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Flashcards: Payables and Accrued Liabilities

Which of the following is true regarding purchases made from a seller that offers a discount for early payment?

The purchase is recorded as a credit to accounts payable without regard for the discount, if using the net method

The purchase is recorded as a credit to accounts payable as if the discount is going to be taken, under the gross or net method

The purchase is recorded as a credit to accounts payable as if the discount is going to be taken, if using the gross method

The purchase is recorded as a credit to accounts payable as if the discount is going to be taken, if using the net method

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Flashcards: Payables and Accrued Liabilities

Which of the following is true regarding purchases made from a seller that offers a discount for early payment?

Your answer:

The purchase is recorded as a credit to accounts payable without regard for the discount, if using the net method

Your answer:

The purchase is recorded as a credit to accounts payable as if the discount is going to be taken, under the gross or net method

Your answer:

The purchase is recorded as a credit to accounts payable as if the discount is going to be taken, if using the gross method

Correct answer:

The purchase is recorded as a credit to accounts payable as if the discount is going to be taken, if using the net method

Explanation:

Under the net method, a company initially records a purchase as if the discount is going to be taken. Recording the purchase includes a credit to accounts payable.

Flashcards: Payables and Accrued Liabilities

Glidell Company issues coupons for its products, which are redeemable at grocery stores. Each coupon entities the customer to $.65 off their purchase of Glidell's products. Additionally, Glidell reimburses retailers an additional $.05 per coupon. On July 1 of the current year, Glidell mailed out $1 million coupons to consumers, and expects 300,000 to be redeemed by their expiration date of December 31. Retailers can take up to 90 days to mail their coupons to Glidell. As of December 31, Glidell has made payments of $95,000 to retailers, and has 115,000 coupons waiting to be processed for payment. What amount should Glidell report as outstanding liability for coupons in its December 31 balance sheet?

$90,000

$175,000

$115,000

$210,000

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Flashcards: Payables and Accrued Liabilities

Your answer:

$90,000

Your answer:

$175,000

Your answer:

$210,000

Correct answer:

$115,000

Explanation:

Glidell must record an expense of $.70 ($.65 savings to customer + $.05 fee to retailers) for each of the 300K coupons it expects to be redeemed. 300K x $.70 = $210K. Glidell then subtracts the $95K it has already paid out.

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All CPA Financial Accounting and Reporting (FAR) Resources

Flashcards: Payables and Accrued Liabilities

Flashcards: Payables and Accrued Liabilities

Flashcards: Payables and Accrued Liabilities

Flashcards: Payables and Accrued Liabilities

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