UNIVERSITY OF SANTO TOMAS

UST-AMV COLLEGE OF ACCOUNTANCY

BASIC FINANCIAL ACCOUNTING & REPORTING

NAME:____________________________________ COURSE/YEAR/SECTION_________________

TEST I
PROBLEM 1. For each of the following Mary Paz Abad Company purchases, assume that credit
terms are 2/10,n/30 and that any credit memorandum was issued and known before Mary Paz
Abad Company made the payments.

Prepaid
Freight Credit
Purchases Shipping Terms (by seller) Memo

a. P 120,000 FOB shipping point P 19,000 P 30,000

b. 235,000 FOB destination 23,000 22,000
c. 286,500 FOB shipping point 49,000
d. 140,000 FOB shipping point 37,000

Required:
1. Determine the cash discount available.
2. Determine the cash remitted if the payment is made within the discount period.

PROBLEM 2. The following are selected March transactions of Sweet Comfort, distributor of
imported bed sheets, pillow cases and comforters. Its credit term is 2/10, n/30, FOB Destination.

4 Purchased an aircon unit from Concepcion Industries at a list price of

P9,000 less 5% trade discount, 2/EOM, n/60.
6 Pain P1,344 for the delivery cost of the above purchase.
8 Sold merchandise to Susan Velasco in the amount of P19,040 on account.
Delivery cost paid in cash, P604.80.
10 Purchased 10 comforters from Hong Kong Sleepwell invoiced at 12,000
Hong Kong dollars. Hong Kong Sleepwell has a Philippine distributor.
Exchange rate is P5.5 to a Hong Kong dollar.
Terms: 2/10, 1/20, n/30.
15 Received a check from Susan Velasco in total payment of her purchase.
19 Sold to David Company, on account, 5 Canadian bed sheets @ P1,680 each
set. Freight cost paid for the delivery, P336.
20 David reported that an item in the shipment was defective. It was agreed
that David would retain the item but will be credited for P560.
22 Paid Hong Kong Sleepwell for 5 comforters less the agreed discount.
25 Received a check for P5,500 from David Company as partial payment.
28 Paid Concepcion Industries the amount due on the purchase of March 4.
Required:

a. Journalize the above transactions.

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TEST II
MULTIPLE CHOICE

1. When purchases of merchandise are made on account, the transaction would be

recorded with the following entry:
a) Debit Accounts Payable, credit Merchandise Inventory
b) Debit Merchandise Inventory, credit Accounts Payable
c) Debit Merchandise Inventory, credit Cash
d) Debit Cash, credit Merchandise Inventory

2. When a corporation sells merchandise and the terms are FOB shipping point and pays
the shipping costs, the seller would record the transportation costs with the following entry:
a) Debit Cash, credit Accounts Receivable
b) Debit Accounts Receivable, credit Sales
c) Debit Accounts Receivable, credit Cash
d) Debit Merchandise Inventory, credit Accounts Payable

3. A sales invoice included the following information: merchandise price, $12,000;

transportation, $500; terms 2/10, n/30, FOB shipping point. Assuming that a credit for
merchandise returned of $600 is granted prior to payment, that the transportation is prepaid
by the seller, and that the invoice is paid within the discount period, what is the amount of
cash received by the seller?
a) $11,662 c) $12,250
b) $11,672 d) $11,172

4. Merchandise with an invoice price of $7,000 is purchased with terms of 2/10, n/30, FOB
shipping point. Transportation costs paid by the seller were $125. What is the cost of the
merchandise purchased if payment is made during the discount period?
a) $6,860.00
b) $6,982.50
c) $7,000.00
d) $6,985.00

5. The discount period for credit terms of 1/10, n/30 is:

a) 1 day c) 20 days
b) 10 days d) 30 days

6. Freight costs incurred by the seller are recorded in the

a) Sales account
b) Cost of goods sold account
c) Transportation In account
d) Transportation Out account

7. Which of the following would be classified in an income statement as Other Expense?

a) Advertising Expense c) Transportation Out
b) Interest Expense d) Cost of merchandise sold

8. Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March
1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality
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on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to
record receipt of the payment?
a) Debit Cash, $1,764; credit A/R, $1,764
b) Debit Cash, $1,800; credit Sales Returns and allowances, $500; credit A/R, $1,300
c) Debit Cash, $1,274; debit Sales Discounts $26; credit A/R, 1,300
d) Debit Cash, $1,800; credit Sales Discounts $36; credit A/R, $1,764

9. Assume that sales are $450,000, sales discounts are $10,000, net income is $35,000, and
cost of merchandise sold is $320,000. Gross profit and operating expenses are, respectively
a) $130,000 and $95,000 c) $130,000 and $85,000
b) $120,000 and $95,000 d) $120,000 and $85,000

10. Which of the following accounts is credited by the seller when merchandise
purchases are paid for within the discount period?
a) Merchandise Inventory
b) Accounts Payable
c) Accounts Receivable
d) Sales Discounts

11. I: Trade discounts represent a discount offered to the purchasers for quick
payment.
II: A sales discount represents a reduction, not in the selling price of a product or
service, but in the amount to be paid by a credit customer if payment is made within a
specified period of time.
a) Only Statement I is true.
b) Only Statement II is true.
c) Both Statements are true.
d) Both Statements are false

12. I: A sale on account for $1,000 offered with terms 2/10, n/30 means that the
customers will get a $2 discount if payment is made within 10 days; otherwise, full
payment is due within 30 days.
II: The Sales Discounts account is an expense account.

a) Only Statement I is true.

) Only Statement II is true.
c) Both Statements are true.
d) Both Statements are false.

13. I: For inventory that is shipped FOB destination, title transfers from the seller
to the buyer once the seller ships the inventory.
II: For inventory that is shipped FOB shipping point, title transfers from the seller to
the buyer once the seller ships the inventory.
a) Only Statement I is true.
b) Only Statement II is true.
c) Both Statements are true.
d) Both Statements are false.
14. I: Freight-in is included in the cost of inventory.
II: Sales revenue minus cost of goods sold is referred to as operating income.
a) Only Statement I is true.
b) Only Statement II is true.

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 c) Both Statements are true.
d) Both Statements are false

TEST III

A. Benjo’s Battery Store sells two brands of battery: Silver and Gold. Purchases for the month of June
consisted of 30 silver brand units at P1,500 each and 20 gold units at P1,800 each. At the end of the
month an inventory count showed that 12 silver brand units and 5 gold brand units were still on
hand.
Required: (FOR ITEMS 1-10)
a. Compute for each brand: purchases(1&2), merchandise inventory at the end of June(3-4) and
cost of sales(5-6).
b. Assume a silver brand sells for P2,400 and a gold brand sells for P2,750. Compute for each
brand: sales revenue(7-8) and gross profit on sales(9-10).

B. Still using the following information. Assume that in the following month another 25 silver brand
units and 20 gold brand units were purchased from the suppliers at the same prices. And at the end of
the month only 18 silver brand units and 10 gold units were on hand.

Required: (FOR ITEMS 11-22)

a. Compute for each brand: cost of purchases(11-12), total goods available for sale(13-14),
merchandise inventory end of July(15-16) and the cost of sales(17-18).
b. Assuming the same sales prices, compute for each brand: sales revenue(19-20) and the gross
profit on sales.(21-22)

C. During the year Victoria Home and Garden purchased potteries, plants, dried flowers, candles
and other home and garden decors at a total cost of P300,000. For each of the following cases,
calculate the Total Goods Available for Sale(A) and the Cost of Sales(B):

Case Case 1 Case 2 Case 3 Case 4 Case 5

Beginning Inventory P0 P120,000 P50,000 P10,000 P0
Freight-In 25,000 0 40,000 15,000 25,000
Returns and Allowances 5,000 55,000 0 21,000 11,000
Discounts 0 15,000 0 0 18,550
Ending Inventory 0 0 75,000 75,500 85,000
A (23) (25) (27) (29) (31)
B (24) (26) (28) (30) (32)

D. In each of the following cases, supply the missing item/s:

Cost of Operating Net Profit

Case Sales Sales Gross Profit Expenses (Net Loss)
A P 440,000 P (33) P215,000 P (34) P 75,000
B (35) 185,000 75,000 105,000 (36)
C 870,000 640,000 (37) (38) (90,000)
D 1,250,000 (39) (40) 275,000 150,000

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 E 1,300,500 (41) 579,250 (42) (95,750)

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