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ACG CH. 5 QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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ACG CH. 5 QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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ACG CH. 5 QUESTIONS AND ANSWERSWITH SOLUTIONS 2024
Which of the following is a component of the operating cycle of a merchandising company? - ANSWER
Selling inventory to a customer
Which of the following is not a component or step of the operating cycle for a service company? -
ANSWER Buy inventory to be resold to customers.
Under a perpetual inventory system - ANSWER accounting records continuously show the amount of
inventory
On the first of the month, a company sells $100 of merchandise on account with terms of 2/10, n/30. On
the third day of the same month, the customer returns merchandise with an invoice price of $20. On the
tenth day of the same month, the customer pays the company. What journal entry will the company
record it receives the customer's payment? - ANSWER $78.40 debit to Cash, $1.60 debit to Sales
Discounts, and $80.00 credit to Accounts Receivable
The original sale is reduced from $100 by the $20 return to a $80 balance due. The 2% discount is based
on the $80 balance due, which is $80 times 2%, or $1.60. The retailer collects $78.40 (i.e., $80 - $1.60).
The retailer also reduces its Accounts Receivable by $80 because the customer is paying and owes
nothing more to the retailer. Finally, the retailer also records this discount as a debit to Sales Discounts.
A company uses a perpetual inventory system. It purchased $10,000 of merchandise with terms 2/10,
n/30. It must also pay a $250 shipping charge. The company paid for the merchandise and the shipping
charge nine days after their invoice date. Which of the following is part of the required journal entry the
company records when it pays the shipping charge of $250? - ANSWER A debit to Inventory for $250
uppliers sometimes offer discounts (such as 2/10, n/30). However, discounts are offered by suppliers of
merchandise and not by shippers.
The journal entry for paying the shipping charges includes a debit to inventory for $250 and a credit to
cash for $250.
A company uses the perpetual inventory system. Which of the following transactions neither increases
nor decreases its inventory account? - ANSWER Granting a customer an allowance by reducing the
purchasing price
A company purchased merchandise with an invoice price of $3,000 and credit terms of 2/10, n/30.
Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms? -
ANSWER 36%
The company buying merchandise can wait 10 days and still receive a 2% discount.
Otherwise, it can wait an additional 20 days and pay the full invoice amount without being overdue. In
other words, a 20-day difference produces 2% interest.
An interest rate of 2% in 20 days is equivalent to an interest rate of 36% in 360 days (i.e., 2% x 360/20).
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