Outstanding checks refer to checks that have been: O A. Issued by the bank. O B. Written recorded, sent to payees, and received and paid by the bank. OC. Held as blank checks. D. Written, recorded on the company books, sent to the payee, but not yet paid by the bank. How many of the following statements regarding discounts are true? . If a company takes advantage of a discount when paying for inventory, the discount reduces the cost of inventory recorded in the inventory account • Credit terms of 2/10.1V30mean that if payment is made in two days a 10% discount must be taken if not paid within two days the full invoice price will be due in thirty days . The terms sales discounts and purchase discounts are used interchangeably by a company O A None OB. One OCTWO D. Three BetterBuy purchases computers from companies like Hewlett Packard and IBM and sells them to consumers. BetterBuy is a: O A. merchandising company. OB.service company. OC. Manufacturer O D. None of the above Which of the following statements regarding the calculations used for the weighted average inventory costing method is (are) true? O A Under the weighted average cost method of the goods in inventory were purchased at three different prices, the three different prices would be added and then divided by three to find the weighted average cost per unit O . When the weighted average inventory costing method is used, ending inventory and cost of goods sold are calculated using different costs perunt, O Both A) and B) above are true OD. Neither A) nor 8) above is true
The correct answer and explanation is:
Question 1: Outstanding checks
Correct Answer:
D. Written, recorded on the company books, sent to the payee, but not yet paid by the bank.
Explanation:
Outstanding checks refer to checks that a company has issued, recorded in its books, and sent to the payee. However, these checks have not yet cleared through the bank, meaning they have not been deducted from the company’s bank account balance. They are considered “outstanding” until they are processed by the bank and appear as cleared on the bank statement. Outstanding checks are a common reconciliation item when comparing a company’s books to its bank statement. Options A, B, and C describe different stages of checks that do not fully align with the definition of outstanding checks.
Question 2: Discounts and their implications
Correct Answer:
C. Two
Explanation:
- If a company takes advantage of a discount when paying for inventory, the discount does reduce the cost of inventory recorded in the inventory account. This is true because accounting standards require discounts to be deducted from the purchase price, thus lowering the recorded inventory cost.
- Credit terms of 2/10, n/30 indicate a 2% discount is available if payment is made within 10 days; otherwise, the full invoice price is due in 30 days. This is correct and widely practiced in business transactions.
- The terms “sales discounts” and “purchase discounts” are not interchangeable because “sales discounts” refer to reductions offered by a seller, while “purchase discounts” are those taken by a buyer. Thus, this statement is false.
Since only the first two statements are correct, the answer is two.
Question 3: BetterBuy’s classification
Correct Answer:
A. Merchandising company.
Explanation:
BetterBuy is classified as a merchandising company because it purchases goods, such as computers, from manufacturers like Hewlett-Packard and IBM and resells them to consumers without significantly altering the goods. A service company primarily sells services, not tangible products. A manufacturer produces goods from raw materials, which BetterBuy does not do. Therefore, the correct classification is merchandising.
Question 4: Weighted average inventory costing
Correct Answer:
D. Neither A) nor B) above is true.
Explanation:
- Statement A is incorrect because the weighted average cost method does not calculate the cost per unit by simply adding the prices and dividing by three. Instead, it involves dividing the total cost of goods available for sale by the total number of units available for sale.
- Statement B is incorrect because the same weighted average cost per unit is applied to both ending inventory and cost of goods sold. The method ensures consistency in applying the average cost to all units.
Thus, neither statement is true.