Accounting : Accounting for Merchandising Operations

Study concepts, example questions & explanations for Accounting

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Example Questions

Example Question #1 : Accounting For Merchandising Operations

Zeta Automotive ordered transmissions from the Alpha Transmission Company on May 7, 1990. The terms of sale were FOB destination. The Alpha Company shipped the transmissions on May 22, 1990, and Zeta Automotive received them on June 1, 1990. When should Zeta Automotive record the account payable?

Possible Answers:

May 22, 1990

May 7, 1990

June 8, 1990

June 1, 1990

Correct answer:

June 1, 1990

Explanation:

FOB stands for free onboard destination. This means that goods in transit should be considered as the seller's inventory because they have not yet reached the buyer. In other words, if issues were to incur during sipping, then responsibility would fall on the shipper rather than the buyer; therefore, the buyer would record the account payable upon arrival. 

Example Question #2 : Accounting For Merchandising Operations

The Beta Company—consignee—paid the freight costs for goods shipped from the Foxtrot Incorporated—consigner. The freight costs are to be deducted from the Beta Company's payment to the Foxtrot Incorporated when the goods are sold. Until the Beta Company sells the goods, the freight costs should be included in which of the following?

Possible Answers:

Cost of goods sold

Freight-out costs

Selling expense

Accounts receivable 

Correct answer:

Accounts receivable 

Explanation:

In a consignment, the manufacturer—Foxtrot Incorporated—is known as the consignor and the retailer is the consignee—Beta Company. In this type of arrangement, title to the goods remains with the manufacturer until they are sold to a third or unrelated party; thus, the Beta Company's payment of reimbursable freight costs results in an account receivable from Foxtrot Incorporated. 

Example Question #3 : Accounting For Merchandising Operations

The Beta Company—consignee—paid the freight costs for goods shipped from the Foxtrot Incorporated—consigner. The freight costs are to be deducted from the Beta Company's payment to the Foxtrot Incorporated when the goods are sold. Until the Beta Company sells the goods, the freight costs should be included in which of the following?

Possible Answers:

Accounts receivable

Cost of goods sold

Freight-out costs

Selling expense

Correct answer:

Accounts receivable

Explanation:

In a consignment, the manufacturer—Foxtrot Incorporated—is known as the consignor and the retailer is the consignee—Beta Company. In this type of arrangement, title to the goods remains with the manufacturer until they are sold to a third or unrelated party; thus, the Beta Company's payment of reimbursable freight costs results in an account receivable from Foxtrot Incorporated. 

Example Question #4 : Accounting For Merchandising Operations

Zeta Automotive ordered transmissions from the Alpha Transmission Company on May 7, 1990. The terms of sale were FOB destination. The Alpha Company shipped the transmissions on May 22, 1990, and Zeta Automotive received them on June 1, 1990. When should Zeta Automotive record the account payable?

Possible Answers:

June 8, 1990

May 7, 1990

June 1, 1990

May 22, 1990

Correct answer:

June 1, 1990

Explanation:

FOB stands for free onboard destination. This means that goods in transit should be considered as the seller's inventory because they have not yet reached the buyer. In other words, if issues were to incur during sipping, then responsibility would fall on the shipper rather than the buyer; therefore, the buyer would record the account payable upon arrival. 

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