- Taking advantage of a 2/10, n/30 purchases discount is equal to a savings yearly rate of approximately
A. 2%
B. 24%
C. 20%
D. 36% - Who pays the freight costs when the terms are FOB shipping point?
A. the ultimate customer
B. the buyer
C. the seller
D. either the seller or the buyer - Who pays the freight cost when the terms are FOB destination?
A. the seller
B. the buyer
C. the customer
D. either the buyer or the seller - A retailer purchases merchandise with a catalog list price of $15,000. The retailer receives a 15% trade discount and credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount period?
A. $15,000
B. $14,700
C. $12,750
D. $12,495 - What type of company would normally offer trade discounts to its customers?
A. Service companies
B. Retailers
C. Wholesalers
D. On-line retailers - Which of the following accounts will only be found in the chart of accounts of a merchandising company?
A. Sales
B. Accounts Receivable
C. Merchandise Inventory
D. Accounts Payable - Which of the following items would affect the cost of merchandise inventory acquired during the period?
A. quantity discounts
B. cash discounts
C. freight-in
D. all of these costs - If title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are
A. consigned
B. n/30
C. FOB shipping point
D. FOB destination - If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are
A. n/30
B. FOB shipping point
C. FOB destination
D. consigned - If the merchandise costs $5,000, insurance in transit costs $250, tariff costs $75, processing the purchase order by the purchasing department costs $25, and the company receiving dock personnel cost $20, what is the total cost charged to the merchandise?
A. $5,325
B. $5,370
C. $5,350
D. $5,000
The Correct Answer and Explanation is :
Correct Answers:
141. D. 36%
142. B. the buyer
143. A. the seller
144. D. $12,495
145. C. Wholesalers
146. C. Merchandise Inventory
147. D. all of these costs
148. D. FOB destination
149. B. FOB shipping point
150. C. $5,350
Explanation:
141.
The 2/10, n/30 discount means you save 2% by paying within 10 days instead of 30. To annualize this savings:
- The payment period saved is ( 30 – 10 = 20 ) days.
- Number of 20-day periods in a year = ( 365 / 20 = 18.25 ).
- Annual savings rate = ( 2\% \times 18.25 = 36.5\% ), approximated to 36%.
142.
FOB shipping point means the buyer takes ownership once goods leave the seller’s location. The buyer pays freight costs.
143.
FOB destination means the seller retains ownership until the goods reach the buyer. The seller pays freight costs.
144.
The retailer receives a 15% trade discount:
( \$15,000 \times 0.85 = \$12,750 ).
Paying within the 2% discount period reduces this further:
( \$12,750 \times 0.98 = \$12,495 ).
145.
Wholesalers often offer trade discounts to encourage bulk purchases by retailers.
146.
Merchandise Inventory is specific to merchandising companies managing inventory for resale.
147.
The total cost of merchandise inventory includes purchase costs, less discounts, plus freight-in and related costs.
148.
Title passes to the buyer at delivery for FOB destination terms.
149.
Title passes to the buyer at shipment for FOB shipping point terms.
150.
Merchandise cost includes purchase price plus all costs to get the goods ready for use:
- Merchandise: \$5,000
- Insurance: \$250
- Tariff: \$75
- Purchase processing: \$25
- Receiving dock personnel: \$20
Total: \$5,350.