UNIVERSITY OF SANTO TOMAS

AMV COLLEGE OF ACCOUNTANCY

BASIC FINANCIAL ACCOUNTING AND REPORTING

True/False
Indicate whether the statement is true or false.
____ 1. A seller may grant a buyer a reduction in selling price and this is called a sales
allowance.
____ 2. Discounts taken by the buyer for early payment of an invoice are credited to Sales
Discounts by the buyer.
____ 3. Sellers and buyers are required to record trade discounts.
____ 4. When a large quantity of merchandise is purchased, a reduction allowed on the sale
price is called a trade discount.
____ 5. Freight in is the amount paid by the company to deliver merchandise sold to a customer.
____ 6. The abbreviation FOB stands for Freight On Board.
____ 7. Under the perpetual inventory system, when a sale is made, both the sale and cost of
merchandise sold are recorded.
____ 8. The form of the balance sheet in which assets, liabilities, and owner's equity are
presented in a downward sequence is called the report form.
____ 9. A deduction allowed to wholesalers and retailers from the price of merchandise listed in
catalogs is called cash discounts.
____ 10. Cost of goods sold is the amount that the merchandising company pays for the
merchandise it intends to sell.
____ 11. The effect of a sales return and allowance is a reduction in sales revenue and a
decrease in cash or accounts receivable.
____ 12. In a periodic inventory system, the cost of goods delivered includes the cost of freight-in.
____ 13. Gross profit minus selling expenses equals net income.
____ 14. When merchandise that was sold is returned, a credit to sales returns and allowances is
made.
____ 15. Under the perpetual inventory system, a company purchases merchandise on terms
2/10, n/30. If payment is made within 10 days of the purchase, the entry to record the
payment will include a credit to Cash and a credit to Purchase Discounts.
____ 16. Under the periodic inventory system, the merchandise inventory account continuously
discloses the amount of inventory on hand.
____ 17. If the ownership of merchandise passes to the buyer when the seller delivers the
merchandise for shipment, the terms are stated as FOB destination.
____ 18. Under the periodic inventory system, the cost of merchandise sold is equal to the
beginning merchandise inventory plus the cost of merchandise purchased plus the
ending merchandise inventory.
____ 19. If ending inventory for the year is overstated, owner's equity reported on the balance
sheet at the end of the year is understated.
____ 20. In a perpetual inventory system, when merchandise is returned to the seller, Cost of
Merchandise Sold is debited as part of the transaction.
Problem
A. Nicholas Company provided the following information during the first year of operation:

Collection from customers ​P 4,000,000

Merchandise inventory - ending ​1,400,000
Purchases ​ ​ ​ 7,000,000
All merchandise was marked to sell at 30% above cost. All sales are on a credit basis &
all receivables are collectible.

1. What is the balance of accounts receivable on year-end?

2. How much is the total goods available for sale?

B. The Following Balances pertain to Caliwan Company.

Accounts payable:

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 January 1, 2018 ​ ​ ​P 286,924
December 31, 2018 ​ ​737,824
Inventory balance:

January 1, 2018 ​ ​ ​815,386

December 31, 2018 ​ ​488,874

Cost of goods sold - 2018 ​ ​1,900,000

3. How much was paid by Caliwan Company to its supplier in 2018?

C. Vargas Company provided the following information:

January ​ ​February ​ ​March

Cash sales ​ ​ 720,000 ​ ​800,000 ​ ​1,040,000
Sales on account ​7,200,000 ​ ​7,360,000 ​ ​7,600,000
Inventory at the beginning of each month is 40% of that month’s cost of goods sold. Gross profit rate 20%.

4. What is the amount of Purchases for February?

5. What is the cost of goods sold for March?

D. The following transaction of Apepe Company for the month of June:

June 3 - Purchased merchandise on account from Dave P56,000, term: 2/10, n/30.
June 3 - Sold merchandise to Loj P50,176, term: 2/10, n/30.
June 5 - Received credit from Dave for merchandise returned P2,240.
June 9 - Received collection in full from Loj.
June 10 - Paid Dave in full.
June 24 - Sold merchandise for cash P69,440

6. How much is the end Accounts Payable?

7. How much is the sales discount?
8. How much is the Purchase return & allowances?
9. How much is the Net purchases?
10. How much is the Net sales?

E. The following data are given:

Cash sales ​ ​ ​ ​P 225,000

Merchandise inventory - ending ​ ​170,000
Total goods available for sale ​ ​450,000
Purchases ​ ​ ​ ​395,000
Gross profit rate based on sales ​ ​30%
11. What is the company’s credit sale?
12. How much is the merchandise inventory - beginning?

F. Panganiban Company took a physical inventory at the end of the year & determined that P1,900,000 of goods
were on hand. In addition, the entity determined that P240,000 of goods purchased were in transit shipped FOB
shipping point. The goods were actually received five days after the inventory count. The entity sold P100,000 worth
of inventory FOB shipping point. Such inventory is in transit at year-end.

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 13. What amount should be reported as inventory at year-end?

G. The 2018 operation of Domingo Company resulted in the following:

The Cost of goods sold P2,100,000, Beginning inventory is P400,000 less than the ending inventory, the former being
equivalent to 20% of purchases. Total operating expenses amounted to 40% of gross profit while sales return
amounted to 2% of net sales. Gross profit of company is 30% of net sales.

14. How much is the sale return?

15. How much is the Operating expenses?
16. How much is the net income?

H. The following balances are available:

Total sales (Cash & Credit) `` ​P 750,000

Accounts receivable, Beg ​75,800
Cash received from credit customers (242,500 was received from customers who took advantage of the 3% discount,
P147,000 was received from customers who took advantage of 2% discount) 464,500 Cash received from cash
customers before refund 126,800 Credit memoranda issued to credit customers 18,625
Cash refunds given to cash customers for sales return & allowances 13,180

17. How much is accounts receivable, ending?

18. How much is the total sales discount?
19. How much is the net sales?

I. A sales invoice included the following information: merchandise price, P5,000; freight,P900; terms 1/10, n/eom,
FOB shipping point. Assuming that a credit for merchandise returned of P700 is granted prior to payment and that the
invoice is paid within the discount period,

20. what is the amount of cash that should be received by the seller?

J. A retailer purchases merchandise with a Invoice of P10,500. The retailer receives a 30% trade discount and credit
terms of 2/10, n/30.

21. What amount should the retailer debit to the Merchandise Inventory account?

K. Valix Company uses the Gross method of accounting for cash discount. In one of its transactions on December 20,
2018, Valix Company sold merchandise with an Invoice price of P3,750,000 to a customer who was given a trade
discount of 15% & 10%. Credit terms given by the company were 2/10, n/30. The goods were shipped FOB shipping,
freight prepaid of P75,000. On December 25, 2018, the customer returned damaged goods originally billed at a cost
of P250,000. The customer paid within the discount period & freight . Gross profit rate of the company is 20%.

22. How much is the cash discount?

23. How much cash received from customer?

L. Using the following information:

Purchases ​ ​ ​ ​ ​P32,000 ​
Purchases discounts ​ ​ ​ ​960
Merchandise inventory September 1 ​ ​5,700
Merchandise inventory September 30 ​ ​6,370
Sales returns and allowances ​ ​ ​910
Sales ​ ​ ​ ​ ​ ​63,000

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 Purchases returns and allowances ​ ​1,200
Freight In ​ ​ ​ ​ ​1,040
24. What is the amount of cost of goods sold?
25. What is the amount of Gross profit?

M. 2A8, Inc. is preparing its 2018 year- end financial statement.

Inventory ​P 172,000
Sales ​ ​500,000
Purchases ​300,000
You discovered the following items were excluded from Inventory. Gross profit rate 25%based on cost.

a. Merchandise costing P28,500 which was shipped FOB shipping point to a customer on December 29, 2018. The
goods are scheduled to arrive at the destination point on January 2, 2019. Sale was recorded in 2019

b. Merchandise costing P40,000 shipped by a vendor FOB destination on December 30, 2018 & received by 2A8,
Inc. on January 4, 2019. Purchase recorded in 2018

c. Merchandise Costing 12,500 which was shipped FOB destination to a customer on December 29, 2018. The
customer expected to receive the merchandise on January 6, 2019. Sales recorded in 2018

d. Merchandise costing P31,500 shipped by a vendor FOB shipping point on December 31, 2018 & received by 2A8
on January 5, 2019. Purchases recorded in 2018

e. A P60,000 sales of goods to a customer shipped on December 30, 2018, terms FOB destination, was recorded as
sale in 2018 & customer received the merchandise on December 31, 2018.

26. What is the correct amount of inventory?

27. What is the correct Sales?
28. What is the correct Purchases?

N. Dalimot Company is engage in Buy & Sell of PaPogi products. The following transaction & other information
available are available for the year ended December 31,2018: Gross method

Inventory, January 1, 2018 ​ ​ ​ ​P 200,000

Gross purchases, All under the credit terms 2/10, n/30 ​5,000,000
Purchase returns ​ ​ ​ ​ ​80,000
Gross sales ​ ​ ​ ​ ​ ​7,380,000
Sales allowances ​ ​ ​ ​ ​30,000
Sales return ​ ​ ​ ​ ​ ​180,000
At December 31, 2018, Purchases costing P100,000 were in transit, FOB-shipping point & 40% gross profit rate
based on sales.

29. What is the value of inventory?

30. What is the Gross profit?
31. What is the Cost of goods sold?

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