Page 265 - Accounting Principles (A Business Perspective)

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Wholesalers Companies that normally sell goods to other companies (retailers) for resale.
Self-test
True-false
Indicate whether each of the following statements is true or false.

To compute net sales, sales discounts are added to, and sales returns and allowances are deducted from, gross
sales.
Under perpetual inventory procedure, the Merchandise Inventory account is debited for each purchase and
credited for each sale.
Purchase discounts and purchase returns and allowances are recorded in contra accounts to the Purchases
account.
In taking a physical inventory, consigned goods delivered to another party who attempts to sell the goods are not

included in the ending inventory of the company that sent the goods.
A classified income statement consists of only two categories of items, revenues and expenses.
Multiple-choice
Select the best answer for each of the following questions.
A seller sold merchandise which has a list price of USD 4,000 on account, giving a trade discount of 20 per cent.
The entry on the books of the seller is:
a. Accounts Receivable 3,200
Trade Discounts 800
Sales 4,000
b. Accounts Receivable 4,000
Sales 4,000
c. Accounts Receivable 3,200
Trade Discounts 800
Sales 4,000
d. Accounts Receivable 3,200
Sales 3,200
X Company began the accounting period with USD 60,000 of merchandise, and net cost of purchases was USD
240,000. A physical inventory showed USD 72,000 of merchandise unsold at the end of the period. The cost of
goods sold of Y Company for the period is:
a. USD 300,000.
b. USD 228,000.

c. USD 252,000.
d. USD 168,000.
e. None of the above.
A business purchased merchandise for USD 12,000 on account; terms are 2/10, n/30. If USD 2,000 of the
merchandise was returned and the remaining amount due was paid within the discount period, the purchase
discount would be:
a. USD 240.

b. USD 200.
c. USD 1,200.

Accounting Principles: A Business Perspective 266 A Global Text