Chapter 07

Chapter 7
REVENUE RECOGNITION –
LONG-TERM CONSTRUCTION;
CONSIGNMENTS; FRANCHISE FEE
PROBLEM 7-1
(1)
ACCOUNT SALES
Sales for the Account of Wilson Publishing Company
Sold By
Cora Book Store
Dec. 8- Sold: 60 sets Management Encyclopedia @ P4,950 each P297,000

31
On hand: 40 sets
Charges:
Cartage in P300
Commission (30 % of sales) 89,100 89,400
Remittance enclosed P207,600
(2)
(a) December 8 (b) December 8
Memorandum Memorandum
Received 100 sets Management Encyclopedia from Received 100 sets Management Encyclopedia from
Wilson Publishing Co. on consignment, to be sold Wilson Publishing Co. on consignment, to be sold
at P4, 950 each. Commission allowed is 30 %. at P4, 950 each. Commission allowed is 30%.
Reimbursement to be allowed for costs of cartage. Reimbursement to be allowed for costs of cartage.
8 8
Consignment In - Wilson Wilson Publishing Co. 300
Publishing co. 300 Cash 300
Cash 300
8-31
8-31 Cash 297,000
Cash 297,000 Sales 297,000
Consignment In-
Wilson
Publishing Co. 297,000 Purchases 207,900
Sales: 60 sets at P4,950 Wilson Publishing co. 207,900
Cost: 60 sets at P3465.00
31 (P4,950 less 30 % commission)
Consignment In- Wilson
Publishing Co. 89,100 31
Commission on Con- Wilson Publishing Co. 207,600
signment Sales 89,100 Cash 207,600
31
Consignment In Wilson
Publishing co. 207,600
Cash 207,600
117
PROBLEM 7-2
(1)
ACCOUNT SALES
Sales for the Account of Television, Inc.
Sold By
Buena Bros.
Date Explanation Amount

October 1- Sold: 6 television sets @ P1,700 P10,200
Dec. 31, 20x7 Returned : 2 sets
On hand: 2 sets
Charges:
Delivery and installment charges P275
Freight charges on defective sets returned 40
Commissions (25 % 0f P 10,200) 2,550
Advance applicable against sales and returns,
8 sets at 500 4,000 6,865
Remittance enclosed P3,335
(2)
(a) Received 10 television sets from Television, (b) Received 10 television from Television, Inc. on
Inc. on consignment, sets to be sold at P1, 700 consignment, sets to be sold at P1, 700 each.
each. Commission allowed is 25%. Commission allowed is 25 %. Reimbursement to
Reimbursement to be allowed for expenses. P 500 be allowed for expenses. P 500 advance payment
advance payment to be made on each set received. to be made on each set received.
Advance to 5,000 Advance to Television, Inc. 5,000

Television,Inc
Cash 5,000 Cash 5,000
Advance: 10 sets at P100
Television, Inc. 275
Consignment In- Cash 275
Televisions, Inc. 275
Cash 275 Television, Inc. 40
Cash 40
Consignment In
Television, Inc. 40 Cash 10,200
Cash 40 Sales 10,00
Cash 10,200 Purchases 7,650

Consignment In Television, Inc. 7,650
Television, Inc. 10,200 Cost: 6 sets at P1,275
Sales: 6 sets at P1,700 (P1, 700 less 25%, P425).
Consignment In- Television, Inc. 7,335

Television, Inc. 2,550 Advance to Television,
Commission on Inc. 4,000
Consignment Sales 2,550 Cash 3,335
Commission: 25% of
P10,200
Consignment In -
Television, Inc. 7,335
Advance to
Television,
Inc. 4,000
Cash 3,335
(3)
118
(a)
Consignment Out - Buena Bros. 9,000
Finished Goods 9,000
Shipment: 10 sets at P900

Cash 1,650
Cash 5,000
Advance from Buena Bros. 5,000

Cash 3,335
Consignment Out- Buena Bros. 10,200
Consignment Out- Buena Bros. 615

Consignment Profit and Loss 615
Calculation of Profit: Charge Analysis

Total (8 sets) Sales (6 sets ) Inventory (2 sets)
Charges by consignor:
Cost of consigned goods (P900/set) P7,200 P5,400 P1,800
Freight charges (P165 /set) 1,650 1,320 * 330
Charges by consignee:
Freight on returns 40 40 *
Delivery and installations 275 275
Commissions 2,550 2,550
P11,715 P9,585 P2,130
*Note: Freight on 2 sets returned charged against sales of period.

Balance required in consignment out account report inventory cost P2,130
Balance in consignment out account before adjustment for profit 1,515
Required charge to consignment out account- profit on consignment sales P615
(b)
Merchandise on Consignment 9,000
Freight Out 1,650

Cash 1,650
Cash 5,000

Cash
3,335
Freight Charges on Returns 40
Delivery and Installation 275
Commissions 2,550
Sales 10,200
Cost of Goods Sold 5,400

Merchandise on Consignment 330

Freight Out 330
119
PROBLEM 7-3
(1)
July 7, 20x7 12-31
Memorandum Cash 750
Received 10 radios from Accounts Receivable 750
Duran Corporation on
consignment. 31
Reimbursement to be
allowed for freight and Duran Corporation 60
transportation charges. Cash 60
Charge of P280 to be made
for each radio sold.
7 August 31
Duran Corporation 210 Accounts Receivable 1,110
Cash 210 Sales 1,110
Purchases 840
Duran Corporation 840
12-31
Accounts Receivable 1,600 Cash 600
Sales 1,600 Accounts Receivable 600
31
Purchases 1,120 Duran Corporation 330
Duran Corporation 1,120 Cash 330
(2)
July 3, 20x7
Consignment Out - Victory Electric Store 1,960
Merchandise Inventory – Radios 1,960
31
Cash 60
Accounts Receivable - Victory Electric Store 850
Consignment Out - Victory Electric Store 210
Consignment Out- Victory Electric Store 1,120
31

Total Sales (4 units) Inventory (6
Units)
Cost of consigned goods (P196 per unit) P1,960 P784 P1,176
Freight in 150 50 90
Cartage in 50 24 36
P2,170 P868 P1,302
Balance required in consignment out account to report inventory cost P1,302

Required charge to consignment out account - profit on consignment sales P252
Proof of consignor’s profit:

Consignment Sales P840
Charges relating to consignment sales 651
Profit P189
120
Consignment Sales P1,120
Charges relating to consignment sales 868
Profit P252
August 31,
Cash 330
Accounts Receivable – Victory Electric Store 510
31
units)
Cost of consigned goods (P196 per unit) P1,176 P688 P588
Freight in 90 45 45
Cartage in 36 18 18
P1,302 P651 P651
Balance required in consignment out account to report inventory cost P651

Balance in consignment out account before adjustment for profit 462
Required charge to consignment out account - profit on consignment sales P189
PROBLEM 7-4
(1)
ACCOUNT SALES
Sales for the account of Aristocrat Sales Co.
Sold by
Ruben E. Jocson
Date Explanation Amount

Dec.1-31 Sold: 80 electric lamps @ 40 each P51,200
On hand: 20 electric lamps
Charges:
Advertising (P150 incurred but reimbursement
limited
to P100) 100
Commission (25 % of sales) 12,800 12,900
Balance 38,300
Accepted sight draft by Aristocrat Sales Co. 8,000
Remittance enclosed 30,300 38,300
Balance due 0
(a) Received 100 electric lamps from Aristocrat (b) Received 100 electric lamps from Aristocrat
Sales Co. on consignment, to be sold at 640 each. Sales Co. on consignment, to be sold at P640 each.
Commission allowed is 25 % plus an allowance for Commission allowed is 25% plus an allowance for
advertising not to exceed P 100. advertising not to exceed P100.
(a) continued (b) continued

Consignment In Aristocrat Sales Co. 100
Aristocrat Sales co. 100 Advertising Expense 350
Advertising Expense on Cash 450
Consignment Sales 350
Cash 450 Cash 51,200
Sales 51,200
121
Cash 51,200 Purchases 38,400
Consignment In- Aristocrat Sales Co. 38,400
Aristocrat Sales Co 51,200 Cost: 80 lamps at 480, P640
Sales: 80 lamps at P640. less 25 % or P 160.
Consignment In 31
Aristocrat Sales Co. 12,800 Aristocrat Sales Co. 30,300
Commission on Cash 30,300
Consignment Sales 12,800
Consignment In-
Aristocrat Sales Co. 30,300
Cash 30,300
(3)
Consignment Out - Ruben E. Jocson 40,800
Merchandise Shipments on Consignment 40,800
Consignment Out - Ruben E. Jocson 500

Cash 500
Cash 8,000
Advance from Ruben E. Jocson 8,000
Acceptance of sight draft by consignee.
31
Cash 30,300
Consignment Out- Ruben E. Jocson 12,900
Receipt of cash from consignee, P940, and statement of charges 51,200
made
against account of consignor, P980.
Consignment Out - Ruben E. Jocson 5,260

Consignment Profit and Loss 5,260
Charge Analysis
units)
Cost of consigned goods(P408 /lamp) 40,800 32,640 8,160
Freight 500 400 100
Advertising 100 100
Commissions 12,800 12,800
P54,200 P45,940 P8,260
Balance required in consignment out account to report inventory cost 8,260 (dr.)
Balance in consignment out account before adjustment for profit 3,000 (cr.)
Required charge to consignment out account- profit on consignment sales P5,260 (dr.)

Consignment sales P51,200
Charges relating to consignment sales 45,940
Profit P5,260
December 1 -31Memorandum
Shipped 100 electric shavers to Ruben E. Jocson on consignment, to be sold at 640 each.
Consignee is to be allowed commission of 25 %, plus an allowance for advertising not to exceed P100.
Freight Out 50
Cash 50
122
Cash 8,000
December 31
Cash 30,300
Advertising Expense 100
Commissions 12,800
Sales 51,200
31
Merchandise on Consignment (Merchandise cost and deferred
freight) 8,260
Profit and Loss 8,160
Freight Out 100
PROBLEM 7-5
(a)
June 3
Memorandum
Received 25 dryer sets from Lee Sales Co. on consignment, to be sold at P200 each. Commission
allowed is 25%. Reimbursement to be allowed for cost of cartage and P10 for delivery and installation of
each set
Consignment In- Lee Sales Co. 50

Cartage In 50
Cartage chargeable to consignor.
June 3 - 30
Accounts Receivable (Consignment) 1,600
Consignment In- Lee Sales Co. 1,600
Sales: 8 sets at P200, or P1, 600.
Cash 780
Accounts Receivable (Consignment) 780
Consignment In - Lee Sales Co. 80

Deliveries and Installation Expense 80
Deliveries and Installation costs chargeable to consignee.
30
Commission on Consignment Sales 400
Commissions: 25% of P1, 600, or P 400.
Memorandum
Returned two defective radio sets received on consignment
from Lee Sales Co.

Cash 250
(b)
June 1
Consignment Out -A.M. Fidel 2,500
Merchandise Shipments on Consignment 2,500
Shipment 25 sets at cost of P100 or P2, 500.
123
Consignment Out- A. M. Fidel 75
Freight Out 75
30
Merchandise Shipments on Consignment 200
Consignment Out- A. M. Fidel 200
Shipment return: 2 sets at P100 (cost), or P200.
Cash 250
Accounts Receivable - A.M. Fidel 820
Consignment Out - A. M. Fidel 530
Consignment Out 1,600
Receipts of account sales, reporting: sales, P1, 600; charges
made against consignor, P530.
30
Consignment Out - A.M. Fidel 270

Total Sales (8 sets) Inventory (15
sets)
Cost of consigned goods (P100 per set) P2,300 P800 P1,500
Freight Out (P3 per set) 75 30* 45
Cartage In (P2 per set) 50 20* 30
Delivery and installation 80 80
Commissions 400 400
P2,905 P1,330 P1,575
* Note: Freight and cartage on sets returned are charged against sales of the period.
Balance required in consignment out account to report inventory cost P1,575

Required charge to consignment out account- profit on consignment sales P270
Consignment sales P1,600
Charges relating to consignment sales 1,330
Profit P270
PROBLEM 7-6
(1)
December 31
Sales 10,000 Mdse. on Consignment
Receivable-Consignees 10,000 (Prepaid Expenses on
Units unsold, having been Consignment Inventory) 260
recognized as sales: Operating Expenses 260
2,000 at P5, or P10, 000.
Sales 226,000
Mdse. On Consignment 6,500 Cost of Goods Sold 158,500
Cost of Goods sold 6,500 Operating Expenses 36,815
Cost of unsold units: Profit and Loss 30,685
2,000 at P3.25, or P6,500
Operating Expenses 275 Retained Earnings 30,685
Mdse. on Consignment
(Prepaid Expenses on
Consignment Inventory) 125
Receivables- Consignees 400
124
(2)
MATHAY SALES CO.
Balance Sheet
December 31, 20x7
Assets
Current Assets:
Cash P18,000
Receivables- customers 24,000
Receivables- consignees 7,800
Inventories:
Merchandise on hand P46,500
Merchandise on consignment (including prepaid expenses of 6,885 53,385
P385)
Total current assets P103,185
Plant and equipment (net) 50,000
Total assets P153,185
Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P25,000
Stockholders’ Equity
Capital Stock, P1 par P50,000
Retained earnings:
Balance, Jan.1, 20x7 P47,500
Add net income for year 30,685 78,185
Total stockholders’ equity 128,185
Total liabilities and stockholders’ equity P153,185
MATHAY SALES CO.

Income Statement
For the Year Ended December 31, 20x7
Sales P226,000
Cost of goods sold 158,500
Gross profit on sales 67,500
Operating expenses 36,815
Net income P30,685
PROBLEM 7-7
(1)
(Consignee A) Sales 450
Cash 255 Accounts Receivable 450
Operating Expenses 45 Units unsold, previously
Accounts Receivable 300 recognized as sales:
Remittance for 10 sets at 15 at P30, or P450.
P30, or P300, less charges,
P45 Mdse. on Consignment 240
Cost of Goods Sold 240
Units unsold and in hands of
Sales 150 consignee: 15 at P16.
Accounts Receivable 150 (cost), or P240.
Units unsold, previously
recognized as sales: Mdse. on Consignment 85
5 at P30, or P150. (Prepaid Expenses)
Operating Expenses 85
Merchandise in Transit 80 Expenses on consignor’s
Cost of Good Sold 80 books relating to consigned
Merchandise returned (in goods, P85.
transit): 5 units at P16 (cost)
125
(Consignee B) (Consignee C)
Cash 670 Operating Expenses 48
Mdse. on Consignment 30 Accounts Receivable 30
(Prepaid Expenses) Accounts Payable 18
Operating Expenses 50 Account Sales: sales, on set
Accounts Receivable 750 at P30; charges,P48; amount
Remittance for 25 sets at P30, or Owed to consignee, P18.
P750, less charges, P80.
Sales 120
Expenses, P80, apportioned: Accounts receivable 120
To unsold sets, 15/40 x P80, Units unsold, previously
or P30. Recognized as sales: 4 at P30
To sets sold, 25/40 x P80, or Or P120.
P50
Merchandise in Transit 64
Cost of Goods Sold 64
Mdse. returned (in transit):
4 units at P16.
Closing Entries
Sales 364,280 Profit and Loss 107,356
Cost of Goods Sold 212,866 Retained Earnings 107,356
Operating Expenses 44,058
(2)
THE MOSO CO.

Balance Sheet
December 31, 20x7
Assets
Current assets:
Cash P58,675
Accounts receivable 48,200
Inventories:
Merchandise on hand P56,000
Merchandise in transit 144
Merchandise on consignment (including prepaid expenses of P115) 355 56,499
Total current assets P163,374
Plant and Equipment 85,000
Total assets P248,374

Liabilities
Current liabilities:
Accounts Payable P12,518
Stockholders’ Equity
Capital stock, P100 par P100,000
Retained earnings:
Balance, January 1, 20x7 P28,500
Add net income for year 107,356 135,856
Total stockholders equity 235,856
Total liabilities and stockholders’ equity P248,374
126
THE MOSO CO.
Income Statement
For the Year Ended December 31, 20x7
Sales P364,280
Cost of goods sold 212,866
Gross profit on sales P151,414
Operating expenses 44,058
Net income before income taxes P107,356
PROBLEM 7-8
(1)
ROLLY SALES COMPANY
Computation of Inventory
Computation of Inventory, December 31, 20x7 and 20x6
Number of Units
Open Acct. Total Cost Amount
Consignment
(a) Inventory, Dec. 31,20x7 814 23 837 P130 P 108,810
Units, sold, 20x7 3,008 2,826 * 5,834
3.822 2,849 6,671
Shipment to consignees, 2.142 ( 2,142)
20x7
5,964 707 6,671
Purchases, 20x7 (4,454 ) ( 4,454 )
(b) Inventory, Dec. 31, 20x6 1,510 707 2,214 P130 P 228,210
* 716,500 / 250 = 2,826 units.
PROBLEM 7-8, Concluded

(2)
Work Sheet Entries to Correct the Financial Statements as of December 31, 20x6
Sales 176,750
Accounts Receivable 176,750
To correct accounts for consignment shipments recorded as sales
707
units at P250, or P176, 750.
Inventory 91,910
To correct accounts for goods on hand reported as cost of
consignment sales, 707 units at P130, or P91, and 910.
Income Taxes Payable, 20x6 25,452

Income Taxed, 20x6 25,452
To correct accounts for overstatement of taxes in recognizing
consignment shipments as sales, 30% (P176,750-91,910), or
P25,452
(3)
Journal Entries to Correct the Accounts as of December 31, 20x7
Claim for Refund of Income Taxes - 20x6 25,452
Retained Earnings 59,388
Sales 176,750
To correct accounts in 20x7 for errors resulting form recognition of
consignment shipments as sales of 20x6.
Sales 5,750
To correct accounts for consignment shipments recorded as sales,
23 units at P250, or P5, and 750.
127
Inventory 2,990
To correct accounts for goods on hand reported as cost of
consignment sales, 23 units at P130, or P2,990.
Income Taxes 26,280

Income Taxes Payable 26,280
To correct income taxes as a result of adjustments to net income for
20x6 and 20x7:
30% ([P176, 750 - P91, 910 + P5, 750 - P2, 990]), or P26, 280.
PROBLEM 7-9
Correcting entry to bring accounts with A up to date:

Consignment Commissions 2,925.00
Freight on Consignment Shipments 84.50
Prepaid Expenses on Consigned Merchandise 45.52
Consignment Sales 300.00
A 3,355.00
Development of correcting entry:

Accounts Sales - A
Sales- 65 stoves @ 180 P11,700
Charges: Commissions, 25% (65 stoves) P2,925
Freight paid (100 stoves) 130 3,055
Amount owed P8,645
Total remitted 9,395
Balance- charge against Star Company P750
Entry that should have been made for transactions of A on the books of consignor:
Cash 9,395.00
Consignment Commission 2,925.00
Consignment Sales 11,700.00
A 750.00
Freight on consignment shipments:
65/100 x P130, or P84.50
Deferred expense on consigned shipments:
35/100 x P130, or P45.50
Net effect on entries already made with A for transfer of merchandise and remittance:
Cash 9,395.00
A 2,605.00
Correcting entry to bring accounts with B up to date:

Consignment Commissions 675.00
B 2,875.00
Development of correcting entry:

Sales - 15 stoves @ P180 P2,700
Charges: Commission 25% (15 stoves) P675
Freight paid (40 stoves) 100 775
Amount owed P1,925
Total remitted 575
Balance- Amount owed Star Company P1,350
128
Entry that should have been made for transactions of B on the books of consignor:
Cash 575.00
Consignment Commissions 675.00
B 1,350.00
Effect of entries already made with B for transfer of merchandise and remittance:
Cash 575.00
B 4,225.00
STAR COMPANY
Work Sheet
December 31, 20x7
Corrected
Entries per Books Corrections and Adjustment Account Balances
Dr. Cr. Dr. Cr. Dr. Cr.
Cash (d) 9,970 (c ) 84 9,886
A (a) 12,000 (d) 9,395 (e) 3,355 750
B (a) 4,800 (d) 575 (f) 2,875 1,350
Merchandise (b) 14,000 14,000
Merchandise on Consignment (h) 6,000.00
Prepaid Expenses on (e) 45.50
Consigned Merchandise (f) 62.50
(g) 36.00 144
Consignment Sales (a) 16,800 (e) 300.00 14,400
(f) 2,100.00
Cost of Consignment Sales (b) 14,000 (h) 6,000 8,000
Consignment Crating and
Shipping (c ) 84 (g) 36 48
Freight on Consignment (e) 84.50 122
Shipments (f) 37.50
Consignment Commission (e) 2,925.00 3,600
(f) 675.00
40,854 40,854 12,266 12,266 29,150 29,150
Legend:
Entries during period:
a) To record shipments to consignees: A, 100 stoves @ P1120; B, 40 stoves @ P120.
b) To record cost of goods shipped to consignees: 140 stoves @ P100 (120/1.20).
c) To record crating and shipping cost.
d) To record cash remittances: A, P9, 395; b, P575.
Corrections and adjustments at end of period.
a) To bring accounts summarizing consignment sales of A up to date (see account sales and
accompanying entries).
b) To bring accounts summarizing consignment sales of B up to date (see account sales and
accompanying entries).
c) To record consignment crating and shipping expense deferred, 60 sets x P.60 (P84/140), or
P36.
d) To record inventory in hands of consignees, 60 set @ P100.
129
PROBLEM 7-10
(1)
June 1, 20x7
Consignment Out - Burgos Co. 200,000
Merchandise Shipments on consignment 200,000
To record shipment of P100 refrigerators at P2,000 each
Consignment Out - Burgos co. 4,000

Cash 4,000
To record freight paid on shipment.
Cash 7,500
Consignment Out - Burgos Company 200
Deposit on Consignment Sales 7,700
To record the payment of truckage by consignee and the
receipt
of deposit from him
Cash 125,200
Consignment Out - Burgos Company 30,000
Accounts Receivable - Burgos Company 128,000
To record remittance received from Burgos Company:
Cash sales, 20 refrigerators atP4,560 (4,800 less 5%) 91,200
Time payment sales, 40 refrigerators at P4,800 192,000
Total sales in June 283,200
Charges: Commissions, 60 refrigerators at P500, or
P30,000
Time payments receivable 40 refrigerators
at P3,200 (4,800 -1,600) 158,000
128,000
Remittance 125,200
July 31, 20x7

Cash 5,000
August 31, 20x7

Cash 5,000
September 30, 20x7

Cash 5,000
October 31, 20x7

Cash 3,750
November 30, 20x7

Cash 3,750
Repossession Merchandise 24,864

Cash 10,000
Gain on Repossession 9,194
Valuation of repossessed merchandise:
130
Original cost, 10 refrigerators at P2,000 or P20,000
Add: Freight and truckage, 10 refrigerators at P42 (4,200/100) 420
Total cost of repossessed merchandise P20,420
Sales value, new merchandise P28,000
Less commissions 5,000
Net sales value P23,000
Cost percentage, 20,420

= 88.8 %
23,000
Resale value of repossessed merchandise, 10 at P2, 800, or P28, 000.
Therefore, value assigned to repossessed merchandise is 88.8% of P28, 000, or P24, 864 (including
inward freight and reconditioning cost).
Accounts receivable is credited for P28, 250 representing the uncollected balance on 10 refrigerators sold
on time plan and in default.
Consignment Out is debited for P22, 580 (P48, 000 -25,420, and representing gross profit on the sale of
10 refrigerators unrealized due to default).
Cash 3,750
Cash 81,200
To record sale of 20 refrigerators at P4,560 (4,800 less 5%), or
P91,200, less commission of P10,000 (20 refrigerators at 500)

Consignment Profit and Loss 113,884.38
Deferred Gross Profit on Consignment Sale- Time Payment 34,575.62
Plan.

units)
Cost of consigned goods
(100 at P2,000) 200,000 160,000 40,000
Freight Out 4,000 3,200 800
Charges by Consignee:
Truckage 200 160 40
Commission 40,000 40,000
244,200 203,360 40,840
Balance required in consignment out account to report inventory cost P40,840 (Dr.)
Balance in consignment out account before adjustment for profit 107,620 (Cr.)
Required charge to consignment out balance- profit on consignment P148,460 (Dr.)
Proof of consignor’s profit: Cash Sales Time Payment Total

Sales
(40 sets) (40 sets) (80 sets)
Consignment sales 182,400 192,000 374,400
Less cost of consignment sales 101,680 101,680 203,360
Gross profit on consignment sales 80,720 90,320 171,040
Less unrealized profit on defaulted
contracts
10/40 x 90,320 = 22,580 22,580 22,580
Profit on consignment sales P80,720 67,740 148,460
Calculation of deferred gross profit:
131
Total sales on time payment plan (exclude 10 in default)
30 refrigerators at P4,800 144,000
Collections:
Down payment - 30 at P 1,600 P48,000
Monthly payment - 30 at P750 (P50 per month for 6 months on 22,500 70,500
each refrigerator)
Uncollected balance 73,500
Deferred Gross Profit: 73,500/144,000 x P67, 740 = P 34,575.62
December 31, 20x7

Cash deposit refunded to consignee:
Original deposit 7,700
Less - Unsold merchandise at P4,800 (20) 96,000
Uncollected installments 73,500 22,500
(P15,200)
There is no excess deposit
(2)
(a) Consignment Out:
Debits:
Cost of 100 refrigerators at P2,000 each 200,000
Freight Out 4,000
Truckage paid by Burgos Company 200
Commissions - 80 refrigerators at P500. 40,000
Profit on cash and time payment sales 148,460
Cancellation of unrealized profit on repossession 22,580 415,240
Credits:
Sales by Burgos Company
40 refrigerators at P 4,560 net, cash 182,400
40 refrigerators, balance 192,000 374,400
Cost and freight of 20 units unsold P40,840
(b) Repossessed refrigerators:
Repossessed refrigerators, 10, valued at “computed
market,”
2,846.40 per refrigerator, balance P24,864
(c ) Cash:
Receipts- Burgos Company deposit P7,500
Remittance- June 125,200
Cash Collections (July to December)
(including December cash sale) 81,200 213,900
Disbursements:
Freight Out P4,000
Inward freight and reconditioning cost on repossessions, 10,000 14,000
Balance of cash on hand relating to consignment sales P199,900
(d)Accounts Receivable - Burgos Company:

Balance of time payment sales after down payment,
40 refrigerators at P3,200 P128,000
Deduct - Cash Collections - July to December P22,500
Cancellation of uncollected balance on
repossessed refrigerators 28,250 50,750
Balance 77,250
(e) Profit realized (Consignment Profit and Loss):

Profit realized on cash sales:
132
Total cash sales, 40 at P4,560 182,400
Less cost of sales, 40 at 2,542 101,680
Realized profit on cash sales P80,720
Profit realized on time payment sales:
Total time payment sales, 40 refrigerators at P4,800 192,000
Less default sales, P10 at 4,800 48,000
Net time payment sales P144,000
Less- cost of sales, 50 at P2,542 76,260
Total profit on time payment sales, 67,740
Collections on time payment sales, P70,500
Realized profit on time payment sales,
70,500/144,000 x P67,740 33,164.38
Total profit realized P113,884.38
(f) Profit not realized:

Balance of time- payment accounts receivable, P73, 500.
Profit not realized, P73,500/144,000 x 67,740, or P34,575.63
(g) Gain on defaults:

Value of merchandise repossessed, before conditioning 14,864
Add profits on merchandise not realized 2,580 17,444
Deduct balance on accounts receivable on default of P10
Refrigerators. 28,250
Gain on default 19,194
PROBLEM 7-11
(1)
Account Sales- Halo Baking Co.

Burners received 18
Sold 13
Returned 2 15
On hand 3
Sales, 13 at P185 P2,405.00

Less: Freight P36.00
Commissions 601.25 637.25
Remittance enclosed P1,767.75
Account Sales - Lory Bakery co.
Burners received 6
Sold 3
Returned 1 4
On hand 2
Sales, 3 at P250 750.00

Less: Freight P18.00
Remittance enclosed P544.50
Account Sales - Quad Baking Shop

Burners received 12
Sold 9
On hand 3
Sales, 9 at P200 P1,800.00

Less: Charge for repairs P6.00
Remittance enclosed P1,344.00
133
(2)
WEST COMPANY
Worksheet
For Year Ended September 30, 20x7
Trial Balance Corrections Profit and Loss Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash 58,910 (d) 3,656.25 55,253.75
Accounts Receivable 241,964 (d) 3,656.25 (a) 7,200.00
(e) 200.00 (b) 104.00 241,722.50
(f) 3,656.25 (c) 450.00
Finished Burners and
Related Parts 21,200 (g) 1,128.00 22,328.00
Work in Process,
Material & Supplies 42,271 42,271.00
Prepaid Expenses 3,007 3,007.00
Plant 228,762 228,762.00
Accounts Payable 31,742 31,742.00
Accrued Liabilities 138,798 (c) 450.00 641,702 138,348.00
Capital Stock 100,000 100,000.00
Retained Earnings 18,978 18,978.00
Sales 643,947 (a) 7,200.00 (f) 4,955.00
Sales Ret. & Allowances 2,648 (e) 200.00
Manufacturing (b) 104.00 2,448.00
129,384 (f) 60.00 (g) 1,128.00 128,420.00
Selling Expenses 139,637 (f) 1,238.75 140,875.75
Administrative Expenses 89,423 89,423.00
Allowance for Bad Debts 9,398 9,398
Allow. For Depreciation 27,632 27,632.00
Non Operating Income 318 318
Non Operating Expenses 3,607 3,607.00
Provision for Income Tax 10,000 10,000.00
970,813 970,813 17,693.25 17,693.25 374,773.75 642,020 593,344.25 326,098.00
Net Income after income 267,246.25 267,246.25
taxes 642,020 642,020 593,344.25 593,344.25
Correcting Entries:
(a) Sales 7,200.00
Accounts Receivable 7,200.00
To reverse entry recording consignments as sales:
Halo, P3, 600; Lory; P1, 200; and Quad, P2, 400.
(b) Manufacturing 104.00

Accounts Receivable 104.00
To charge transportation, freight, and repair charges to manufacturing
instead of accounts receivable: Halo, P40; Lory, P28; and Quad, P36.
(c) Accrued Liabilities 450.00

Accounts Receivable 450.00
To reverse accrued commissions as recorded in account with Quad.
(d)Accounts Receivable 3,656.25

Cash 3,656.25
To reverse entry recording receipt of cash:Halo, P1,767.75;Lory,
P544.50; and Quad, P1,344.00
(e) Accounts Receivable 200.00

Sales returns and allowances 200.00
To reverse entry recording returns from Lory as sales returns and
allows.
(f) Accounts Receivable 3,656.25

Manufacturing 60.00
Selling Expense 1,238.75
134
Sales 4,955.00
To record consignment sales per account sales, summarized as follows:
Halo Lory Quad Total
Sales P2,405.00 P750.00 P1,800.00 P4,955.00
Charges 36.00 18.00 6.00 60.00
P2,369.00 P732.00 P1,794.00 P4,895.00
Commissions 601.25 187.50 450.00 1,238.75
Amount due* P1,767.75 P544.50 P1,344.00 P3,656.25
* Cash not received until October.
Finished Burners and Related Parts 1,128.00
Manufacturing 1,128.00
To set up inventory of burners on consignment and in transit:
Halo, 5 at P102 P 510
Lory, 3 at P103 309
Quad, 3 at P103 309
P1, 128
(3)
WEST COMPANY
Balance Sheet
September 30, 20x7
Assets
Current assets:
Cash P55,253.75
Accounts receivable P241,722.50
Less allowance for bad debts 9,398.00 232,324.50
Finished burners and related parts 22,328.00
Work in process, materials, and supplies 42,271.00
Prepaid expense 3,007.00
Total current assets P355,184.25
Plant P228,762.00
Less allowance for depreciation 27,632.00 201,130.00
Total assets P556,314.25

Current Liabilities:
Accounts payable P31,742.00
Accrued liabilities 138,348.00
P170,090.00
Stockholders’ Equity:
Capital Stock P100,000.00
Retained Earnings:
October 1, 20x6 18,978.00
Add net income for year 267,246.25 286,224.25 386,224.25
Total liabilities and stockholders’ equity P556,314.25
(4)
WEST COMPANY
Income Statement
For Year Ended September 30, 20x7
Sales P641,702.00
Less Sales returns and allowances 2,448.00
Net Sales P639,254.00
Cost of goods sold (manufacturing) 128,420.00
Gross profit on sales P510,834.00
Less expenses:
Selling expenses P140,875.75
135
Administrative expenses 89,423.00 230,298.75
P280,535.25
Add non- operating income 318.00
P280,853.25
Deduct non operating expense 3,607.00
P277,246.25
Deduct provision for income taxes 10,000.00
Net income after income taxes P267,246.25
PROBLEM 7-12
Sales 45,000
To reverse entry recording shipment.
Merchandise on consignment 4,400
Merchandise Inventory 20,000
Consignment Profit and Loss 14,800
Cost of Sales 20,000
Freight Out 1,000
To take up consignment profit and adjust the accounts.
(See schedule to allocate costs and expenses)
Total Unsold Sold

Cost 20,000 4,000 16,000
Expenses:
Freight 1,000/10, or P100 per unit 1,000 200 800
Advertising P100 per unit 1,000 200 800
Commission 10% of selling price 3,600 3,600
Total 25,600 4,400 21,200
Sales 36,000
Profit 14,800
PROBLEM 7-13
Explanation and Accounts Consignor’s Books Consignee’s Books

Debit Credit Debit Credit
(a) To record shipment of 15 pianos
on consignment: inventory cost
P6, 800 to sell at P9, 500 each.
Consignment- Out (B) 102,000 Memo only: Receive
Inventory 102,000 15 pianos to sell at P9, 500
each.
(b) To record freight, crating and
insurance on shipment.
Consignment -Out (B) 1,300
Cash 1,300
(c ) To record drayage paid by B.

Consignment -In 1,225
Cash 1,225
(d) To record sale of 5 pianos on

account:
Cash 4,000
Consignment- In 47,500
136
(e) To record advertising paid by B
Consignment- In 350
Advertising Expense 150
Cash 500
(f) To record cash sales of 8 pianos.

Cash 76,000
(g) To record total commissions earned:

Commission Income 18,525
To record remittance and account sales:

Consignment Accounts Receivable 43,500
Cash 59,900
Consignment - Out (B) 20,100
To record consignment profit. (Please see

Schedule). 14,037
Consignment- Out (B) 14,037
Consignment Profit and Loss
Consignment - In 103,400
Cash 59,900
This entry is optional.
(b)
Account Sales
Sold for the account of
Consignor A
By Consignor B
On Hand 2 pianos
Sold 13 pianos P 123,500
Expenses:
Drayage 1,225
Advertising 350
Commission (15%) 18,525 20,100
Net 103,400
Remittance P 59,500
Schedule showing computation of

Consignment Profit:
Total Sold Unsold
Cost 102,000 88,400 13,600
Expenses:
Freight and drayage 2,525 2,188 337
Advertising 350 350
Commission 18,525 18,525
Total 123,400 109,463 13,937
137
Sales 123,500
Profit 14,037
PROBLEM 7-14
(1) Schedule showing consignment profit.

Sold Unsold
Sales 36,000
Cost 90% of P25,000 22,500 2,500
Gross Profit 13,500
Expenses:
Expenses paid by Consignee (90% of 2,000) 1,800 200
Commission (20% of 20,000) 4,000
Sales discount 400
Total 6,200 2,700
Profit 7,300
(2) Miranda Sales Balance Sheet will reflect under current assets caption:
Inventories:
On Consignment P2,700
Under current liabilities caption:
Advances from Consignee: P10,000
138

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Chapter 07

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Chapter 7

Dec. 8- Sold: 60 sets Management Encyclopedia @ P4,950 each P297,000

Date Explanation Amount

Advance to 5,000 Advance to Television, Inc. 5,000

Cash 10,200 Purchases 7,650

Consignment In- Television, Inc. 7,335

Consignment Out - Buena Bros. 1,650

Finished Goods 1,800

Consignment Out- Buena Bros. 615

Calculation of Profit: Charge Analysis

*Note: Freight on 2 sets returned charged against sales of period.

Freight Out 1,650

Finished Goods 1,800

Cost of Goods Sold 5,400

Merchandise on Consignment 330

Calculation of Profit: Charge Analysis

Balance required in consignment out account to report inventory cost P1,302

Proof of consignor’s profit:

Balance required in consignment out account to report inventory cost P651

Date Explanation Amount

(a) continued (b) continued

Consignment Out - Ruben E. Jocson 500

Consignment Out - Ruben E. Jocson 5,260

Proof of consignor’s profit:

Consignment In- Lee Sales Co. 50

Consignment In - Lee Sales Co. 80

Consignment In - Lee Sales Co. 250

Calculation of Profit: Charge Analysis

Balance required in consignment out account to report inventory cost P1,575

Liabilities and Stockholders’ Equity

MATHAY SALES CO.

THE MOSO CO.

Liabilities and Stockholders’ Equity

PROBLEM 7-8, Concluded

Income Taxes Payable, 20x6 25,452

Income Taxes 26,280

Correcting entry to bring accounts with A up to date:

Development of correcting entry:

Correcting entry to bring accounts with B up to date:

Development of correcting entry:

Consignment Out - Burgos co. 4,000

July 31, 20x7

August 31, 20x7

September 30, 20x7

October 31, 20x7

November 30, 20x7

Repossession Merchandise 24,864

Valuation of repossessed merchandise:

Cost percentage, 20,420

Consignment Out - Burgos Company 148,460

Calculation of Profit: Charge Analysis

Proof of consignor’s profit: Cash Sales Time Payment Total

Calculation of deferred gross profit:

Deferred Gross Profit: 73,500/144,000 x P67, 740 = P 34,575.62

December 31, 20x7

(d)Accounts Receivable - Burgos Company:

(e) Profit realized (Consignment Profit and Loss):

(f) Profit not realized:

(g) Gain on defaults:

Account Sales- Halo Baking Co.

Sales, 13 at P185 P2,405.00

Sales, 3 at P250 750.00

Account Sales - Quad Baking Shop