Questions and Answers of College Accounting A Contemporary Approach 5th Edition

1. Why should management be concerned about paying its invoices on a timely basis?
18. What account is debited for freight charges on merchandise inventory purchases when the perpetual inventory system is used?
17. What account is credited for the return of merchandise inventory when the perpetual inventory system is used?
16. What account is debited for the purchase of merchandise inventory when the perpetual inventory system is used?
15. What do the following credit terms mean?a. n/30b. 2/10, n/30c. n/10 EOMd. n/20e. 1/10, n/20f. 3/5, n/30 g. n/15 EOM
14. Why is using the Purchases Returns and Allowances account preferred to crediting these transactions to Purchases?
13. On what financial statement do the accounts related to purchases of merchandise appear? In which section of this statement are they reported?
12. What is the normal balance of the Purchases accounts?
11. What is the difference between a purchase invoice and a sales invoice?
10. What account should be debited for transportation charges related to equipment purchases?
9. How is the net delivered cost of purchases computed?
8. Why is it useful for a business to have an accounts payable ledger?
7. What type of accounts are kept in the accounts payable ledger?
6. What is a schedule of accounts payable? Why is it prepared?
5. What is the relationship of the Accounts Payable account in the general ledger to the accounts payable subsidiary ledger?
4. What is a purchase allowance?
3. What is a purchase return?
2. What is the purpose of a credit memorandum?
1. What major safeguards should be built into a system of internal control for purchases of goods?
5. What is the difference between a receiving report and an invoice?
4. What is the purpose of a purchase requisition? A purchase order?
3. What is the purpose of the Freight In account?
2. What type of account is Purchases Returns and Allowances?
6. Andy’s Garden Supplies purchases merchandise on account from Lawn Supplies, Inc. The list price is $1,600, with trade discounts of 25 percent and 10 percent, terms n/30. What amount should
5. Which of the following is not evidence of effective internal controls of purchases?a. All purchases should be made only after proper authorization is given in writing.b. The computations on the
4. In the accounts payable ledger, a supplier’s account has a beginning balance of $5,800. Subsequently, a purchase of $1,600 from this supplier is journalized and then posted. What is the balance
3. The total of the schedule of accounts payable should equal the balance of which general ledger account?EXERCISES
2. Which accounts are kept in the accounts payable ledger?
1. What is the purpose of the schedule of accounts payable?
6. A retail sportswear company purchased merchandise of $500 on account from Awesome Sweats, a supplier. Awesome Sweats prepaid freight charges of $50 and added them to the invoice. The company’s
5. The customer’s accounting department should compare the purchase invoice from the supplier to:a. the Purchases account and the sales invoice.b. the Purchases account and the purchase order.c.
4. What form is sent to the supplier to order goods?a. Purchase invoiceb. Purchase orderc. Purchase requisitiond. Sales invoice
3. What is net delivered cost of purchases?EXERCISES
2. What does “FOB shipping point”mean?
1. What is the name of the account used to record purchases of merchandise inventory?
8-8 Define the accounting terms new to this chapter.
8-7 Appendix: Record transactions for a retailer using the perpetual inventory system.
8-6 Demonstrate a knowledge of the procedures for effective internal control of purchases.
8-5 Prepare a schedule of accounts payable.
8-4 Post transactions to the accounts payable subsidiary ledger.
8-3 Post from the general journal to the general ledger accounts.
8-2 Compute the net delivered cost of purchases.
8-1 Record purchases of merchandise on credit in a general journal.
8. Why should management insist that all sales on credit and other transactions affecting the firm’s accounts receivable be journalized and posted promptly?
7. How can efficient accounting records help management maintain sound credit and collection policies?
6. How can a firm’s credit policy affect its profitability?
5. Why is it usually worthwhile for a business to sell on credit even though it will have some losses from uncollectible accounts?
4. During the past year, Cravens Company has had a substantial increase in its losses from uncollectible accounts. Assume that you are the newly hired controller of this firm and that you have been
3. Suppose a manager in your company has suggested that the firm not hire an accountant to advise it on tax matters and to file tax returns. He states that tax matters are merely procedural in nature
2. Suppose you are the accountant for a small chain of clothing stores. Up to now, the firm has offered open-account credit to qualified customers but has not allowed them to use bank credit cards.
1. How does the Sales Returns and Allowances account provide management with a measure of operating efficiency? What problems might be indicated by a high level of returns and allowances?
15. What is a trade discount? Why do some firms offer trade discounts to their customers?
14. What is open-account credit?
13. What is the name of the account used to record the fees charged by the credit card company to the seller?
12. Why are bank credit card sales similar to cash sales for a business?
11. When a firm makes a sale involving a credit card issued by a credit card company, does the firm have an account receivable with the cardholder or with the credit card company?
10. What procedure does a business use to collect amounts owed to it for sales on credit cards issued by credit card companies?
9. What two methods are commonly used to record sales involving credit cards issued by credit card companies?
8. In a particular state, the sales tax rate is 5 percent of sales. The retailer is allowed to record both the selling price and the tax in the same account. Explain how to compute the sales tax due
7. The sales tax on a credit sale is not collected from the customer immediately. When is this tax usually entered in a firm’s accounting records? What account is used to record this tax?
6. What kind of account is Sales Returns and Allowances?
5. What kind of account is Sales Discounts?
4. Why is a sales return or allowance usually recorded in the Sales Returns and Allowances account rather than being debited to the Sales account?
3. What purposes does the schedule of accounts receivable serve?
2. How are the net sales for an accounting period determined?
1. How do retail and wholesale businesses differ?
5. Explain how service, merchandising, and manufacturing businesses differ from one another.
4. Why is it useful for a firm to have an accounts receivable ledger?
3. Why does a small merchandising business usually need a more complex set of financial records and statements than a small service business?
2. What is a control account?
1. A company offers a 2 percent discount if the customer pays within 10 days of the invoice.Otherwise, the amount is due in whole in 30 days. How would this company express these credit terms on its
7. International Furniture, Inc., sells merchandise for $2,500 on account to Smith Furniture Shop on February 15, terms 1/10, n/30.Smith Furniture Shop returned $200 of the merchandise on February 20
6. A company that buys $5,000 of goods from a wholesaler offering trade discounts of 20 and 10 percent will pay what amount for the goods?a. $2,200b. $3,500c. $3,475d. $3,600 ANALYS I S
5. A wholesale business offers a trade discount of 35 percent on a list price of $7,200. At what amount should the wholesale business record the sale?a. $4,680b. $7,200c. $2,520
4. What are net sales?EXERCISES
3. What is a wholesale business?
2. What is the difference between list price and net price?
1. Which accounts are kept in the accounts receivable ledger?
6. A company made a sale of $900 on credit to Wells Company. The sales tax rate is 8 percent. The company’s accountant prepared the following journal entry to record the transaction (ignore posting
5. Types of business operations are:a. service, merchandising, corporationb. sole proprietorship, merchandising, manufacturingc. service, merchandising, manufacturing ANALYS I S
4. A company makes a sale on account for $100, plus 6 percent sales tax.In journalizing this transaction, what amount should be debited to Accounts Receivable?a. $100b. $94c. $106d. $6
3. What account is used to record sales tax owed by a business to a city or state?
2. What is a sales return? What is a sales allowance?
1. What is the name of the account used to record sales of merchandise inventory?
7-7 Define the accounting terms new to this chapter.
7-6 Record the payment of sales taxes.
7-5 Prepare a schedule of accounts receivable.
7-4 Post from the general journal to the general ledger accounts and to the subsidiary ledger.
7-3 Compute and record cash discounts on sales.
7-2 Compute trade discounts.
7-1 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal.
4. What kinds of operating and general policy decisions might be influenced by data on the financial statements?
3. Why is it important that a firm’s financial records be kept up-to-date and that management receive the financial statements promptly after the end of each accounting period?
2. The president of Brown Corporation is concerned about the firm’s ability to pay its debts on time. What items on the balance sheet would help her to assess the firm’s debt-paying ability?
1. An officer of Westway Corporation recently commented that when he receives the firm’s financial statements, he looks at just the bottom line of the income statement—the line that shows the net
10. What three procedures are performed at the end of each accounting period before the financial information is interpreted?
9. Briefly describe the flow of data through a simple accounting system.
8. How is the Income Summary account used in the closing procedure?
7. Where does the accountant obtain the data needed for the closing entries?
6. Why does the accountant record closing entries at the end of a period?

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