1. How are purchase returns and purchase discounts recorded by a company using the periodic inventory system?

a. as a reduction to the sales

b. in contra-accounts to the purchases account

c. as operating expenses

d. as miscellaneous expenses

2. Information for Year 2 and Year 1 is presented below for Fireworks City, which uses the straight-line depreciation method.

Year 2 Year 1

Property, plant, and equipment $250,000 $190,000

Accumulated depreciation 100,000 85,000

Depreciation expense 62,500 47,500

Net sales 1,000,000 900,000

Total assets 625,000 475,000

Refer to Fireworks City. During Year 2, the company sold some equipment that had an original cost of $60,000. Which of the following transactions must also have occurred during the period?

a. The company purchased additional equipment.

b. The selling price of the equipment sold was reported with net sales.

c. The company did not purchase additional equipment.

d. The company wrote-down equipment due to impairment.

3. Under the periodic system, which of the following occurs when a company must pay freight charges on merchandise it purchases for resale?

a. Transportation-in is added to the inventory account.

b. Transportation-in is subtracted from purchases.

c. Freight charges are paid by the buyer.

d. Transportation-in is included in the total cost of purchases used to determine cost of goods sold.