CHAPTER 28

SALES REVENUE

Problem 28-1 (AICPA Adapted)

Lewis Company's usual sales terms are net 60 days, FOB shipping point. Sales, net of returns and
allowances, totaled P9,200,000 for the year ended December 31, 2018, before year-end
adjustments.
 On December 27, 2018, Lewis authorized a customer to return, for full credit, goods
shipped and billed at P200,000 on December 15, 2018. The returned goods were
received by Lewis on January 4.2019, and a P200,000 credit memo was issued and
recorded on the same date.
 Goods with an invoice amount of P300,000 were billed and recorded on January 3,
2019. The goods were shipped on December 30,2018.
 Goods with an invoice amount of P400,000 were billed and recorded on December 30,
2018. The goods were shipped on January 3, 2019.
 On January 5, 2019, a customer notified Lewis that goods billed and shipped on
December 21,2018 were lost in transit. The invoice amount was P500,000.

What is the correct amount of net sales for 2018?

a. 9,300.000
b. 9,100,000
c. 8,400,000
d. 8,900,000

Solution 28-7 Answer d

Net sales per book 9,200,000
Sales ruins ( 200,000)
Goods shipped on December 30, 2018
but recorded January 3, 2019 300,000
Goods shipped on January 3, 2019
erroneously recorded on December 30, 2013 ( 400,000)
Adjusted net sales 8,900,000

The goods sold and lost in transit are property included in sales because the customer will suffer
the loss since the term is FOB shipping point.

Problem 28-2 (IFRS-Sale with right of return)

On December 15, 2018, Bagani Company sold 20,000 units at P250 per unit or a total of
P5,000,000. The entity granted the customers a right to return within 30 days if not satisfied and
will receive either a full refund if cash was already paid or a full credit for the amount owe d to
the entity
It estimated that 6% of the units sold will be returned within the 30-day period. The cost for each
unit is P175. The entity uses the perpetual method.

1. What amount of sales revenue should be recognized on December 15, 2018?

a. 4,700,000 `
b. 5,000,000
c. 2,500,000
d. 0

2. What amount of refund liability should be recorded on December 15, 2018?

a. 510,000
b. 300,000
c. 210,000
d. 0

3. What is the cost of recover asset on December 15, 2018?

a. 300,000
b. 150,000
c. 210,000
d. 0

4. What amount of cost of goods sold should be reported on

December 15, 2018?
a. 3,500,000
b. 3,290,000
c. 3,200,000
d. 0

Solution 28-2
IFRS 15, paragraph B21, provides that an entity shall recognize the following with respect to a
sale with a right of return;
1. Revenue based on the sale price minus the expected return
2. Refund liability equal to the sale price of the expected return
3. Recover asset and the corresponding reduction of cost of goods sold equal to the cost of the
expected return
Question 1 Answer a
Gross sales 5,000,000
Expected sale return (6% x 5,000,000) ( 300,000)
Sales revenue 4,700,000
Question 2 Answer b
Refund liability – sale price of expected return 300,000
Question 3 Answer c
Expected return (6%X 20,000 units) 1,200
Cost of recover asset (1,200 x 175) 210,000
Question 4 Answer b
Cost of goods sold (20,000 x 175) 3,500,000
Cost of recover asset ( 210,000)
Cost of goods sold to be reported 3,290,000

Journal entries on December 15, 2018

1. Accounts receivable 5,000,000
Sales 4,700,000
Refund liability 300,000
2. Cost of goods sold 3,500,000
Inventory 3,500,000
3. Recover asset 210,000
Cost of goods sold 210,000

Problem 28-3 (AICPA Adapted)

Penn Company had sales of P5,000,000 during December. Experience had shown that
merchandise equaling 7% of sales will be resumed within 30 days and an additional 3% will be
returned within 90 days.
Returned merchandise is readily resalable. In addition, merchandise equaling 15% of sales will be
exchanged for merchandise of equal or greater value.

What amount should be reported for net sales in the income statement for the month of
December?
a. 4,500,000
b. 4,250,000
c. 3,900,000
d. 3,750,000
Solution 28-3 Answer a
Gross sales 5,000,000
Estimated sales returns (10% x 5,000,000) (500,000)
Net sales 4,500,000

As a conservative approach, sales revenue should be reduced by the 10% estimated probable
sales returns. However, the estimated exchanges of 15% will not result to reduction of sales.

Problem 28-4 (AICPA Adapted)

Marie Company, a distributor of machinery, bought a machine from the manufacturer in
November 2018 for P10,000. On December 30, 2018, the entity sold this machine for P15,000
under the following terms: 2% discount is paid within thirty days, 1% discount if paid after thirty
days but within sixty days, or payable in full within ninety days if not paid within the discount
periods.
However, the customer had the right to return this machine if it was unable to resell the machine
before expiration of the ninety-day payment period, in which case customer's obligation would
be canceled.

In the net sales for the year ended December 31, 2018, what amount should be included for the
sale of this machine?
a. 15,000
b. 14,700
c. 14,850
d. 0

Solution 28-4 Answer d

Problem 28-5 (AICPA Adapted)

On October 1, 2018, Acme Company sold 100.000 gallons of heating oil to Karn Company at P30
per gallon. Fifty thousand gallons were delivered on December 15, 2018, and the remaining
50,000 gallons were delivered on January 15, 2019.
Payment terms were: 50% due on October 1, 2018, 25% on the first delivery, and the remaining
25% due on the second delivery.

What amount of revenue should be recognized from the sale during 2018?
a. 3,000,000
b. 1,500,000
c. 2,250,000
d. 750,000

Solution 28-5 Answer b (50,000 x 20) 1,500,000

The revenue should be recognized at the point of sale which is usually the point of delivery.

Problem 28-6 (AICPA Adapted)

Charlene Farms produced 50,000 kilos of tobacco during the 2018 for a certain customer which
has agreed to purchase the entire production at the prevailing market price.
Recent legislation assures that the market price will not fall below P70 per kilo during the next
two years. The costs of selling and distributing the tobacco are immaterial and can be reasonably
estimated. The entity reported inventory at expected exit value.
During 2018, the entity sold and delivered to the customer 40,000 kilos at the market puce
ofP70. The entity sold the remaining 10,000 kilos during 2019 at the market price of P72.

What amount of sales revenue should be recognized in 2018?

a. 2,800,000
b. 2,880,000
c. 3,500,000
d. 3,600,000

Solution 28-6 Answer c

Sales revenue in 2018 (50,000 x P70) 3,500,000

Revenue is recognized at the point of production for agricultural, mineral and forest product
when a sale is assured under a forward contract.
The remainder of the sales in 2019 of P20,000 (10,000 x P2) is recognized as revenue in 2019 and
not a correction of 2018 revenue.

Problem 28-7 (AICPA Adapted)

Emco Company had the following transactions in 2018:
 Emco sold goods to a customer for P50,000, FOB shipping point on December 30, 2018.
 Emco sold three pieces of equipment on a contract over a three-year period.
 The sale price of each piece of equipment is P100,000. Delivery of each piece of
equipment is on February 10 of each year.
 In 2018, the customer paid a P200,000 down payment and pay P30,000 per year in 2019
and 2020. Collectibility is reasonably assured.
 On June 1, 2018, Emco signed a contract for P200,000 for goods to be sold on account.
  Payment is to be made in two installments of P100,000 each on December 1, 2018 and
December 1, 2019.
 The goods are delivered on October 1, 2018 Collection is reasonably assured and the
goods may not be returned.
 Emco sold goods to a customer on July 1, 2018 for P500,000. If the customer does not
sell the goods to retail customers by December 31, 2019, the goods can be returned to
Emco.
The customer sold the goods to retail customers on October 1, 2019.

What amount of sales revenue should be reported in the income statement for 2018?
a. 350,000
b. 850,000
c. 450,000
d. 550,000

Solution 28-7 Answer a

Goods sold FOB shipping point 50,000

Delivery of one equipment on February 10, 2018 100,000
Goods sold on account on October 1, 2018 200,000
Total sales revenue in 2018 350,000

Problem 28-8 (AICPA Adapted)

Delicate Company is a wholesale distributor of automotive replacement parts.
The entity provided the following information on December 31, 2018:
Inventory on December 31 based on physical count 1,250,000
Accounts payable 1,000,000
Sales 9,000,000

A. Parts held on consignment from another entity to Delicate the consignee, amounting to
P165,000, were included in the physical count on December 31, 2018, and in accounts payable
on December 31, 2018.
B. P20,000 of parts which were purchased and paid for in December 2018, were sold in the last
week of 2018 and appropriately recorded as sales of P28,000.
The parts were included in the physical count on December 31, 2018 because the parts were on
the loading dock waiting to be picked up by the customer.
C. Parts in transit on December 31, 2018 to customers, shipped FOB shipping point on December
28, 2018, amounted to P34,000. The customers received the parts on January 6, 2019.
Sales of P40,000 to the customers for the parts were recorded by Delicate on January 2, 2019.
D. Retailers were holding P210,000 at cost and P250,000 at retail, of goods on consignment from
Delicate, at their stores on December 31, 2018.
E. Goods were in transit from a vendor to Delicate on December 31, 2018. The cost of goods was
P25,000. The goods were shipped FOB shipping point on December 29, 2018.

1. What is the correct amount of inventory?

a. 1,300,000
b. 1,320,000
c. 1,334,000
d. 1,090,000

2. What is the correct amount of accounts payable?

a. 835,000
b. 960,000
c. 975,000
d. 860,000

3. What is the correct amount of sales?

a. 9,250,000
b. 9,290,000
c. 9,040,000
d. 9,000,000

Solution 28-8
Question 1 Answer a
Question 2 Answer d
Question 3 Answer c

Inventory Accounts payable Net sales

Unadjusted 1,250,000 1,000,000 9,000,000
A ( 165,000) ( 165,000) -
B ( 20,000) -
C - - 40,000
D 210,000 - -
E 25,000 25,000 - ____
Adjusted 1,300,000 860,000 9,040,000
Problem 28-9 (AICPA Adapted)
Quarry Company, a manufacturer of small tools, provided the following information for the year
ended December 31, 2018:

Inventory at December 31 based on physical count 1,750,000

Accounts payable at December 31 1,200,000
Net sales 8,500,000
Additional information
A. Included in the physical count were tools billed to a customer FOB shipping point on
December 31, 2018. These tools had a cost of P28,000 and were billed at P35,000. The shipment
was in loading dock waiting to be picked up by the common carrier.
B. Goods were in transit from a vendor to Quarry Company on December 31, 2018. The invoice
cost was P50,000 and the goods were shipped FOB shipping point on December 29, 2018.
C. Work in process inventory costing P20,000 was sent to an outside processor for plating on
December 30, 2018.
D. Tools returned by customers and held pending inspection in the returned goods area on
December 31, 2018 were not included in the physical count. On January 8, 2019, the tools costing
P26,000 were inspected and returned to inventory. Credit memos totaling P40,000 were issued
to the customers on the same date.
E. Tools shipped to a customer FOB destination on December 26, 2018 were in transit on
December 31, 2018 and had a cost of P25,000. Upon notification of receipt by the customer on
January 2, 2019, Quarry Company issued a sales invoice for P42,000.
F. Goods with an invoice cost of P30,000 received from a vendor at 5:00 P.M. on December 31,
2018 were recorded on a receiving report dated January 2, 2019. The goods were not included in
the physical count but the invoice was included in accounts payable on December 31, 2018.
G. Goods received from a vendor on December 26, 2018 were included in the physical count.
However, the related P60,000 vendor invoice was not included in accounts payable on December
31, 2018 because the accounts payable copy of the receiving report was lost.
H. On January 3, 2019, a monthly freight bill in the amount of P20,000 was received. The bill
specifically related to merchandise purchased in December 2018, one-half of which was still in
the inventory on December 31, 2018.
The freight charge was not included in either the inventory or in accounts payable on December
31, 2018.

1. What is the correct amount of inventory?

a. 1,883,000
b. 1,911,000
c. 1,885,000
d. 1.925,000

2. What is the correct amount of accounts payable?

a. 1,330,000
b. 1,280,000
c. 1,250,000
d. 1,270,000

3. What is the correct amount of net sales?

a. 8,460,000
b. 8,500,000
c. 8,465,000
d. 8,425,000

Solution 28-9
Question 1 Answer b
Question 2 Answer a
Question 3 Answer d
Inventory Accounts payable Net sales
Unadjusted 1,750,000 1,200,000 8,500,000
A - - ( 35,000)
B 50,000 50,000 -
C 20,000 - -
D 26,000 - ( 40,000)
E 25,000 - -
F 30,000 - -
G - 60,000 -
H 10,000 20,000
Adjusted 1,911,000 1,330,000 8,425,000