FAR1 MATERIALS

PROBLEM 1. On June 30, 2018, a fire broke out at FROZEN Company's warehouse which caused
substantial damage to its inventory. FROZEN Company has a gross profit of 25% based on cost. The
following data are available for the 6-month period ended June 30, 2018:

Inventory at January 1 1,500,000

Net purchases (net of purchase discounts of P 40,000) 4,500,000
Net sales (net of sales discounts of 50,000 and sales returns of 100,000) 5,350,000

The following inventory items were salvaged during the fire:

a. Undamaged goods with selling price of Php 50,000; and
b. Damaged, usable goods which can be sold to a jobber for Php 25,000.

A) What is the estimated cost of goods sold for the 6 months ended June 30, 2018?
B) What is the estimated cost of ending inventory as at June 30, 2018 before the fire?
C) What is the estimated amount of inventory fire loss?
D) What is the estimated cost of goods sold for the 6 months ended June 30, 2018, if the gross profit of
25% is based on sales?

PROBLEM 2. GPR’s warehouse was damaged by fire on August 31, 2021. The warehouse was
emptied of all inventory items and several accounting records. A portion of the inventory, on the
other hand, could be sold for scrap. The following information can be found in the backup files of the
company:

Particulars January 01 August 31

Inventory 800,000 ???
Accounts receivable 350,000 400,000
Trade notes receivable 200,000 180,000
Accounts payable 150,000 175,000
Cash sales 2,500,000
Collections of accounts receivable 3,000,000
Accounts receivable written off as worthless 40,000
Collections of trade notes receivable 500,000
Cash purchases 1,200,000
Payments to suppliers 4,800,000
Salvage value of damaged inventory 15,000
Average gross profit ratio 20%

A) What is the total sales for the 8-month period ended August 31, 2021?
B) What is the total purchases for the 8-month period ended August 31, 2021?
C) What is the estimated cost of goods sold for the 8-month period ended August 31, 2021?
D) What is the estimated cost of ending inventory as at August 31, 2021 before the fire?
E) What is the estimated amount of inventory fire loss?
PROBLEM 3. STEAM-IT Company used the conservative retail inventory method to account for
inventory. Records of the company show the following items at cost except for Net Markdown that is
presented at retail price:
Beginning Inventory 1,000,000
Purchases 5,000,000
Purchase Discounts and Allowances 200,000
Purchase Returns 300,000
Net markdown 600,000

The entity had sales of 7,000,000 and a sales return of 100,000 and an employee discount of 120,000.

A) If the conservative cost-to-retail ratio is equal to 64%, what is the total goods available for sale at
retail?

B) If the conservative cost-to-retail ratio is equal to 64%, what is the estimated cost of ending
inventory?

PROBLEM 4. On January 1, RICHIE BUBBLES Company assigned P 1,000,000 of accounts

receivable to ABC Finance Inc. The company issued a 12% note for P 800,000 representing 80% of the
assigned accounts and received proceeds of P 760,000 after deduction of a 4% service fee based on the
accounts assigned. On January 31, the company collected and remitted P 300,000 of the assigned
accounts to the assignee, which is applied as follows: (1) interest for the month of January; (2) balance,
if any, to the principal note balance.

A) How much is the balance of the Accounts Receivable – Assigned as at January 31?

B) How much is the balance of the Note Payable account as at January 31?

C) How much is the equity of the assignor in the assigned accounts as at the end of January?

PROBLEM 5. CASUAL Company sold accounts receivable without recourse for P 5,500,000. The
company received P 5,000,000 cash immediately from the factor. The remaining P 500,000 will be
received once the factor verifies that none of the accounts is in dispute. The accounts receivable had a
face amount of P 6,000,000. The company had previously established an allowance for doubtful
accounts of P 400,000 in connection with such accounts.

A) How much cash was received from the FACTOR on the date of the factoring?

B) What amount of loss should the Company recognize in relation to the factoring of its accounts
receivable?

PROBLEM 6. On May 01, 2024, DISK-COUNT Company discounted at a bank a customer’s P

2,400,000, 6-month, 12% note receivable dated January 01, 2024. The bank discounted the note at 15%.

A) What amount will be credited to the Interest Income account on the date of discounting?
B) How much would be credited to the Note Receivable – Discounted account if discounting is made
with recourse, accounted for as a conditional sale?
C) How much interest expense should be recognized on the date of discounting if discounting is made
with recourse accounted for as a secured borrowing?

D) How much is the carrying amount of the note as at date of discounting if the note is non-interest
bearing?

PROBLEM 7. On October 1, 2023, FLEDGED Co. borrowed P 500,000 from CDO Bank by issuing
a 12% note due on September 30, 2024, for the same amount. The Company pledge all of its accounts
receivable as collateral security for the loan. The accounts receivable of the Company during that time
amounted to P 700,000 with an allowance for doubtful accounts of P 35,000. The Company made a
credit sale amounting to P 1,000,000 and collected P 588,000 after deducting sales discount of P 12,000.
The balance of the credit sale is included in the accounts receivable held as security for the borrowed
loan.

A) What amount of accounts receivable should be credited at the time of the pledging of the accounts
receivable?

B) How much interest should be recognized by the Company on December 31, 2023?

C) What is the carrying amount of the Note Payable – Bank as at December 31, 202 if the note issued
to the bank was discounted at the time of its issuance?