CHAPTER 5 SUGGESTED ANSWERS EXERCISES Exercise 5 1 1. Inventory on Consignment Merchandise Inventory To record transfer of merchandise to consignee. 2.

. Consignee Receivable (P24,000 x 130%) Consignment Sales Revenue To record consignment sales. Cost of Consignment Goods Sold Inventory on Consignment To record cost of goods sold. Merchandise Inventory Inventory on Consignment To record return of consigned goods. Commission Expense (P31,200 x 10%) Cash Consignee Receivable or 2. Commission Expense Cash Consignment Sales Revenue Cost of Consignment Goods Sold Inventory on Consignment To record cost of goods sold. Merchandise Inventory Inventory on Consignment To record return of consigned goods. 3,120 28,080 31,200 24,000 24,000 66,000 66,000 90,000 90,000 31,200 31,200 24,000 24,000 66,000 66,000 3,120 28,080 31,200

3.

4.

5.

3.

4.

Exercise 5 2 1. Consignor Books: Inventory on Consignment Finished Goods Inventory Inventory on Consignment Cash Consignee Payable

500,000 500,000 40,000 30,000 10,000

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Commission Expense (P420,000 x 10%) Consignee Receivable Consignment Sales Cost of Consignment Goods Sold Inventory on Consignment *Cost of goods sold P420,000 /1.25 = P336,000 Freight costs P40,000 / P500,000 = 8% Freight on goods sold P336,000 x 8% = P26,880 Total costs of goods sold P336,000 + P26,880 = P362,800 Cash Consignee Payable Consignee Receivable 2. Consignee Books: Memorandum entry to record receipt of goods on consignment. Consignor Receivable Cash Cash Consignor Payable Consignor Payable Commission Revenue Consignor Payable Cash Consignor Receivable 3. Consignor financial statements: Statement of Financial Position Assets section Consignee receivable Inventory on consignment Statement of Recognized Income and Expenses Consignment sales P420,000 Less Cost of consignment sales 362,880 Commission expense Profit from consignment Exercise 5-3 Requirement 1 Consignment profits calculated separately Books of Consignor 1. Consignment Out

42,000 378,000 420,000 362,880 362,880

278,000 10,000 288,000

10,000 10,000 420,000 420,000 42,000 42,000 288,000 278,000 10,000

P 90,000 177,120

P57,120 42,000 P15,120

7,000

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Merchandise Shipment on Consignment 2. Cash Consignment-Out Consignment-Out Consignment-Out Consignment Income Sales (4 sets @P1,500) CGS (4 sets @P700) Freight-in (4/10 x P1,000) Commission (25% x P6,000) Consignment income 3,500 2,500

7,000

6,000 1,300 1,300 P6,000 ( 2,800) ( 400) ( 1,500) P1,300

3.

Books of Consignee 1. Received 10 sets of electric fan from Ledesma 2. 3. 4. 5. Consignment-In Cash Cash Consignment-In Consignment-In Consignment Income Consignment-In Cash 1,000 1,000 6,000 6,000 1,500 1,500 3,500 3,500

Requirement 2 Consignment profits not calculated separately Books of Consignor 1. Shipped merchandise to Amoranto, a consignee, 2. Cash Freight Commission Expense Merchandise on Consignment Sales Merchandise on Consignment Income Summary Unsold merchandise on consignment (6 sets @P700) 3,500 400 1,500 600 6,000 4,200 4,200

3.

Books of Consignee 1. Received 10 sets of electric fan from Ledesma, a consignor.. 2. 3. Ledesma Cash Cash Sales

.. 1,000 1,000 6,000 6,000

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4. 5.

Purchases (P6,000 P1,500 commission) Ledesma Ledesma Cash

4,500 4,500 3,500 3,500

Exercise 5 4 1. Sales of laser discs, net of commissions and cartage Less: Cost Freight and handling Loss on laser discs consignment 2. Sales of TV sets, net of commissions and delivery & installation costs Less: Cost (15 x P9,000) Freight and handling [(15 + 3*)/24** x P10,800] Freight on return of defective units Profit on TV sets on consignments * Number of units returned = Cost of returned units / Cost per unit = P27,000 / P9,000 = 3

P181,800 P180,000 5,400 185,400 P 3,600 P173,250 P135,000 8,100 1,080 144,180 P 29,070

** Units shipped to consignee = Total cost of TV sets shipped / Cost per unit = P216,000 / P9,000 = 24 3. TV sets P54,000 + (P10,800 6/24 = P2,700) = P56,700

Exercise 5 5 1. Sales (300 x P1,000) + (100** x P1,100) Cost of sales (400 x P600) Gross profit Expenses: Freight (400/500 x P5,500) Safety devices (100/200 x P10,000) Commission (P410,000 x 10%) Delivery cost Consignment profit

P410,000* 240,000 P170,000 P 4,400 5,000 41,000 4,500

54,900 P115,100

*Consignee remitt6ance and charges represent only 90% of sales in as much as the 10% commission of the consignee has not yet been included among the charges (P364,500 + P4,500 = P369,000 / 90% = P410,000) ** The 100 units with safety device sold at P1,100 is computed as follows: Sales Sales of units without safety device (300 x P600) Sales of units with safety device Units sold (P110,000 / P1,100) P410,000 300,000 P110,000 100

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2.

Cost (100 x P600) Freight (100/500 x P5,500) Safety device (100/200 x P10,000) Inventory cost of consigned goods PROBLEMS

P60,000 1,100 5,000 P66,100

Problem 5-1 Req. 1. Books of consignee; consignment sales merged with regular sales April Received 20 sets of VCD player CCM Corp. Cash Accounts Receivable Sales Purchases CCM Corp. Cash Accounts Receivable CCM Corp. Cash May Accounts Receivable Sales Purchases CCM Corp. Cash Accounts Receivable CCM Corp. Cash Req. 2 Books of consignor; consignment profits calculated separately April Consignment-Out Merchandise Inventory Cash Consignment Out Receivable Consignee Consignment Out 1,750 1,750 24,000 24,000 20,000 20,000 10,000 10,000 5,000 5,000 18,000 18,000 15,000 15,000 15,000 15,000 10,000 10,000 36,000 36,000 5,000 1,750 13,250 20,000

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Consignment Out Consignment Income Sales (8 sets @P2,500) CGS (8 sets @P1,800) Freight-in (P1,000 x 8/20) Cartage-in (P750 x 8/20) Consignment profit May Cash Receivable Consignee Consignment Out Consignment Out Consignment Income Sales (6 sets @P2,500) CGS (6 sets @P1,800) Freight-in (P1,000 x 6/20) Cartage-in (P750 x 6/20) Consignment profit 3. Charge and Profit analysis April Inventory P21,600 600 450 P22,650 P 20,000 ( 14,400) ( 400) ( 300) P 4,900

4,900 4,900

10,000 5,000 15,000 3,675 3,675 P15,000 ( 10,800) ( 300) ( 225) P 3,675

Total Charges by consignor: Cost of consigned goods Charges by consignee Freight-in Cartage-in Total Sales price Consignment profit Problem 5-2 Books of consignor 1. 2. 3. P36,000 1,000 750 P37,750

Sales P14,400 400 300 P15,100 20,000 P 4,900

Sales P10,800 300 225 P11,325 15,000 P 3,675

May Inventory P10,800 300 225 P11,325

Consignment Out Merchandise Shipment on Consignment Consignment Out Cash Cash Consignment Out Receivable Consignees Consignment Out Merchandise Shipment on Consignment Consignment Out

50,000 50,000 750 750 5,000 10,600 16,400 32,000 4,000 4,000

4.

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Returned merchandise (4 sets @P1,000) 5. Consignment Out Consignment Income 5,700 5,700

Total Sales Inventory Charges by consignor: Cost of consigned goods P46,000 P16,000 P30,000 Freight-out 750 300 450 Charges by consignee Cartage-in 1,000 400 600 Delivery and installation 1,600 1,600 Commission 8,000 8,000 Total P57,350 P26,300 P31,050 Sales price 32,000 Consignment profit P 5,700 *Note: Freight and cartage on sets returned are charged against sales of the period. Books of consignee 1. Received 50 cordless phones. 2. 3. Accounts Receivable Consignment In Cash Accounts Receivable P32,000 P16,400 (collectible) = P15,600 Returned four (4) defective cordless phones. Consignment In Delivery and Installation Expense Commission on Consignment Cash Remittance 15,600 1,600 8,000 5,000 32,000 32,000 15,600 15,600

4. 5.

Problem 5-3 Correcting entry to bring accounts with Alejo up to date Consignment Commissions Freight on Consignment Shipments (P2,600 x 65/100) Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100) Consignment Sales Alejo Account sales Alejo Sales (65 stoves @ P3,600) Commission (25% of P234,000) Freight P234,000 ( 58,500) ( 2,600) 58,500 1,690 910 6,000 67,100

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Amount owed P172,900 Total amount remitted ( 187,900) Balance-charge against Sunstar P 15,000 Entry that should have been made for transactions of Alejo on the books of consignor: Cash Consignment Commission Freight on Consignment Shipments Prepaid Expenses on Consigned Merchandise Consignment Sales Alejo 187,900 58,500 1,690 910 234,000 15,000

Net effect of entries already made with Alejo for transfer of merchandise and remittance Cash Alejo Consignment Sales Correcting entry to bring accounts with Burgos up to date Consignment Commissions Freight on Consignment Shipments (P2,600 x 65/100) Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100) Consignment Sales Burgos 13,500 750 1,250 42,000 57,500 187,900 52,100 240,000

Account sales Burgos Sales (15 stoves @ P3,600) Commission (25% of P54,000) Freight Amount owed Total amount remitted Balance-amount owed Sunstar

P54,000 ( 13,500) ( 2,000) P38,500 ( 11,500) P27,000

Entry that should have been made for transactions of Burgos on the books of consignor: Cash Consignment Commission Freight on Consignment Shipments Prepaid Expenses on Consigned Merchandise Burgos Consignment Sales 11,500 13,500 750 1,250 27,000 54,000

Net effect of entries already made with Burgos for transfer of merchandise and remittance Cash Burgos Consignment Sales 11,500 84,500 96,000

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Problem 5-4 Entries to bring account with Domingo up to date 1. Cash Operating Expenses Receivables-Consignees Remittance for 10 sets less charges Sales Receivables Consignees Unsold units previously recognized as sales. Merchandise in Transit Cost of Goods Sold Merchandise returned and still in transit. 5,100 900 6,000 3,000 3,000 1,600 1,600

2.

3.

Entries to bring account with Estrella up to date 1. Cash Merchandise on Consignment Operating Expenses Receivables Consignees 2. Sales Receivables Consignees Merchandise on Consignment Cost of Goods Sold Unsold units in the hands of consignee Merchandise on Consignment Operating Expenses Expenditures related to unsold consigned goods charged to expense

13,400 600 1,000 15,000 9,000 9,000 4,800 4,800 1,700 1,700

3.

4.

Entries to bring account with Fajardo up to date 1. Operating Expenses Receivables Consignees Accounts Payable 2. 3. Sales Receivables Consignees Merchandise in Transit Receivables Consignees

960 600 360 2,400 2,400 1,280 1,280 715,600 420,100 89,160 206,340

Closing Entries 1. Sales Cost of Goods Sold Operating Expenses Income Summary

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2. 3. 4. 2.

Income Tax Income Tax Payable Income Summary Income Tax Income Summary Retained Earnings Moonstar Company Statement of Financial Position December 31, 2008

72,219 72,219 72,219 72,219 134,121 134,121

Current assets: Cash Receivables Consignees Inventories: On hand In transit On consignment Total Current Assets Plant and Equipment Total Assets Current Liabilities: Accounts Payable Income Tax Payable Ordinary Share Capital, P100 par Retained Earnings Balance, beginning Net income for 2008 Total Shareholders Equity Total Liabilities and Shareholders Equity MULTIPLE CHOICE 1. 2 3. 4. 5. A C A A A

P134,000 62,720 P112,000 2,880 7,100

121,980 318,700 170,000 P488,700

P25,360 72,219 P200,000 P 57,000 134,121 191,121 391,121 P488,700

P180,000 + P9,000 = P189,000 Receipts (215 x P500) Less Shipping charges Remittance (215 x 40% x P580) + (215 x 60% x P640) (215 x P500) = Receipts ( 7 dozens x 12 x P2,000) P107,500 2,100 P105,400 P24,860 P168,000

6. 7.

B D

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Charges: Expenses Commissions (15% x P168,000) Remittance 8. C Sales 7 x 12 x P2,000 Cost of Sales 7 x 12 x P1,000 Freight 7 x P30 Expenses Commission P168,000 x 15% Sales ( 4 x P7,000) Charges: Commission (20% x P28,000) Freight Remittance Cost (6 x P4,000) Freight (P1,600 x 6/10) Balance of Merchandise on Consignment account Sales Cost (4 x P4,000) Gross profit Less: Commission Freight (P1,600 x 4/10) Net profit on consignment Remittance Charges: Delivery expense Repairs Total Sales Cost of sales Gross profit Expenses: Commission (P79,800 x 15%) Repairs (P2,000 x 60/100) Delivery Shipping cost (P900 x 260/300) Consignment profit *Sales Less Sales of units with defects (200 x P300) Sales of repaired units Selling price of repaired units Number of repaired units that were sold Units sold without repairs Total number of units sold Unit cost

P 3,000 25,200

28,200 P139,800 P168,000

P84,000 210 3,000 25,200

112,410 P 55,590 P28,000

9. 10.

C B

P5,600 1,600

7,200 P20,800 P24,000 960 P24,960 P28,000 16,000 P12,000

11

12

P5,600 640

6,240 P 5,760 P64,980

13.

P 850 2,000

2,850 P67,380 85% P79,800 52,000* P27,800

P11,970 1,200 850 780 P79,800 60,000 P19,800 P330 60 240 300 x P200

14,800 P13,000

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Cost of sales

P52,000

14

Cost (40 x P200) Repairs (P2,000 x 40/100) Shipping cost (P900 x 40/300) Value of inventory on consignment Remittance Charges: Cartage Advertising Delivery and installation Total Sales

P 8,000 800 120 P 8,920 P54,600 P 600 3,600 2,400

15.

6,600 P61,200 85% P72,000 P72,000

16

Sales Cost and expenses: Cost (6 x P7,200) Freight (P4,800 x 6/10) Cartage (P600 x 6/10) Advertising Delivery and installation Commission (15% x P72,000) Consignment income Remittance Consignee charges, excluding the 15% commission (P4,500 + P3,000 + P750) Sum of remittances and charges Sales price of 6 refrigerators

P43,200 2,880 360 3,600 2,400 10,800

63,240 P 8,760 P68,250 8,250 P76,500 85% P90,000 P90,000 54,000 P36,000

17.

18

Sales Cost of sales (6 x P9000) Gross profit Expenses: Commission (P90,000 x 15%) Freight-out (P6,000 x 6/10) Marketing expense Delivery and installation Cartage (P750 x 6/10) Net profit from the sale of consigned goods P90,000 x 15% = P13,500 Sales collected [(2 x P1,500) + (1 x P1,800 x 25%)] Commission (P3,450 x 15%) Remittance

P13,500 3,600 4,500 3,000 450

25,050 P10,950

19 20

D A

P3,450 720 P2,730

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21

Sales Cost of sales ( 3 x P800) Gross profit Expenses: Trucking (P200 x 3/5) Delivery Commission Profit resulting from consignment Sales Cost (7 x P2,000) Gross profit Expenses: Advertising Commission Freight (P600 x 7/10) Net income on the consignment ( 3 x P2,000) + (P600 x 3/10) = P6,180 Remittance Charges by consignor Cost (P3,840 x 30/48) Freight and handling (P1,000 x 30/48) Freight and handling charged by consignee Net income T-shirts: Cost (P3,840 x 18/48) Freight and handling (P1,000 x 18/48) Baby dresses: Cost (P2,400 x 4/24) Freight and handling (P540 x 4/24) Cost of the inventory in the hands of consignee Sales Cost of sales (P90,000 x 7/10) Gross profit Expenses: Freight (P3,000 x 7/10) Commission Cartage-in (P1,050 x 7/10) Profit on consignment of TV sets

P4,800 2,400 P2,400 P120 170 720

_____ P1,390 P21,000 14,000 P 7,000

22

P1,000 4,200 420

5,620 P 1,380

23 24

C D

P3,750 P2,400 625 75

3,100 P 650

25

P1,440 375 P 400 90

P1,815 490 P2,305 P84,000 63,000 P21,000

26.

P2,100 8,400 735

11,235 P 9,765 P28,215 33,780 P61,995

27.

TV sets (P94,050 x 3/10) DVD sets (P84,450 x 2/5) Cost of inventory in the hands of consignee

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28. 29

A C

P3,375 / 15% = P22,500 / P1,500 Sales (15 x P1,500) Less: Advertising Delivery expense Commission Advances (150 x P900 x 60% x 15/150) Remittance Sales Less Cost (15 x P900) Expenses (P2,250 + P1,125 + P3,375) Consignment profit Sales Less: Cost (P8,400 x 9/12) Freight-out (P720 x 9/12) Delivery Commission Advertising Net income P10,800 P450 P2,160 P500 = P7,690 P9,120 x 3/12 = P2,280 Net income Expenses: Freight (P240 x 6/10) Advertising Commission Gross profit Less Sales Cost of goods sold Cost per unit (P1,200 / 6 units) Unsold units Total cost of unsold units Inventoriable cost freight (P240 x 4/10) Total cost Remittance Charges: Advertising Delivery Total proceeds from sales, net of 20% commission Total sales price of the 7 handbags P120 75

15 units P22,500 P2,250 1,125 3,375 8,100

14,850 P 7,650 P22,500

30

P13,500 6,750

20,250 P 2,250 P10,800

31

P6,300 540 450 2,160 500 P

3,650 850

32. 33 34.

B B C

P 426 P 144 150 480

774 P1,200 2,400 P1,200 P200 x 4 P800 96 P896 P3,165 195 P3,360 80% P4,200 P 900

35

36.

37

Cost (3 x P300)

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Freight (3/10 x P150) Advertising ( 3/10 x P120) Inventory of unsold handbags 38 B Sales Cost of sales (7 x P300) Gross profit Expenses: Freight ( 7/10 x P150) Commission (4,200 x 20%) Advertising ( P120 x 7/10) Delivery Net income on the consignment Sales (80 x P1,500) Charges: Cost of returning defective units Transportation Insurance Commissions (P120,000 x 20%) Reconditioning cost Balance Advances (80 + 10) x P300 Remittance Sales Cost of sales (80 x P500) Gross profit Expenses: Transportation (90/120 x P1,500) Insurance Cost of returning defective units Transportation of consignee (90/120 x P350) Insurance consignee (90/120 x P200) Insurance loss (P500 x 10% x 10) Commission Reconditioning cost Profit on consignment

45 36 P 981 P4,200 2,100 P2,100 P 105 840 84 75

1,104 P 996 P120,000

39.

100 350 200 24,000 150

24,800 P 95,200 27,000 P 68,200 P120,000 40,000 P 80,000

40

P 1,125 900 100 265 150 500 24,000 150

27,190 P 52,810