Ch.11 Verified Test Bank Discounts Trade And Cash

Chapter 11

Discounts: Trade and Cash

True/False Questions
 

1. List price × trade discount rate = amount of trade discount. 
True    False

2. Trade discounts represent increases to the purchase price. 
True    False

3. Sellers’ catalogs list only the net price. 
True    False

4. The trade discount results if the customer pays the bill within the discount period. 
True    False

5. Amounts of trade discounts are not fixed. 
True    False

6. Trade discounts sometimes are taken on freight. 
True    False

7. Net price times rate of trade discount equals amount of trade discount. 
True    False

8. Net price plus amount of trade discount equals list price. 
True    False

9. The portion could represent the amount of trade discount in the portion formula. 
True    False

10. The complement of 25% is 52%. 
True    False

11. A radio with a net price of $700 and a trade discount rate of 30% has a list price of $1,000. 
True    False

12. A chain discount is a series of three or more successive discounts. 
True    False

13. Chain discounts may sometimes be added together. 
True    False

14. The net price equivalent rate helps one calculate the actual cost to the seller. 
True    False

15. The complement of 10% is 90%, or in decimal .90. 
True    False

16. The net price equivalent rate should be rounded to the nearest hundredth. 
True    False

17. A net price equivalent rate of .74225 means that for each $10 the buyer’s cost will be approximately 74 cents. 
True    False

18. The single equivalent discount rate is found by taking the net price equivalent rate and adding it to 1. 
True    False

19. A single equivalent discount rate of .45975 means the buyer saves approximately 46 cents per $1 of list price. 
True    False

20. Net price times single equivalent discount rate equals amount of trade discount. 
True    False

21. The net price equivalent rate of 10/20/5 is .684. 
True    False

22. The single equivalent discount rate of 9/5/4 is .17008. 
True    False

23. Trade discounts must be paid within the cash discount period. 
True    False

24. A cash discount is a reduction from the gross amount of the invoice if payment is made within the discount period. 
True    False

25. A discount period is always greater than the credit period. 
True    False

26. Cash discounts are not taken on freight or returned goods. 
True    False

27. FOB shipping point means the seller pays cost of freight. 
True    False

28. Sometimes the seller will prepay the freight if it is FOB destination. 
True    False

29. Knuckles on your hand represent months with 30 days. 
True    False

30. 50 days from July 9 is August 28. 
True    False

31. Feb. 15 is 71 days from Nov. 29. 
True    False

32. A cash discount sometimes is taken on the amount of trade discount. 
True    False

33. 2/10, n/30 is an example of the ordinary dating method. 
True    False

34. 2/10, n/30 means the credit period is 30 days from the end of the discount period. 
True    False

35. 3/10, 1/15, n/30 means that a 3% cash discount is available from day 11 to day 15. 
True    False

36. 4/10, n/30 ROG means a 4% discount can be taken within 10 days before the receipt of goods. 
True    False

37. 2/10, EOM means that the cash discount period ends on the tenth day of the month that follows the sale. 
True    False

38. 2/10, EOM means the credit period ends 20 days after the end of the discount period. 
True    False

39. Goods sold after the 25th of the month with terms of 2/10, EOM results in the discount period being extended 10 days longer. 
True    False

40. Those making partial payments are not allowed to take a cash discount. 
True    False

41. The actual credit one receives in making a partial payment is calculated by taking the partial payment and dividing by (1 + the discount rate). 
True    False

Multiple Choice Questions
 

42. Amount of trade discount equals: 
A. List price × trade discount rate
B. List price + trade discount rate
C. List price divided by trade discount rate
D. Net price × trade discount rate
E. None of these

43. Which of the following is usually not true about customer catalogs? 
A. Contain list price
B. Completely updated once a year with a new revised catalog
C. Updated by discount sheets
D. Trade discount amounts will differ from product to product
E. None of these

44. Amount of trade discount is represented by the: 
A. Base
B. Rate
C. Portion
D. Base divided by rate
E. None of these

45. The complement of 35% is: 
A. 53%
B. 65%
C. 56%
D. 165%
E. None of these

46. If the net price of a stove is $900 and the trade discount rate is 40%, the list price is: 
A. $3,600
B. $2,250
C. $1,500
D. $1,260
E. None of these

47. The net price equivalent rate of 9/15/18 is: 
A. .36573
B. .63573
C. .36427
D. .63427
E. None of these

48. The single equivalent discount rate of the trade discount 5/4/1 is: 
A. .09712
B. .90288
C. .00002
D. .99998
E. None of these

49. The credit period is: 
A. Always shorter than the discount period
B. Always 30 days from end of discount
C. Always twice the length of discount period
D. Long enough so buyers can always take a cash discount
E. None of these

50. Cash discounts are: 
A. Always calculated on list price
B. Sometimes calculated with freight
C. Sometimes calculated with returned goods
D. Never calculated on freight and returns
E. None of these

51. FOB shipping point means: 
A. Seller pays the cost of freight
B. Buyer pays the cost of freight
C. Title to goods shifts to buyer while being shipped
D. Seller cannot pay cost of freight
E. None of these

52. Which month has 30 days? 
A. January
B. May
C. June
D. July
E. None of these

53. 200 days from March 3 is: 
A. September 18
B. September 17
C. September 19
D. September 20
E. None of these

54. 60 days from Nov. 19 is: 
A. Jan. 16
B. Jan. 17
C. Jan. 18
D. Jan. 19
E. None of these

55. 2/10, n/30 is an example of: 
A. Ordinary dating
B. Receipt of goods
C. End of month
D. Extra dating
E. None of these

56. With terms of 2/10, n/30: 
A. Credit period is 10 days from date of invoice
B. Credit period is 40 days
C. Credit period extends into first 10 days of next month
D. Credit period is 30 days from date of invoice
E. None of these

57. 2/10, n/30 ROG means the cash discount period ends: 
A. Within 10 days of beginning date of invoice
B. Within 30 days of beginning date of invoice
C. 20 days after beginning date of invoice
D. 10 days after the goods are received
E. None of these

58. An invoice dated March 6 with terms of 1/10, EOM results in the end of the discount period on: 
A. May 10
B. April 10
C. May 30
D. May 31
E. None of these

59. Roland Corporation buys stoves from a wholesaler. The list price of a stove is $900, with a trade discount of 30%. The net price is: 
A. $270
B. $1,170
C. $630
D. $360
E. None of these

60. A local college bookstore paid a net price of $12,500 for textbooks for the coming semester. The publisher offered a trade discount of 20%. The publisher's original list price was: 
A. $15,000
B. $15,500
C. $15,625
D. $2,500
E. None of these

61. A local RadioShack store wants to buy a new line of plasma TVs. Manufacturer A offers chain discounts of 18/12, and Manufacturer B offers terms of 17/13. The single equivalent discount rate of ? is the best deal. 
A. .7221: Manufacturer A
B. .7216: Manufacturer B
C. .2779: Manufacturer A
D. .2784: Manufacturer A
E. None of these

62. Joanne's Dress Shop received an invoice dated July 25 for $1,400, with terms of 2/10, 1/15, n/60. On August 8, Joanne's Dress Shop sent a partial payment of $750. The actual amount that should be credited is: 
A. $765.31
B. $765.30
C. $757.58
D. $757.59
E. None of these

63. An invoice dated 5/19/xx received by Jones Supply indicated a balance of $17,000. This balance included a freight charge of $1,000. Terms of the bill were 5/10, 4/30, n/60. Assuming Jones pays off the bill on June 4, he pays: 
A. $16,762.27
B. $16,000.55
C. $15,762.72
D. $16,000.84
E. None of these

64. Black & Decker Manufacturing sold a set of saws to True Value Hardware. The list price was $3,800. Black & Decker offered a chain discount of 8/3/1. The net price of the saws is: 
A. $3,537.12
B. $3,537.21
C. $3,391.12
D. $3,357.21
E. None of these

65. J.C. Penney of Boston sold office equipment for $12,000 to Lee's of San Diego. Terms of the sale are 3/10, n/30 FOB Boston. J.C. Penney has agreed to prepay freight $300. Assuming Lee’s pays within the discount period, how much will Lee’s pay J.C. Penney? 
A. $11,640
B. $8,544
C. $8,644
D. $11,940
E. None of these

66. A manufacturer of skis offered chain discounts of 10/5/4 to many of its customers. Joe Jones ordered skis that had a total list price of $149,500. The amount of the trade discount is: 
A. $122,709.60
B. $26,970.40
C. $26,790.40
D. $122,907.69
E. None of these

67. A bedroom set lists for $12,000 and carries a trade discount of 30%. Freight (FOB shipping point) of $150 is not part of list price. Calculate the delivered price of the bedroom set including the freight. Assume a cash discount of 2%. 
A. $8,232
B. $8,382
C. $8,385
D. $8,832
E. None of these

68. An invoice dated March 12 in the amount of $50,000 is received by Reliance Corporation on March 16. Cash discount terms on the invoice are 3/10, n/30. On March 16 Reliance mails a check in the amount of $8,000 as partial payment on the invoice. The outstanding balance owed on the invoice is: 
A. $8,247.42
B. $41,752.58
C. $8,240.00
D. $41,760.00
E. None of these

69. The complement of 17% is:

A. 71%

B. 60%

C. 83%

D. 38%

E. None of these

70. The net price equivalent rate of 3/7/13 is:

A. .0273

B. .784827

C. .488173

D. 215173

E. None of these

71. Brenda purchased a total of five computers for $3,300. She received a 20% trade

discount. What did Brenda pay for the computers?

A. $2,640

B. $2,460

C. $2,440

D. $3,750

E. None of these

72. Walgreens is offered a chain discount on cosmetics from Libby Corp. of 8/5/2;

Roma Company offers a chain discount of 7/6/4. What is the highest discount offered?

A. .14348

B. .839232

C. .85652

D. .160768

E. None of these

73. Brooks Brothers bought a suit that has a list price of $1,219, with a chain discount of

7/4/2. What is the net price of the suit?

A. $682.64

B. $1,166.65

C. $1,066.56

D. $152.14

E. None of these

Short Answer Questions
 

74. 1. Amount of trade discount
2. Chain discount
3. Cash discount
4. Complement
5. Credit period
6. Discount period
7. Due dates
8. 2/10, EOM (after 25th)
9. FOB destination
10. FOB shipping point
11. List price
12. Net price
13. Net price equivalent rate
14. Example of ordinary dating
15. ROG
16. Single equivalent discount rate
17. Terms of sale
A. Amount of time to take advantage of a cash discount
B. Seller pays cost of freight
C. Actual cost to buyer per dollar
D. Two or more trade discounts
E. Discount period begins when goods are received
F. Cash discount within first 10 days in next month after sale
G. List price minus net price
H. Period of time that follows discount period
I. Buyer pays cost of freight
J. List price minus amount of trade discount
K. 2/10, n/30
L. Could be calculated by table look-up
M. Criteria on invoice
N. 100% less stated percent
O. 1 – net price equivalent rate
P. Savings from early payment
Q. Suggested retail price 

75. Complete the following:
T.V. $900 30% trade discount net price = ? 

76. Complete the following:
   

77. Find amount of (A) net price and (B) trade discount:
Stove: List $1,400
Chain discount 13/10/4
A. ____________
B. ____________ 

78. Which option yields the highest single equivalent discount?
   

79. Complete:
  
A. _____________
B. _____________
C. _____________
D. _____________ 

80. Calculate (A) amount to be credited and (B) balance outstanding:
Invoice: $3,000; terms 2/10, n/30
Invoice date: July 5
Payment amount $600
Date paid: July 14
A. ____________
B. ____________ 

81. Calculate (A) cash discount and (B) net amount paid:
Gross invoice (includes freight) $1,800
Freight $50; date of invoice: 8/11
Terms: 2/10, 1/15, n/30,
Date of payment: 8/22
A. ________________
B. ________________ 

82. An invoice for office furniture for $1,210.88 with terms of 2/10, n/60 is dated October 3.
(A) What is the last date on which the cash discount may be taken?
(B) If paid within discount period, how much is the cash discount?
(C) If the discount is missed, on what day does the credit period end? 

83. Jones Company received an invoice for $1,450 dated August 28, terms 2/10 EOM.
(A) What is the last date of the discount and credit periods?
(B) If paid on October 3, how much would Jones pay? 

84. Mel's furniture received an invoice dated September 27 for five bedroom sets at $3,000 each. The invoice indicated a trade discount of 5/8/3. The seller of the furniture prepaid the freight of $200. Terms were 2/10 EOM. Assuming Mel pays on November 2, what amount would be paid? (Be sure to include the freight cost.) 

85. Pete's appliance received a bill dated July 15 for $26,000 with terms of 2/10, 1/15, n/60. On July 27 Pete sent in a partial payment of $6,000. What is the amount credited as well as the balance due? 

86.    

87.    

88. Calculate the net price and amount of trade discount (use net price equivalent rate as well as single equivalent discount rate):
   

89.    

90.    

91.    

92.    

93. Brooks Dept. Store bought a stereo from a wholesaler with a $1,200 list price and a 28% trade discount. What is the trade discount amount? What is the net price of the television? 

94. Jones of San Diego sold Long of Baton Rouge a video system with a $6,000 list price. Sale terms were 2/10, n/30 FOB San Diego. Jones agreed to prepay the $35 freight. Assuming Long pays the invoice within the discount period, what does Long pay Jones? 

95. Jones Advertising Agency received a $3,000 invoice dated June 8. Terms were 2/10, 1/15, n/60. On June 22 Jones Advertising sent a $1,600 partial payment. What credit should Jones Advertising receive? What is Jones's outstanding balance? Round to the nearest cent. 

96. Morgan Company received from Lee Company an invoice dated September 27. Terms were 2/10 EOM. List price on the invoice was $5,000 (freight not included). Morgan receives a 9/7 chain discount. Freight charges are Morgan's responsibility, but Lee agreed to prepay the $150 freight charge. Morgan pays the invoice on November 9. What does Morgan pay Lee? 

97.    

98.    

99.    

100.    

101. Which option yields the highest single equivalent discount?
   

102. Which option yields the highest single equivalent discount?
   

103.    

104.    

105. Invoice: $1,000
Terms: 3/10, n/30
Invoice date: May 5
Payment amount: $800
Date paid: May 9
A) Amount credited: _______
B) Balance outstanding: _____ 

106. Invoice: $600
Terms: 2/10, n/30
Invoice date: April 4
Payment amount: $400
Date paid: April 10
A) Amount credited: _______
B) Balance outstanding: _____ 

107. Gross invoice (includes freight): $500
Freight: $100
Date of invoice: 9/10
Terms: 3/10, 1/15, n/30
Date of payment: 9/22
A) Discount: _______
B) Net Price: _______ 

108. Gross invoice (includes freight): $1,000
Freight: $100
Date of invoice: 8/11
Terms: 2/10, 1/15, n/30
Date of payment: 8/23
A) Discount: _______
B) Net Price: _______ 

109.    

110.    

111. Bill's TV buys a television from a wholesaler with a list price of $600 and a trade discount of 32%. What are the amount of the trade discount and the net price of the television? 

112. A dining room set lists for $1,500 and carries a trade discount of 40%. Freight charges are $150. Calculate the final price of the dining room set. 

113. The Blue Manufacturer sells radios to Bob's Discount Outlet. Radios carry a trade discount of 45%. If the price of a radio is $90, what does Bob pay? 

114. If a manufacturer's list price is $800 and Bill's Outlet buys the goods for $650, what is the trade discount percent? (Round answer to the nearest hundredth percent.) 

115. Marvin Gate bought some fencing from a wholesaler for $6,000. The wholesaler offered a trade discount of 35%. What was the original price? (Round to the nearest cent.) 

116. Al's Supply sold a chain saw to Mark's Lumber. The list price was $1,250. Al's Supply offered a chain discount of 6/3/1. What was the net price of the chain saw? 

117. A manufacturer of ice skates offered a chain discount of 7/5/1. Bobby's Sport Shop ordered 30 pairs of skates that had a list price of $925. What was the amount of the trade discount? 

118. Buffy Rich wants to buy a new line of stereos for her shop. Manufacturer A offers trade discounts of 20/14, and Manufacturer B offers trade discounts of 25/7. Assuming both manufacturers have the same list price, which manufacturer should Buffy buy from? 

119. Ed's Print Shop received an invoice dated May 10 for $2,500 with terms 3/10, 1/15, n/60. On May 22, Ed's Print Shop sent a partial payment of $2,000. What is the actual amount that should be credited, and what is Ed's Print Shop's outstanding balance?

120. Jones Manufacturing sent Blue Company an invoice for equipment with a list price of $10,000. The invoice is dated July 27 with terms of 2/10, EOM. Blue Company is entitled to a 40% trade discount. If the invoice is paid on September 8, how much does Blue pay?

121. Bloomberg’s is offered the following chain discount(s); what is the lowest net price equivalent rate it will pay?

Company A: 7/9/13 Company B: 8/6/10

122. A Timex watch with a 30% trade discount costs $39.99. What is the list price?

123. Ashley Furniture received an invoice for $4,850, dated May 19. Terms were 2/15, net 30 days. How much will Ashley pay if the invoice was electronically paid on June 2^?

124. Given a list price of $4,400 and a chain discount of 2/3, complete the following:

Trade discount: _____ Net price: ______

125. A local ford dealership purchased a new Ford Focus from the manufacturer that lists for $22,178. Ford Motor Company offers the dealership an 18% trade discount. Shipping costs totaled $795.00. What did the local dealership pay for the Focus?