TRUE OR FALSE Answers Scoring

1.For a merchandising business, purchases refers to the merchandise acquired

for resale to customers. ____ _____

2.When merchandise is received, a purchase invoice indicating what has been

received is prepared by the buyer. ____ _____

3.A purchase order is prepared by the seller and sent to the buyer with the shipment. ____ _____

4.To offer a trade discount, a company must print a special catalog each time

there is a change in prices. ____ _____

5.Discounts from invoice prices, which act as an inducement for prompt payment of invoices, are called cash discounts. ____ _____

6.Trade discounts represent a reduction in the price of the merchandise but are

not entered in the accounts of either the seller or the buyer. ____ _____

7.If the terms specified on an invoice are 2/15, n/30, this means that a discount of 2% will be allowed if payment is made within 15 days from the date of the invoice. ____ _____

8.The purchases account is used to record the cost of goods purchased for resale. ____ _____

9.Purchases should be recorded in the journal at the net amount after deducting any allowed trade discounts. ____ _____

10.If the merchandise received is damaged or unsatisfactory or if the prices charged are not in accordance with an existing agreement, an adjustment may be made that is referred to as a discount. ____ _____

11.Transportation charges paid to ship purchases are credited to Freight-In. ____ _____

12.Gross profit and net income refer to the same information. ____ _____

13.Cost of goods sold is the difference between the goods available for sale and

the ending inventory. ____ _____

14.Under the gross-price method, the difference between the original amount due

and the cash paid is credited to Purchases Discount. ____ _____

15.Individual supplier information can be found in the accounts payable ledger. ____ _____

Section B

Directions: Complete each of the following statements by writing in the Answers column the letter of the word or words that correctly completes each statement. (3 points each)

For

Answers Scoring

1.A form used to request the responsible person or department to purchase

merchandise or other property is known as a (A) purchase invoice;

(B) receiving report; (C) sales ticket; (D) purchase order; (E) purchase

requisition. ____ _____

2.A printed price of manufacturer or wholesaler that is subject to special

discounts is called a (A) net price; (B) gross price; (C) list price; (D) trade price; (E) purchase requisition. ____ _____

3.Assume the gross amount of an invoice is $300 and a trade discount of 15% is allowed. The net amount is (A) $300; (B) $255; (C) $45; (D) $15; (E) $0. ____ _____

4.Assume the gross amount of an invoice is $1,000 and a trade discount of 25% is allowed. The dollar amount of the trade discount is (A) $1,000;

(B) $750; (C) $250; (D) $25; (E) none of these. ____ _____

5.An invoice in the amount of $600 is subject to a trade discount of 30% and credit terms of 2/10, n/30. If all discounts are taken, the buyer will pay what amount to settle the account? (A) $12; (B) $180; (C) $408; (D) $411.60; (E) $420. ____ _____

6.Which of the following is not part of the purchasing process? (A) purchases

journal; (B) purchase order; (C) receiving report; (D) purchase requisition;

(E) purchase invoice. ____ _____

7.Which of the following credit terms allows a discount of 1% if payment is made within 10 days from the date of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from its date? (A) 1/10, EOM; (B) 1/30, EOM; (C) 10/1, EOM; (D) 10/1, n/30; (E) 1/10, n/30.

8.An invoice of $455.00 dated June 10 is subject to credit terms of 2/15, n/45.

The amount to be paid if the invoice is paid on June 26 is (A) $455.00;

(B) $445.90; (C) $364.00; (D) $91.00; (E) $9.10. ____ _____

9.An entry to record payment within the discount period includes a(n)

(A) debit to Cash; (B) debit to Purchase Discounts; (C) debit to Accounts

Payable; (D) all of these; (E) none of these. ____ _____

10.An entry by a customer to record a return of merchandise would include a

(A) debit to Purchase Discounts; (B) credit to Purchase Returns and

Allowances; (C) credit to Accounts Payable; (D) all of these; (E) none of these. ____ _____

Section C

Directions: Match the correct answer to the definition that best explains it. Each definition has only one correct answer.

A.FOB shipping point

B.accounts payable ledger

C.purchase invoice

D.FOB destination

E.schedule of accounts payable

____ 1. Transportation charges are paid by the seller.

____ 2. An alphabetical or numerical listing of supplier accounts and balances, usually prepared at the end of the month.

____ 3. Transportation charges are paid by the buyer.

____ 4. A separate ledger containing an individual account payable for each supplier.

____ 5. A document prepared by the seller as a bill for the merchandise shipped.

Section D

Directions: Using the following information, determine the cost of goods sold and gross profit. Show and label your calculations.

Freight-in $ 4,320

Merchandise inventory, beginning of period 159,230

Merchandise inventory, end of period 72,400

Net sales 514,985

Purchases 75,825

Purchases discounts 4,725

Purchases returns and allowances 6,945