Mortel, Aphol Joyce B.

BSA-2202

10-6

Autumn Company provided the following transactions for the current year, the first year of operations.

1. Purchase of merchandise at an invoice price of P4,750,000 excluding freight. Terms are 2/10,
n/30.
2. Freight paid, P250,000. The freight is allocated to each purchase.
3. Cash payments on purchases, P3,717,000 of which P1,617,000 was paid within the discount
period.
4. It is expected that all discounts on unpaid accounts payable will be lost.
5. On December 31, one fifth of the merchandise remains on hand

Required: 
a. Prepare journal entries to record transactions using gross method and net method
b. Compute inventory and cost of sales under each method

Answer:

Gross Method

1 Purchases P4,750,000

Accounts Payable P4,750,000

2 Freight in 250,000

Cash 250,000

3 Accounts Payable 1,650,000

Cash 1,617,000

Purchase Discounts 33,000

Accounts Payable 2,100,000

Cash 2,100,000

4 No entry

5 Merchandise Inventory end (5,000,000×2%) 1,000,000

 Income Summary(5,000,000×2%) 1,000,000

Net Method

1 Purchases P4,655,000

Accounts Payable P4,655,000

2 Freight in 250,000

Cash 250,000

3 Accounts Payable 1,617,000

Cash 1,617,000

Accounts Payable 2,058,000

Cash 2,100,000

Purchase Discount Lost 42,000

4 Purchase Discount Lost 20,000

Accounts payable 20,000

5 Merchandise Inventory end(4,905,000×2%) 981,000

Income Summary(4,905,000×2%) 981,000

Gross Method

Purchases P4,750,000

Purchase Discounts (33,000)

Net Purchase P4,717,000

Freight in 250,000

Total P4,967,000
Merchandise Inventory end (1,000,000)

Cost of Sales P3,967,000

Net Method

Purchases P4,655,000

Freight in 250,000

Goods available for sale P4,905,000

Merchandise Inventory end (981,000)

Cost of Sales P3,924,000

10-8

Myriad Company revealed the following purchase transactions occurred during the last few days of the
fiscal year, which ends December 31, and in the first few days after that date.

1. An invoice for P50,000, FOB shipping point, was received and recorded on December 27. The
shipment was received in satisfactory condition on January 2. The merchandise was not included
in the inventory.
2. An invoice for P75,000, FOB Destination, was received and recorded on December 28. The
shipment was received on satisfactory condition on January 3. The merchandise was not included
in the inventory.
3. An invoice for P30,000, FOB shipping point, was received and recorded on January 4. The
invoice shows that the goods had been shipped on December 28 and the receiving report
indicated that the goods had been received on January 4. The merchandise was not included in the
inventory.
4. The invoice for P90,000, FOB shipping point, was received on December 15. The receiving
report indicates that the goods were received on December 18 but across the face of the report is
the notation “merchandise not of the same quality as ordered-returned for credit, December 19”.
The merchandise was included in the inventory.
5. An invoice for P140,000, FOB Destination, was received and recorded on January 4. The
receiving report indicates that the goods were received on December29. The merchandise  not
included in the inventory.

Required: Prepare the adjustments on December 31. Books are still open.

Answer:

1 Inventory P 50,000

Income Summary P50,000

2 Accounts Payable 75,000

Purchases 75,000

3 Purchases 30,000

Accounts Payable 30,000

Inventory 30,000

Income Summary 30,000

4 Income Summary 90,000

Inventory 90,000

5 Purchases 140,000

Accounts Payable 140,000

Inventory 140,000

Income Summary 140,000