RHEA A.

MENDOZA

Exercise I
Presented here are the components in Sanders Company’s income statement. Determine
the missing amounts.
Cost of Gross Operating Net
Sales Goods Sold Profit Expenses Income
P75,000 P35,000 P40,000 P23,000 P17,000
P120,0 P16,00
P56,000 P64,000 P48,000
00 0

Exercise II
Prepare the necessary journal entries on the books of Tri-State Carpet Company to record
the following transactions, assuming a perpetual inventory system (you may omit
explanations):
(a) Tri-State purchased P40,000 of merchandise on account, terms 2/10, n/30.
(b) Returned P4,000 of damaged merchandise for credit.
(c) Paid for the merchandise purchased within 10 days.

Date Particulars Debit Credit

A. INVENTORY P40,000

ACCOUNTS PAYABLE P40,000

B. ACCOUNTS PAYABLE 4,000

PURCHASE RETURNS AND ALLOWANCES 4,000

C. ACCOUNTS PAYABLE 36,000

CASH 35,200

PURCHASE DISCOUNT 800

Exercise III

Erving Company sold goods on account to Farley Enterprises with terms of 2/10, n/30. The
goods had a cost of P600 and a selling price of P900. Both Erving and Farley use a
perpetual inventory system. Record the sale on the books of Erving and the purchase on
the books of Farley.

Date Particulars Debit Credit

FARLEY
ENTERPRISE
INVENTORY P900

ACCOUNTS PAYABLE P900

ERVING
COMPANY
ACCOUNTS RECEIVABLE 900

SALES 900

COST OF GOOD SOLD 600

INVENTORY 600

Exercise IV
Manning Company sells merchandise on account for P2,000 to Tiger Company with credit
terms of 3/10, n/60. Tiger Company returns P200 of merchandise that was damaged, along
with a check to settle the account within the discount period. What entry does Manning
Company make upon receipt of the check and the damaged merchandise?

ACCOUNTS RECEIVABLE P2000

SALES P2000

SALES PURCHASES AND ALLOWANCES 200

SALES DISCOUNT 60
CASH 1740
ACCOUNTS RECEIVABLES 2000

Exercise V
During October, 2008, Katie’s Catering Company generated revenues of P13,000. Sales
discounts totalled P200 for the month. Expenses were as follows: Cost of goods sold of
P7,000 and operating expenses of P2,000.

Calculate (1) gross profit and (2) income from operations for the month.

SALES 13,000
LESS: SALES DISCOUNT 200
NET SALES: 12,800
LESS: COST OF GOOD SALES 7,000
1. GROSS PROFIT: 5,800
LESS: OPERATING EXPENSE 2,000
2. INCOME FROM OPEX: 3,800

Exercise VI
Assume that Guardian Company uses a periodic inventory system and has these account
balances: Purchases P500,000; Purchase Returns and Allowances P14,000; Purchase
Discounts P9,000; and Freight-in P15,000. Determine net purchases and cost of goods
purchased.

PURCHASES 500,000
LESS: PURCHASES AND RETURN AND ALLOWANCES 14,000
PURCHASE DISCOUNT 9,000
NET PURCHASE: 477,000
ADD: FREIGHT IN 15,000
COST OF GOOD SOLD PURCHASED: 492,000

Exercise VII

The following information is available for Miley Company:

Administrative expenses P 30,000

Cost of goods sold 245,000
Sales 350,000
Sales returns and allowances 15,000
Selling expenses 50,000

Instructions
Compute each of the following:
(a) Net sales: P335,000
(b) Gross profit: P90,000
(c) Income from operations: P10,000

SALES 350,000
LESS: SALES RETURN AND ALLOWANCES 15,000
NET SALES: 335,000
LESS: COST OF GOOD SOLD 245,000
GROSS PROFIT: 90,000
LESS: ADMINISTRATIVE EXPENSES (30,000)
SELLING EXPENSES (50,000)
INCOME FROM OPERATIONS 10,000