EXERCISES

I. Indicate the accounting term that best describes each statement. Write the letter of you answer
in the space provided before each statement.

A. Net Income N. Goods Available for Sale

B. Multi- Step Form O. Freight Out
C. Purchase Returns and Allowances P. Purchases
D. Merchandiser Q. Perpetual Method
E. Cost of Sales R. Freight In
F. Periodic Method S. Sales Revenue
G. Trade Discount T. Cash Discount
H. FOB Destination U. General Expenses
I. Furniture& fixtures V. Merchandise Inventory, Beginning
J. Cost of Goods Delivered W. Functional Form
K. FOB Shipping Point X. Gross Income
L. Merchandise Inventory, Ending Y. Distribution Expense
M. Administrative Expenses

____ 1. Account title used for revenue earned when goods are delivered to customers.
____ 2. Excess of net sales over cost of sales.
____ 3. Stock of goods unsold the previous accounting period.
____ 4. Income statement form showing intermediate margin or figures starting from the major
activities and ending with minor activities.
____ 5. Represents transportation cost for goods bought which is added to the cost of the
merchandise purchased.
____ 6. Method which keeps a detailed recording of inventory for each item stocked.
____ 7. Operating expenses incurred in storing and marketing the goods available for sale.
____ 8. Expenses needed in the general administration of the business.
____ 9. This represents the cost of goods delivered to the customers.
____ 10. One who buys tables and chairs for resale.
____ 11. Discount granted to the customer on date of purchase based on the catalogue price.
____ 12. A method of accounting wherein the cost of merchandise sold is determined only after
making a physical inventory count.
____ 13. Account title used for goods bought for resale by the company.
____ 14. An account used to record transportation cost incurred by the seller.
____ 15. Account title used when buying table and chairs for use by the company.
____ 16. A freight term which requires the buyer to pay for the transportation of the goods from
the point of shipment to the buyer’s place.
____ 17. A discount granted to a customer for paying his account promptly.
____ 18. A reduction in the cost of the goods purchased for resale when the goods are returned to
the supplier for being defective or spoiled.
____ 19. Income statement form showing costs and expenses according to its functions.
____ 20. The sum of net purchases and beginning merchandise inventory.
II. Encircle the letter of the best answer in the following statements.

1. Seller is notified of goods returned by the buyer when he receives a

a. credit memo b. invoice c. bill d. debit memo

2. Buyer should prepare this document upon payment

a. bill b. voucher c. invoice d. receipt

3. Chizzy Curls purchased goods worth P17,000. Term: n/30 FOB Shipping Point Freight
Prepaid. Entry of Chizzy Curls if freight amounted to P2,400.

a. Debit Purchases P17,000, debit Freight In P2,400, credit Cash P2,400 and credit
Accounts Payable P17,000.
b. Debit Purchases P17,000 and credit Accounts Payable P17,000.
c. Debit Purchases P17,000, debit Freight In P2,400 and credit Accounts Payable P19,400.
d. Debit Purchases P14,600, debit Freight In P2,400 and credit Accounts Payable P17,000.

4. If the term is 1/15, n/30, purchases made on September 6 should be paid until

a. September 10 b. October 6 c. September 20 d. October 10

5. Katniss, owner of a hardware store, returned furniture worth P1,500. She should

a. credit Purchase Return c. credit Furniture

b. debit Furniture d. debit Sales Return

6. Cinna Shopping Center purchased goods worth P200,000. Half of which were sold at a mark
up of 35%. Gross Profit amounted to

a. P75,000 b. P45,000 c. P60,000 d. P35,000

7. Revenue account that normally have a debit balance is

a. Sales Discount c. Sales

b. Sales Returns and Allowances d. Both a and b

8. If term is 2/10, n/30, to get a discount, a purchase made on February 1 should be paid on or
before

a. February 28 b. February 21 c. March 11 d. February 11

9. Rue CellPhone Accessories purchased earphones worth P31,000 and got a trade discount
P1,900. The accountant should

a. debit Purchases for P31,000

b. debit Purchases for P29,100
c. debit Purchase Discount for P1,900 and debit Purchases for P29,100
 d. debit Purchase Discount for P1,900 and debit Accounts Payable for P29,100

10. An appliance center debits purchase of

a. beds b. a freezer c. a computer d. a set of pencils

III. Supply the missing items for the following

CASE SALES COST OF GROSS OPERATING NET PROFIT

SALES PROFIT EXPENSES (NET LOSS)
1 P1,700,000 ? P645,000 ? P(98,000)
2 500,000 ? 300,000 ? 80,000
3 1,200,500 ? ? 340,000 200,000
4 ? 310,000 75,000 100,000 ?
5 900,000 630,000 ? ? (74,000)

IV. Supply the missing amounts and prepare the cost of sales computation for each of the
following cases
A B C D E
Purchase Returns and Allowances ? P 4,280 P 3,500 P12,000 P 4,200
Sales Returns and Allowances 5,400 2,600 1,275 53,000 5,400
Goods Available for Sale 69,000 85,000 90,000 ? 95,500
Freight In 3,000 7,000 ? 1,750 2,220
Freight Out 2,000 15,000 7,500 8,300 5,100
Merchandise Inventory, Beginning 25,000 30,000 15,700 31,000 ?
Merchandise Inventory, Ending 20,000 ? ? 15,800 ?
Purchases 57,400 ? 57,000 74,000 69,000
Sales Discount 2,300 6,400 6,300 5,190 4,000
Purchase Discount 5,270 1,527 0 ? 5,100
Cost of Goods Sold ? 45,000 34,000 60,000 86,000

V. Compute for the amount of discount and payment made for the following instances:

Purchase List Account Payment

Date Price Paid Date
A May 17 P50,000 P10,000 down, balance 2/10, n/30, 50% May 17
FOB Shipping Point, P2,000 Freight Balance May 22
Prepaid
B July 12 20,000 2/10, n/30, FOB Shipping Point, In Full July 21
P1,000 Freight Collect (goods
received after 3 days)
C Sept. 1 18,000 2/10, 1/15, n/30, FOB Destination, 75% Sept. 19
P750 Freight Prepaid Balance Sept. 22
 D Nov. 9 9,000 2/EOM, n/60, FOB Destination, In Full Dec. 14
P250 Freight Prepaid

VI. Must Read Magazine Stall sells two kinds of magazine; sports magazine and high- fashion
magazine. Purchases for the month of July consisted of 100 sports magazine at P125 each
and 175 high- fashion magazine at P150 each. At the end of the month an inventory count
showed that 20 sports magazine and 35 high- fashion magazine were still on hand.

Required:

a. Compute for the purchases, merchandise inventory at the end of July and cost of sales
of each kind of magazine.

b. Assume that the selling price of sports magazine and high- fashion magazine is P200
and P275 respectively. Compute for the sales revenue and gross income on sales of each
kind of magazine.

VII. Using the details in Exercise VI. Assume that in August another 40 sports magazine and 25
high- fashion magazines were purchased at the same prices. And at the end of August only
10 sports magazine and 12 high- fashion magazine were on hand.

Required:

a. Compute for the cost of purchases, total goods available for sale, merchandise
inventory at the end of August and the cost of sales of each kind of magazine.

b. Compute for the sales revenue and gross income on sales of each kind of magazine
using the same selling price as in July.

VIII. Using the situation in Exercise VII but instead the purchase price this time is P150 for the
sports magazine and P175 for the high- fashion magazine.

Required:

a. Compute for the cost of purchases, total goods available for sale, merchandise
inventory for the end of month (using the new cost price) and cost of sales of each kind of
magazine.

b. Assume that the selling price is P300 for the sports magazine and P425 for the high-
fashion magazine. Compute for the sales revenue and gross income on sales of each kind of
magazine.
IX. On September 1, 2012 Harry Potteries sold pots and vases to James Potters at a list price of
P13,700. Trade discounts of 5% and 2% are given. The term of payment is 50% down,
balance n/10. Harry paid cash for freight on goods sold, P510. James paid after 10 days.
Harry is VAT exempt.

Required:

a. Entries in the books of Harry Potteries on the date of sale and date of collection.

X. Mel and Mike, importer of chocolates, sold to Kor and ted Sweets on October 2, 2012
chocolates listed at a price of P6,300. Trade discounts of 5% and 2% were given. Kor and
Ted Sweets was allowed to pay on terms of 2/10, n/30. Kor and Ted Sweets paid P4,000 on
October 7 and the balance on October 11. Mel and Mike is VAT exempt. Round off all
amounts to the nearest ones. Company policy is to give discount on full payment.

Required:

a. Entries in the books of Mel and Mike on the date of sale and date of collection.

XI. AM Company, distributor of appliances, sold washing machines to EF Appliance Center on

December 6, 2012 at an invoice price of P198,600. To attract customers AM Company sells
on account with terms of 2/10, n/30. EF Appliance Center made 25% down payment, got an
allowance of P50,000 for 3 defective washing machines on December 10 and paid its account
on December 13.

Required:

a. Entries in the books of AM Company. Seller is non-VAT registered.

XII. Using Exercise XI, but assume that AM Company is VAT registered. Invoice includes 12%
VAT. Round off all amounts to the nearest ones.

Required:

a. Entries in the books of AM Company.

PROBLEMS

I. The following shows the adjusted account balances taken from the worksheet of Toys are
Toys, distributor of toys. For the year ended December 31, 2012.

ACCOUNT TITLE DEBIT CREDIT

S. Hastings, Capital P210,000
S. Hastings, Withdrawals P 40,000
Sales 600,000
Sales Returns and Allowances 5,000
Sales Discounts 10,000
Purchases 350,000
Transportation In 10,000
Purchase Returns and Allowances 12,000
Purchase Discounts 16,000
Delivery Expense 14,000
Commission Expense 27,000
Sales Salaries expense 100,000
Bad Debts 3,000
Insurance Expense 10,000
Office Salaries Expense 50,000
Interest Income 9,500
Interest Expense 4,500

Merchandise Inventory balances were as follows:

December 31, 2011 P63,000

December 31, 2012 42,000

Required:

a. Prepare an income statement using the functional presentation format

b. Compute for the gross profit margin, net profit margin and return on equity.

II. Hannah Marin owns and operates a store selling bags and shoes. She carries charge accounts
for a few customers and offers cash discounts of 2/10, n/30 to encourage prompt payments.
Described below are the transactions for January after she invested P750,000 cash, and
P50,000 merchandise on January 1.

4 Purchased shoes from Otto Shoes. Terms: P17,000 list price less trade discounts
of 2% and 1%, balance 1/10, n/30.
 7 Purchased bags from Faux-Fur Bags at an invoice price of P7,500. Terms: 2/10,
n/30. FOB Shipping Point.

8 P600 freight paid for Faux-Fur Bags.

9 Sold bags to Keep Calm Stuffs, P9,000 on account.

10 Shoes invoiced at P800 were found defective and returned to Otto Shoes.

15 Cash sales for the first half of the month amounted to P50,000. Paid P6,500 in
wages to the sales clerk and P4,000 to a part-time office clerk.

16 Account sales to Bonjour Shoes amounted to P8,500.

17 Paid 50% of the amount owed to Faux-Fur Bags.

18 A cash customer who had purchased shoes for P2,300 returned them for being
defective and got a cash refund,

24 Bonjour Shoes paid one half of its account and was given the corresponding
discount.

26 Keep Calm Stuffs paid its account.

28 Cash sales for the second half of the month P35,500.

30 Paid Otto Shoes in full of account.

31 Received utility bill for the store.

Required:

a. Journal entries to record the above transactions.

b. Postings to subsidiary ledgers.

c. Postings to T Accounts for Accounts Receivable and Accounts Payable.

III. Effie Trinket owns the Everdeen Superstore, a merchandising business selling instant foods
and canned goods. The following are the balances for the five months of its operation:

Cash on Hand P80,000 Sales P310,450

Cash in Bank 265,845 Sales Discount 4,000
Accounts Receivable 15,000 Sales Returns and 3,000
 Allowances
Merchandise Inventory 187,300 Purchases 75,000
Prepaid Supplies 5,100 Freight In 2,005
Furniture and Equipment 20,150 Purchase Returns and 4,000
Allowances
Delivery Car 152,200 Purchase Discount 2,550
Accounts Payable 5,730 Utilities Expense 1,180
Notes Payable dated June 15, 200,000 Repairs& Maintenance 4,575
18%, 45 days
Withholding Taxes Payable 2,990 Taxes& Licenses Expense 5,000
SS and PH Premiums Payable 2,700 Sales Salaries Expense 61,200
Pag-ibig Premiums Payable 1,197 Input Tax 6,500
Trinket, Capital 517,418 Commission expense 15,000
Trinket, Drawing 30,000 Output Tax 16,000
Rent Expense 80,000
SS and PH Premium 8,516
Expense
HDMF Premium Expense 2,000

Accounts Receivable:

Haymitch Mart P1,500 Dated: June 25

Ben Canpbell 3,600 May 12

Peeta Market 4,510 June 5

Baby Grocery 5,390 June 30

Accounts Payable:

Victoria’s Instant Foods P2,600 Dated: June 29, 2/10, n/30

Freshie Canned Goods 1,350 June 25, 2/15, n/30

Liam Foods 1,780 June 25, 2/15, n/30

Open the subsidiary ledgers and place the balances of the customers’ and suppliers’
accounts. Journalize the following transactions and make immediate postings to the
subsidiary ledger. Term of sales on account is 2/10, n/30, for all customers. All collections
are immediately deposited. All payments are made by checks if over P5,000. 12% VAT is
already included in all invoices. Round off all amounts to the nearest ones.
July 1 Purchased corned beef from Freshie Canned Goods, P4,624

Terms: 25% down, balance 2/10, n/30

3 Purchased instant noodles from Victoria’s Instant Foods, P6,330 list price.

Terms: Cash less 2% trade discount.

A helper got a cash advance of P150, to be deducted from his salary at the
end of the month.

4 Sold goods to Haymitch Mart P7,610 on account.

5 Paid for gas and oil P550.

7 Sold goods to Mellark MiniMart, P18,560 and received a 15day 20%

promissory note.

8 Peeta Market paid for its account.

Paid BIR for the withholding tax, SS, PhilHealth and HDMF for the
premiums.

9 Baby Grocery paid P2,500 to apply to its account.

10 Cash sales to date P24,000.

12 Paid for repairs and maintenance of delivery car, P1,250.

Paid BIR for the VAT.

14 Issued a credit memo to Mellark MiniMart for spoiled goods returned

worth P450.

15 Paid Victoria’s Insant Foods in full with a check.

18 Bought canned tuna from Liam Foods, P8,030. Terms: 40% down, balance
2/15, n/30. Freight of P250 FOB Destination.

20 Cash purchases, P4,840.

21 Ben Campbell issued a 30 day 12% promissory note for his account which
was past due.

23 Mellark MiniMart paid for its note. Made a cash deposit.

25 Delivered instant noodles to Peeta Market on account, P4,250.

28 Haymitch Mart paid its June account.

29 Paid note to PNB which matures today.

30 Paid for rent, P5,000 and utility P560.

Cash sales to date, P14,330.

Paid for salaries, P10,000 less withholding tax P500, SS and MediCare
premiums P400 and the cash advance.