Question Details

Stine Company purchased merchandise 


1. Freight costs paid by a seller on merchandise sold to customers will cause an increase
a. in the selling expense of the buyer.
b. in operating expenses for the seller.
c. to the cost of goods sold of the seller.
d. to a contra-revenue account of the seller.
2. Bryan Company purchased merchandise from Cates Company with freight terms of FOB
shipping point. The freight costs will be paid by the
a. seller.
b. buyer.
c. transportation company.
d. buyer and the seller.
3. Flynn Company purchased merchandise inventory with an invoice price of $5,000 and
credit terms of 2/10, n/30. What is the net cost of the goods if Flynn Company pays within
the discount period?
a. $5,000
b. $4,900
c. $4,500
d. $4,600
4. Stine Company purchased merchandise with an invoice price of $2,000 and credit terms
of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent
in the credit terms?
a. 20%
b. 24%
c. 36%
d. 72%
5. If a company is given credit terms of 2/10, n/30, it should
a. hold off paying the bill until the end of the credit period, while investing the money at
10% annual interest during this time.
b. pay within the discount period and recognize a savings.
c. pay within the credit period but don't take the trouble to invest the cash while waiting to
pay the bill.
d. recognize that the supplier is desperate for cash and withhold payment until the end of
the credit period while negotiating a lower sales price.




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