9. Which of the following is correct about purchases discounts?

It refers to the discounts offered by

the supplier to customers due to the earlier settlement of debts.

Based on the following information, answer Questions 10 to 11. Suppose UCU Store received the
settlement of debt from Lindbergh Soriano by cash. Lindbergh Soriano purchased goods with a list
price of P100,000 on Jan. 1 with a trade discount of 5%. Suppose the cash discount period is 15 days
with a cash discount of 4% and Lindbergh Soriano settled the payment on Jan. 10 in full.

10. What is the amount of sales discounts given to Lindbergh Soriano? a. P1,380 b. P3,800 C. P4,000
d. P5,000

11. The correct journal entry for the settlement of debts owed by Lindbergh Soriano should be:

Dr Cash P91,200; Sales Discounts P3,800 Cr. Accounts Receivable P95,000

12. Which of the following statements regarding cash purchases discounts from suppliers is/are
correct?
1. They are reductions in the retail prices by the manufacturers.
2. They are revenues to the entity.
3. The cash account is debited when they are received by the entity.
a. (2) only

13. Which of the following is a correct definition of gross profit?

Gross Profit = Net Sales - Cost of Goods Sold

14. Which of the following items can lead to a difference between values of profit and gross profit?
transportation out

15. What is the meaning of transportation in? d. the expenses spent on carrying the goods purchased
from suppliers to the entity

16. Which of the following equations correctly shows the meaning of net sales?
b. Net sales = Gross sales - Sales returns

17. Which of the following refers to the meaning of transportation out? b. It refers to the expense
needed to transport the goods sold to the customers.

1. A supplier offers the following discounts: Trade discounts of 10% at list price and another cash
discount of 5% if paid in full beforesthe due date. How much is to be paid if a customer pays before
due date at a list price of P16,000? a. P13,680 b. P15,520 P14,000 d. P16,000 C. 2. A trade discount
is: a. shown in the sales journal. b. shown in the purchase journal. shown in the general journal. d. not
shown anywhere. C. 3. Which account does a merchandiser, but not a service entity, use? r a. . Sales
b. Inventory Cost of Goods Sold d. All of the above C. 4. The two main inventory accounting systems
are the following a. purchase and sale. b. returns and allowances. cash and accrual. d. perpetual and
periodic. C. 5. The journal entry for the purchase of inventory on account is: a. Inventory Accounts
Payable XXX XXX b. Accounts Payable Inventory XXX XXX C. Inventory Accounts Receivable XXX
XXX d. Inventory Cash XXX XXX Scanned with CamScanner

a. 1. Which of the following activities is not a component of the operating cycle? b. Ordering of
merchandise.

2. Each of the following companies is a merchandising entity except a car wash.

3. The periodic inventory system is used most commonly by companies that sell low-priced, high-
volume merchandise.

4. A physical count of inventory is usually taken a. at the end of the fiscal year.
5. A merchandiser will earn an operating income of exactly zero when b. gross margin equals
operating expenses.

6. Gross margin equals the difference between net sales and a. cost of goods sold.

7. Operating income will result if gross margin exceeds c. operating expenses.

8. Which of the following terms does not mean the same as the others? Gross profit

9. Which of the following is not considered an operating expense? Cost of goods sold

10. Which of the following goods would not be included in merchandise inventory for a purchasing
entity? a. Goods in transit shipped FOB destination

11. A sale on March 21 with terms of n/10 eom is due to be collected by c. April 10.

12. An amount deducted from the catalog price for an item of merchandise is called a trade discount.

13. Under the perpetual inventory system, which of the following accounts would not be used? Ć.
Purchases

14. Under the perpetual inventory system, in addition to making the entry to record a sale, an entity
would a. debit Cost of Goods Sold and credit Merchandise Inventory.

15. The entry to record the return of goods from a customer would include a d. debit to Sales Returns
and Allowances.

16. Under the perpetual inventory system, the entry to record a purchase return would include a credit
to Merchandise Inventory

17. Under the perpetual inventory system, in addition to making the entry to record a sales return, an
entity would debit Merchandise Inventory and credit Cost of Goods Sold.

18. Merchandise inventory becomes part of cost of goods sold when an entity d. sells the inventory.

Use the following information to answer questions 19 to 23 below:

Account Name Debit Credit

Sales 750,000
Sales Returns and Allowances 15,000
Sales Discounts 10,000
Purchases 170,000
Purchases Returns and Allowances 20,000
Transportation in 30,000
Selling Expenses 75,000
General and Administrative Expenses 275,000

In addition, beginning merchandise inventory was P55,000 and ending merchandise inventory was
P35,000.

19. Net sales for the period were P725,000.

Sales 750,000
Less: Sales returns and allow (15,000)
Sales disounts (10,000)
Net sales 725,000

20. Net purchases for the period were a. P150,000.

Purchases 170,000
Less: purchase returns and allow. (20,000)
Net purchases 150,000
21. Cost of goods sold for the period was P200,000.
Beginning inventory 55,000
Add: net purchases 150,000
Transportation in 30,000
Net cost of purchases 180,000
Goods available for sale 235,000
Less: Ending inventory (35,000)
COGS 200,000

22. Profit for the period was a. P.525,000. b. P450,000. c. P250,000. d. P175,000.

Net sales 725,000

Less: COGS (200,000)
Gross profit 525,000
Less: selling expenses 75,000
Gen and admin. Expenses 275,000
Operating expenses (350,000)
Profit 175,000

23. if beginning and ending merchandise inventories were ignored in computing profit, then profit
would be a. overstated by P20,000.

Net sales 725,000

net purchases 150,000
Transportation in 30,000
Net cost of purchases 180,000
Goods available for sale 180,000
COGS (180,000)
Gross profit 545,000
Less: selling expenses 75,000
Gen and admin. Expenses 275,000
Operating expenses (350,000)
Profit 195,000
Less: profit with inventory (175,000)
Overstatement 20,000

24. Which of the following is not considered in computing net cost of purchases? Transportation paid
on goods shipped to customers

25. The entry to record a sale of P7,500 with terms of 2/10, n/30 would include a b. credit to Sales for
P7,500.

26. The collection of a P4,000 account within the 2% discount period would result in a d. debit to
Sales Discounts for P80.

27. The collection of a P5,000 account beyond the 2% discount period would result in a credit to
Accounts Receivable for P5,000.
28. Assuming that net purchases was P900,000 during the year and that ending merchandise
inventory was P20,000 less than the beginning merchandise inventory of P250,000, how much was
cost of goods sold? P920,000

Beginning inventory 250,000

Add: net purchases 900,000
Goods available for sale 1,150,000
Less: Ending inventory (230,000)
COGS 920,000

29. Goods totaling P50,000 were purchased February 2 with terms of 2/10, 1/30. Returns of P10,000
were made on February 10. What discounts, if any, can be availed of if the invoice was paid on
February 12? C. P800

Purchases 50,000
Less: purchase returns and allow. (10,000)
Balance 40,000
Less: Purchase discounts ( 800) 40,000 x 2%
Invoice price 39,200

30. The entry to record a payment on a P15,000 account within the 2% discount period would include
a credit to Purchases Discounts for P300.

31. A P5,000 purchases on account was made. The entry to record the payment on account after the
expiration of the 2% discount period would include a debit to Accounts Payable for P5,000.

32. Under a periodic inventory system, the entry to record a purchase of P60,000, with terms of 2/10,
n/30 would include a credit to Accounts Payable for P60,000.

33. The amount of cost of goods available for sale during the year depends on the amounts of b.
beginning merchandise inventory and net purchases.

1. A buyer received an invoice for P6,000 dated June 10. If the terms are 2/10, n/30, and the buyer
paid the invoice within the discount period, what amount will the seller receive? b. P5,880

2. The purchases discount account is a contra account t. b. purchases.

3. When a seller of merchandise allowed a customer a reduction from the original price for defective
goods, the seller will issue to the customer a credit memorandum.

4. When the seller advances the transportation costs and the terms of sale are FOB shipping point,
the seller records the payment of the transportation costs by debiting a accounts receivable.

5. The account that appears in the chart of accounts for a merchandising entity but not for a service
entity is d. sales returns and allowances.

6. Olive Valenzuela Traders purchased merchandise from San Jose Suppliers for P3,600 list price,
subject to a trade discount of 25%. The goods were purchased on terms of 2/10, n/30, F.O.B.
destination. Valenzuela paid P100 transportation costs. Valenzuela returned P400 (list price) of the
merchandise to San Jose and later paid the amount due within the discount period. The amount paid
is a. P2,254.

7. Grace Ancheta Company which uses the gross price method of recording purchases, and the
periodic inventory system, bought merchandise for P8,000, terms 2/10 n/30. If Ancheta returns
P2,000 of the goods to the vendor, the entry to record the return should include a