/chapter-5-multiple-choice/)

 Your time: 00:07:32

 You have reached 3 of 8 point(s), (37.5%)

VIEW QUESTIONS RESTART QUIZ

The Sales account and Purchases account should include: (http://principlesofaccounting.com/chapter-5/the-

only cash sales and cash purchases of merchandise.

only credit sales and credit purchases of merchandise.

Sales Returns & Allowances 400

Sales Returns & Allowances 400

Sales Returns & Allowances 400

Which of the following statements is true? (http://principlesofaccounting.com/chapter-5/the-merchandising-operation-

Cash discounts may not be used in conjunction with trade discounts.

Beginning inventory + $50,000 = $93,000;

Purchases Discounts Lost 40

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Time Value of Money

Principlesofaccounting.com ™ Copyright © 2019. All rights reserved.

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