Accounting for a Merchandising Business

Multiple Choice A

1. In a merchandising operation, the Sales account should include

a. only credit sales of merchandise
b. only cash sales of merchandise
c. both cash and credit sales of merchandise
d. sales of both merchandise and other assets of the business

2. DEF Co had the following date for the period ended:

Cash sales P400,000
Credit sales 280,000
Sales discounts 25,000
Sales return 20,000
Freight-in 15,000
Freight-out 16,000

DEF Co would report net sale revenue on its statement of comprehensive income amounting to:
a. P635,000 c. P620,000
b. P653,000 d. P680,000

3. If a seller of merchandise accepts goods returned by a credit customer, the seller will typically issue:
a. a credit memorandum c. An invoice
b. a debit memorandum d. A purchase order

4. ABC Co returned P11,200 of merchandise (inclusive of the 12% VAT) that was originally purchased
on account. The company has not paid the goods and was not entitled to a discount. ABC Co uses a
periodic inventory system. What journal entry is needed to reflect the return of the merchandise?
a. Accounts Payable 10,000
Purchase Returns & Allowances 10,000

b. Accounts Payable 11,000

Purchase Returns & Allowances 11,000

c. Accounts Payable 11,200

Purchase Returns & Allowances 10,000
Input tax 1,200

d. Accounts Payable 10,000

Input tax 1,000
Purchase Returns & Allowances 11,000

5. Which of the following companies would be likely to use perpetual system?

a. Drugstore c. Hardware store
b. Car dealer d. School and supplies store

6. When a debit memorandum is issued, an entry is made to

a. debit cash and credit accounts payable
b. debit sales and credit accounts receivable
c. debit accounts payable and credit to purchase returns and allowances and input tax
d. debit sales return and credit accounts receivable

7. FOB shipping point means:

a. title passes at shipping point; seller pays transportation cost
b. title passes at shipping point, buyer pays transportation cost
c. title does not pass at shipping point, however, buyer is responsible for the transportation cost
d. none of the answers given

8. Under the perpetual inventory method, when a firm purchases goods on credit, the journal entry will
include a debit to
a. Purchases c. Cash
b. Income Summary d. Inventory

9. A seller would request payments from a purchase of merchandise through the use of
a. An invoice c. A purchase order
b. A quantity discount d. A purchase discounts

10. For a merchandise entity, the purchases account includes:

a. all items acquired for both short term and long term use
b. acquisition of items for resale
c. acquisition of short term asset
d. acquisition of supplies

11. Which of the following discount has no account of its own and requires no special accounting entry?
a. cash discount c. Sales discount
b. trade discount d. Purchase discount

12. If a customer returns goods to a merchandiser, what effect, will the return have on the books of the
merchandiser?
a. a decrease in sales account
b. a decrease in the accounts payable and allowance accounts
c. an increase in the purchase return and allowance account
d. an increase in the sales returns and allowance account

13. Which of the following is not a contra account?

a. Sales discounts
b. accumulated depreciation
c. purchase returns and allowances
d. Freight in

14. A purchase discount results from

a. returning goods to the seller
b. receiving a purchase allowance from the seller
c. buying a large enough quantity of merchandise to get the discount
d, paying within the discount period

Multiple Choice B
1. On January 1, 2018, MJH Co. Recorded P56,000 of merchandise purchase by suing periodic system.
The purchase were made on account, subject to credit terms of 2/10, n/30. What journal entry should
record if the merchandise was paid on Jan 15?

a. Purchases 50,000
Cash 50,000

b. Accounts Payable 56,000

Cash 56,000

c. Accounts Payable 50,000

Input tax 6,000
Cash 56,000

d. Accounts Payable 50,000

Cash 50,000

2. Which statement is false?

a. Cash discounts are a convenient means of reducing prices to invoice prices.
b. Cash discounts are used to encourage customers to make prompt discount payments.
c. From the seller’s perspective, the terms “cash discount” and “sales discount” are synonymous.
d. Cash discounts may be offered in conjunction with trade discounts.

3. The expression 3/20, n/30 means:

a. The invoice must be paid in 3 to 20 days, otherwise, interest for 60 days will be charged.
b. A 3% discount is available if the invoice is paid in 20 to 60 days; otherwise the total invoice price is
due.
c. A 3% discount is available if the invoice is paid within 20 days, otherwise, the total invoice price is
due in 60 days.
d. A 15% (3/4 of 20) is available if the invoice is paid within 60 days.

4. Revenue is normally entered in the accounting records when:

a. A customer orders goods
b. Goods are received
c. A customer pays for the goods
d. goods are sold

5. Sales return and allowances is commonly referred to as:

a. an expense account c. A contra revenue account
b. A revenue account d. A cost of goods sold account

6. XYZ company sold P22,400 of merchandise on account to a customer on January 16, 2018 terms
2/10, n/30. If the customer paid for the goods on January 21, what journal entry would be made?
a. Cash 21,952
Accounts Receivable 21, 952

b. Cash 19,600
 Accounts Receivable 19,600

c. Cash 21, 952

Sales Discount 400
Output tax 48
Accounts Receivable 22,400

d. Cash 19,600
Sales Discount 400
Accounts Receivable 20,000

7. Which of the following statement is false?

a. The difference between list price and invoice price is equal to the amount of the trade discount
b. Trade discounts are a convenient means of reducing list price to invoice price.
c. Trade discounts are not entered in the accounting records.
d. Trade discounts are identical to cash discounts.

8. Revenue from the sale of merchandise should be entered in the accounting records at:
a. The list price
b. The invoice price minus any cash discount
c. The list price minus any trade discounts
d. The invoice price minus any trade discount and any cash discount.

9. IRH Co recorded the sale at P6,000. If the sale was subject to a 20% trade discount and credit terms
of 5/10, n/60, the list price was? (Exclude VAT)
a. P4,500 c. P4,800
b. P7,500 d. P7,700

10. What sales price should be recorded when an item having a P90,000 list price is sold with 15%
trade discount? The sales invoice includes the terms 2/10, n/30. (Exclude VAT)
a. P74,700 c. P78,300
b. P76,500 d. P80,000

Problems set A:
Answer the following independent situations: All cases are inclusive of the 12% VAT.
1. A credit sale was made on February 10, 2018 for P110,880, terms 2/10, n/30. On February 12,
P11,200 of the goods are returned for credit.

2. Goods costing P20,832 are purchased on account on February 15, 2018 with credit terms of 2/10,
n/30. On February 18, a P1,232 credit memo is received from the supplier for damaged goods.

REQUIRED: Give the journal entry on February 19 and 24 respectively to record the payment
of the balance due within the discount period.

3. Miggi Corporation purchased merchandise from Amie Company on account, for P224,000, terms
FOB shipping point, 2/10, n/30. Amie Company adds transportation charges of P13,000 to the above
invoice. Miggi Corporation returned some of the merchandise, receiving a credit memorandum of
P11,200, and then pays the amount due within the discount period.
REQUIRED: Journalize the foregoing transactions.
4. a. On March 2, H. Hunt Company sold P1,008,000 of merchandise to B Company, terms 2/10, n/30.
b. On March 6, B. Company returned P145,600 of the merchandise purchased on March 2 because it
was defective.
c. On March 12, H. Hunt Company received the balance due from B. Company.

REQUIRED: Journalize the foregoing transactions.

5. In your review of the source documents for the Andoy Company, you noted the following
transactions:

January
8 Sold merchandise to customers for P56,000, terms FOB shipping point, 1/10, n/30.
9 Paid the freight charges of P1,120 , debiting the amount to the accounts receivable account.
10 Issued a credit memorandum for P2,240 to the customer for merchandise returns.
11 Received a check for the amount due from the sale on January 8.

REQUIRED: Journalize the foregoing transactions.

6. Assume the following information: merchandise is sold on account to customer for P120,000, terms
FOB shipping point, 2/10, n/30. The seller paying the transportation cost of P6,000.

REQUIRED: Determine the following:

1. Amount of sale
2. Amount debited to the customer’s account
3. Amount of the discount for early payment
4. Amount of the remittance due within the discount period.

7. Compute the amount received by the seller. Freight is P5,000. All cash discounts are taken.
Place of Place of Invoice Invoice Sales Credit FOB Date ANSWER
Buyer Seller Date Amount Returns Terms Paid
Davao Manila 1/1 P44,800 P16,800 2/10,n/30 Destination, 1/11
collect
Cebu Manila 2/2 336,000 56,000 N/45 Destination, 2/28
collect
Batangas Cebu 3/3 280,000 --- 3/10,n/60 Shipping 3/13
point,
collect

8. Determine the amount to be paid in full settlement of each of the invoices listed below, assuming
that credit for returns and allowances was received prior to payment, and that all invoices were paid
within the discount period (Invoice price inclusive of 12% VAT)

Invoice Price Freight Cost Terms Amount of Returns ANSWER

P168,000 P2,000 FOB shipping P4,480
point, prepaid
212,800 5,000 FOB shipping 5,600
point, prepaid 1/10,
n/30
201,600 6,000 FOB Destination, 2,240
collect
184,800 2,500 FOB Destination, 1,120
collect 2/10, n/30

9. Find the selling price of each of the following invoices:

Invoice Date List Price Trade Credit Terms Date Paid ANSWER
Discounts
Oct 16 P140,000 50%; 20% 2/10, EOM Nov 2
Sept 2 110,000 30%; 20% 2/10, n/30 Sept 9
July 7 240,000 20%; 10%; 5% 2/10,1/15, n/30 July 18
April 16 300,000 40%; 20% 2/10, n/30 April 22
April 27 100,000 30%; 15%; 5% 2/10, 1/15, n/30 May 10