UNIVERSITY OF THE PHILIPPINES VISAYAS

TACLOBAN COLLEGE
DIVISION OF MANAGEMENT

BA 99.1 (Fundamentals of Accounting Theory I)

First Semester AY 2021 – 2022

ACTIVITY GUIDE CHAPTER 3: Accounting for a Merchandising Business

(INDIVIDUAL WORK)

CHAPTER / TOPIC Accounting for a Merchandising Business

TARGET LEARNING ● Explain the nature of inventories of a merchandising entity.
OUTCOMES ● Describe the accounting procedures for discounts. freight terms
and payment.
● Analyze and record transactions for sales of merchandise and
related accounts.
● Differentiate perpetual and periodic inventory system.
● Analyze and record transactions for merchandise purchases
and related accounts.
● Prepare the statement of cost of goods sold.
● Compute the gross profit.
● Describe the need for a physical count and year-end
adjustments.
● Explain inventory adjustments using periodic and perpetual
systems
● Prepare a worksheet for a merchandising business.
● Illustrate a multi-step income statement.
● Construct the financial statements for a merchandising entity
in good form.
● Discuss the closing process for a merchandising business.
● Prepare the post -closing trial balance.
● Perform the procedures to complete the accounting cycle for a
merchandising entity.
SCHEDULE Weeks 7-10
LEARNING ACTIVITY Exercise Sets

INSTRUCTIONS:

After going thru the readings indicated in the Study Guide Chapter 3, answer the exercises below
independently without using your notes and books. Write your answers in a yellow paper with solutions in
good form. Note: Answers should be hand-written. Do not write on both sides of the paper. Take a picture
or scan your output and submit the 6 PDF files (one file for each problem, with proper pagination) through
VLE on or before November 20, 2021.

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PROBLEM 1:

This activity allows you to apply the principles of accounting for a merchandise business by solving problems. The following
exercise sets are provided for your self-assessment. Should there be answers or items that you are unsure of or is a product
of guesswork, it is encouraged that you raise your queries or concerns during our online Q & A / feedback session. If you are
unable to attend the session, reach out by calling, texting or sending an email.
Part 1 – True or False
1) Under the perpetual inventory system, all increases and decreases in goods on hand are recorded in the “Inventory”
account.
2) Under the periodic inventory system, a sale transaction is recorded using two entries – one to record the sale and the other
one to record the cost of goods sold.
3) The “Purchases,” “Freight-in,” “Purchase returns” and “Purchase discounts” accounts are used under the perpetual
inventory system.
4) Under the periodic inventory system, no entry is made for cost of goods sold when the entity makes a sale.
5) Entity A purchases goods worth P100 and incurs transportation costs of P5 in having the goods delivered to its warehouse.
If Entity A uses the perpetual inventory system, the P5 transportation costs are recorded in the “Inventory” account rather
than in the “Freight-in” account.
6) Entity A’s total goods available for sale during the period was P110. If the ending inventory is P20, cost of goods sold must
be P130.
7) One day, you decided to become a businessman. You bought 10 bananas from Mrs. Monkey for P1 apiece. You marked-
up the bananas to sell for P5 apiece. At the end of the day, you have 2 bananas left. Your gross profit must be P42.
8) Mr. Rabbit consigned 10 carrots to you. You sold 6 carrots to Mrs. Panda, you ate 2 carrots and 1 carrot ran away. When
you checked your pocket, you find no more carrots. You have a shortage of 1 carrot.
Part 2 – Short Problems
1) The records of a business show the following information: Sales, P724,200; Sales discounts, P10,000; Sales returns,
P3,600; and Freight-in, P5,300. How much is the net sales?
2) The records of a business show the following information: Sales, P426,800; Inventory, beg., P22,400; Purchases,
P220,000; Freight-in, P12,000; Purchase discounts, P4,500; Sales returns, P21,600; and Purchase returns, P3,000. How
much is the Net Purchases?
3) The records of a business show the following information: Sales, P364,000; Purchases, P252,000; Freight-in, P11,000;
Purchase discounts, P4,900; Sales returns, P12,600; Purchase returns, P3,000; Inventory, beg., P22,400; and Inventory,
end., P15,000. How much is the Total Goods Available for Sale?
4) Use the information in #3 above. How much is Cost of Goods Sold?
5) Inventory, beg., P33,000; Net purchases, P128,000; Cost of goods sold, P96,000. How much is the Inventory, End.?
6) Inventory, beg., P89,000, Net purchases, P217,000; Cost of goods sold, P154,000. How much is the Inventory, End.?
7) Inventory, beg., P20,000; Net purchases, P176,000; Inventory, end., P90,000. How much is the Cost of Goods Sold?
8) Inventory, beg., P24,000; Cost of goods sold, P89,000; Inventory, end., P19,000. How much is the Net Purchases?
9) Inventory, end., P62,000; Net purchases, P216,000; Cost of goods sold, P244,000. How much is the Inventory, Beg.?
10) Inventory, end., P148,000; Net purchases, P236,000; Cost of goods sold, P344,000. How much is the Total Goods
Available for Sale?
11) Net purchases, P170,000; Increase in inventory during the year, P40,000. How much is the Cost of Goods Sold?
12) Net purchases, P170,000; Decrease in inventory during the year, P40,000. How much is the Cost of Goods Sold?
13) Cost of goods sold, P720,000; Increase in inventory during the year, P80,000. How much is the Net Purchases?
14) Inventory, beg., P4,000; Total goods available for sale, P190,000; Cost of goods sold, P169,000. How much is the Change
in Inventory during the year? increase (decrease)
15) Total goods available for sale, P71,000; Net purchases, P59,000; Inventory, end., P5,000. How much is the Change in
Inventory during the year? increase (decrease)
Part 3 – Journalizing Entries
Peaceful Morning Co. had a beginning inventory of P6,200. The following transactions occurred during the period:
1) Purchased goods worth P120,000 on account.
2) Paid transportation costs of P12,000 on the purchase above.
3) Returned damaged goods worth P2,400 to the supplier.
4) Sold goods costing P98,400 for P147,600 on account.
5) A customer returned goods with sale price of P10,800 and cost of P7,200.
Requirements:

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 a) Provide the journal entries under the Perpetual inventory system and Periodic inventory system, respectively.
b) Compute for the cost of goods sold under each of the inventory systems. The physical count of inventory reveals a balance
of P44,360 in ending inventory.
PERPETUAL: _____________ PERIODIC: _____________
Part 4 – Income Statement Preparation
Entity B’s records show the following information on December 31, 2019:
Sales P320,000
Sales discounts 10,000
Sales returns 8,000
Inventory, beg. 27,000
Inventory, end. 32,000
Purchases 145,000
Freight-in 7,000
Purchase discounts 4,000
Purchase returns 3,000
Prepare the income statement for the period.
Part 5 – Multiple Choice Questions and Short Problems
1) Your business uses the perpetual inventory system. Yesterday, you ordered 1,000 units of Product X, on account. Today,
when you received the goods, you found out that 10 units were broken. You notified the supplier and the supplier agreed
that you can return the broken units. To record the purchase return, you will credit which of the following accounts?
a. Purchase returns
b. Inventory
c. Sales returns
d. Broken heart goods
2) Which of the following is not a contra, or an adjunct, account?
a. Owner’s drawings
b. Freight-in
c. Sales discounts
d. Freight-out
3) How does gross profit differ from net profit?
a. Gross profit is the term used to describe the profit of a merchandising or manufacturing business, while net profit is
the term used to describe the profit of a service business.
b. Gross profit reflects only the direct costs of goods sold or services rendered, while net profit reflects all other expenses
that enter into the determination of profit or loss.
c. Gross profit is used in internal reporting, while net profit is used in external reporting.
d. Both terms mean the same.
4) Your business uses the periodic inventory system. You purchased goods worth P100,000 and paid P6,000 shipping costs.
To record the P6,000 amount, you will debit which of the following accounts?
a. Purchase returns
b. Inventory
c. Freight-in
d. Transportation and travel
Questions 5 and 6 are based on the following information:
Entity A uses the periodic inventory system. At the start of the period, Entity A has beginning inventory of P300,000. During the
period, Entity A made total purchases of P1,000,000. Entity A paid transportation costs of P40,000 on the purchases. Entity A
had totals credit sales of P960,000 during the period.
5) Prior to physical count of inventories, how much is the balance of Entity A’s “Inventory” account?
6) Prior to physical count of inventories, how much is Entity A’s Cost of Goods Sold?
7) When preparing the worksheet of a merchandising business that uses the periodic inventory system, the account
“Inventory, beg.” or “Merchandise inventory, beg.” is extended from the Adjusted trial balance columns to the
a. Balance sheet columns
b. Income statement columns
c. Post-closing trial balance
d. Anywhere you like
Questions 8 and 9 are based on the following information:

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 Your business is the exclusive distributor of Product A. at the start of the day, your inventory consisted of 10,000 units of Product
A. During the day, you received 20,000 units from your supplier and have dispatched 23,000 to retail customers.
8) Which of the following is correct?
Total goods Ending Inventory
available for sale (per records)
a. 30,000 7,000
b. 23,000 7,000
c. 33,000 10,000
d. 53,000 0
9) At the end of the day, you performed a physical count and found out that the units on hand were 6,800. Which of the
following statements is correct?
a. There is a shortage of 200 units.
b. There is an overage of 200 units.
c. An employee is doing magic.
d. No shortage, overage or magic.
Questions 10 and 11 are based on the following information:
Manong Magba Balut sells “balut.” At the beginning of the day, Manong Balut had 50 “baluts” (unsold from yesterday). During
the day, Manong purchased additional 160 “baluts.” Each balut has a unit cost of P7 and a unit price of P16. At the end of the
day, Manong Balut has 18 “baluts” left.
10) How much is the gross profit of Manong Balut?
11) If the cash count of Manong Balut at the end of the day reveals a balance of P3,040, and Manong did not spend any of his
collections during the day, which of the following statements is correct?
a. Manong Balut has a shortage of P32 or 2 “baluts.”
b. Manong Balut has an overage of P32 or 2 “baluts.”
c. No shortage or overage.
d. Two “baluts” hatched.
Questions 12 to 14 are based on the following information:
You have a business. At the beginning of the period, you have 30 units of a product. During the period, your supplier delivered
a total of 140 units; however, you rejected 8 units that were spoiled. All units cost P1,500 apiece and are marked-up to sell at
P4,200 apiece. Your business does not sell on credit. At the end of the period, your inventory count revealed 16 units, while
your sale register revealed total collections of P504,000.
12) How much is your cost of goods sold based on the physical count?
13) How much cash is missing or in excess? (shortage) overage
14) How many units are missing or in excess? (shortage) or overage

PROBLEM 2:

This activity allows you to apply the principles of accounting for a merchandise business by solving problems. The following
exercise sets are provided for your self-assessment. Should there be answers or items that you are unsure of or is a product
of guesswork, it is encouraged that you raise your queries or concerns during our online Q & A / feedback session. If you are
unable to attend the session, reach out by calling, texting or sending an email.
1) ABC Company took a physical inventory at the end of the year and determined that P6,200,000 of goods were on hand.
In addition, the entity determined that P20,000 of goods purchased in transit shipped FOB Destination were actually
received two days after the physical count and that the entity had P30,000 of goods out on consignment. What amount
should be reported as inventory at year-end?
2) ABC Company provided the following information for the current year:
Merchandise purchased for resale P400,000
Freight in 10,000
Freight out 5,000
Purchase returns 2,000
Interest on inventory loan 20,000

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 What is the inventoriable cost of the purchase?
3) On December 28, 2019, ABC Company purchased goods costing P5,000,000 FOB Destination. These goods were
received on December 31, 2019. The costs incurred in connection with the sale and delivery of the goods were:
Packaging for shipment P100,000
Shipping 51,000
Special handling charges 52,000
On December 31, 2019, what total cost should be included in inventory?
4) ABC Company used a perpetual inventory system. At the end of 2018, the inventory account was P630,000 and P30,000
of those goods included in ending inventory were purchased FOB shipping point and did not arrive until 2019. Purchases
in 2019 were P1,000,000. The perpetual inventory records showed an ending inventory of P990,000 for 2019. A physical
count at the end of 2019 showed an inventory of P700,000. The inventory shortage was identified to be abnormal and
material. What amount should be reported as cost of goods sold for 2019?
5) ABC Company had the following transactions during December 2019:
Inventory shipped on consignment to XYZ Company P8,100,000
Freight paid by ABC 900,000
Inventory received on consignment from DEF Company 2,100,000
Freight paid by ABC 500,000
No sales of consigned goods were made in December 2019. What amount should be included in inventory on December
31, 2019?
6) ABC Company provided the following for the current year:
Central warehouse Held by consignees
Beginning inventory P1,100,000 P210,000
Purchases 8,400,000 6,000,000
Freight in 1,000,000
Transportation to consignees 500,000
Freight out 3,000,000 800,000
Ending inventory 5,410,000 2,000,000
What is the cost of goods sold for the current year?
7) ABC Company is a large importer and exporter of seafood. The imports were all from one country overseas. Inventory as
of the start of the year is P7,000,000 which includes a P1,350,000 cost associated to freight. The entity reported the
following data during the year:
Purchases P21,000,000
Shipping costs from overseas 5,100,000
Shipping costs to export customers 100,000
Inventory at year-end 25,000,000
Following the FIFO method, what amount of shipping costs should be included in the year-end inventory valuation?
8) ABC Company included the following in inventory at year-end:
Merchandise out on consignment at sale price, including 69.69% markup on cost P69,696,969.69
Goods purchased in transit, shipped FOB shipping point 6,969,696.90
Goods held on consignment by ABC 69,696.90
At what amount should the inventory be reduced?
9) ABC Company regularly buys sweaters from XYZ Company and is allowed trade discounts of 6% and 9% from the list
price. ABC made a purchase during the year, and received an invoice with a list price of P6,000,000, a freight charge of
P150,000 and payment terms of 6/9, n/30. What is the cost of the purchase?
10) On June 1, 2019, ABC Company sold merchandise with a list price of P50,000,000 to XYZ on account. ABC allowed trade
discounts of 9% and 6%. Credit terms were 9/6, n/30 and the sale was made FOB shipping point. ABC prepaid P2,000,000
of delivery costs for XYZ as an accommodation. On June 7, 2019, what amount was received by ABC from XYZ as
remittance in full?
11) On August 1 of the current year, ABC Company recorded purchases of inventory of P8,000,000 and P10,000,000 under
credit terms of 2/15, net 30. The payment due on the P8,000,000 purchase was remitted on August 16. The payment due
on the P10,000,000 purchase was remitted on August 31. Under the net method and the gross method, these purchases
should be included at what respective amounts in the determination of cost of goods available for sale? Net method:
_____________ Gross method: _____________
12) ABC Company recorded purchases at net amount. On December 10, the entity purchased merchandise on account,
P40,000,000, terms 3/7, n/30. The entity returned P3,000,000 of the December 10 purchase and received credit on

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 account. The account had not been paid on December 31. At what amount should the account payable be adjusted on
December 31? (Indicate the effect)

PROBLEM 3:

This activity allows you to apply the principles of accounting for a merchandise business by solving problems. The following
exercise sets are provided for your self-assessment. Should there be answers or items that you are unsure of or is a product
of guesswork, it is encouraged that you raise your queries or concerns during our online Q & A / feedback session. If you are
unable to attend the session, reach out by calling, texting or sending an email.
1) ABC Company counted and reported the ending inventory on December 31, 2019 at P20,000,000. None of the following
items were included (except for the last item) when the total amount of the ending inventory was computed:
I. P510,000 in goods located in the entity’s warehouse that are on consignment from another entity.
II. P2,000,000 in goods that were sold by the entity and shipped on December 30 and were in transit on December 31,
2019. The goods were received by the customer on January 2, 2020. Terms were FOB destination.
III. P30,000 in goods that were purchased by the entity and shipped on December 30 and were in transit on December
31, 2019. The goods were received by the entity on January 2, 2020. Terms were FOB shipping point.
IV. P4,000,000 in goods that were sold by the entity and shipped on December 30 and were in transit on December 31,
2019. The goods were received by the customer on January 2, 2020. Terms were FOB shipping point.
What is the correct amount of inventory on December 31, 2019?
2) ABC Company, which uses the perpetual inventory system, reported the 2019 year-end inventory at P6,700,000 before
the following adjustments:
I. Goods valued at P10,000,000 are on consignment with a customer. These goods are not included in the year-end
inventory.
II. Goods costing P520,000 were received from a vendor on January 5, 2020. The related invoice was received and
recorded on January 12, 2020. The goods were shipped on January 1, 2020, terms FOB shipping point.
III. Goods costing P580,000 were shipped on December 31, 2019, and were delivered to the customer on January 2,
2020. The terms of the invoice were FOB shipping point. The sale was recorded in 2020.
IV. A P530,000 shipment of goods to a customer on December 31, 2019 (FOB destination) was sold at a loss. The goods
cost P620,000 and were delivered to the customer on January 8, 2020. The sale was recorded in 2019.
V. An invoice for goods costing P530,000 was received and recorded as a purchase on December 31, 2019. The related
goods, shipped FOB destination, were received on January 2, 2020, and thus were not included in the physical
inventory.
VI. Goods valued at P560,000 are on consignment from a vendor. These goods are included in the year-end inventory.
VII. A P5,010,000 shipment of goods to a customer on December 30, 2019, terms FOB destination, was recorded as a
sale in 2019. The goods, costing P480,000, was delivered to the customer on January 6, 2020.
What is the correct inventory on December 31, 2019?
3) ABC Company conducted a physical count on December 31, 2019 which revealed inventory with a cost of P4,140,000.
The audit identified that the following items were excluded from this amount:
I. Merchandise of P160,000 is held by ABC on consignment.
II. Merchandise was sold at P830,000 and shipped by ABC, FOB destination, to a customer on December 31, 2019.
Gross profit rate based on sales is 25%. The customer was expected to receive the goods on January 5, 2020.
III. Merchandise was sold at P640,000 and shipped by ABC, FOB shipping point, to a customer on December 29, 2019.
Gross profit rate based on cost is 25%. The customer was expected to receive the goods on January 5, 2020.
IV. Merchandise costing P380,000 shipped by a vendor, FOB destination, on December 31, 2019 was received by ABC
on January 5, 2020.
V. Merchandise cost P150,000 purchased FOB shipping point was shipped by the supplier on December 31, 2019 and
received by ABC on January 5, 2020.
What is the correct amount of inventory on December 31, 2019?
4) ABC Company reported accounts payable on December 31, 2019 at P5,400,000 before any necessary year-end
adjustments relating to the following transactions:
I. On December 27, 2019, ABC wrote and recorded checks to creditors totaling P200,000 causing an overdraft of
P50,000 in ABC’s bank account on December 31, 2019. The checks were mailed on January 10, 2020.

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 II. On November 28, 2019, ABC purchased and received goods for P570,000, terms 2/10, n/30. ABC records purchases
and accounts payable at net amount. The invoice is still unpaid as of December 31, 2019.
III. Goods shipped FOB destination on December 20, 2019 from a vendor to ABC were received January 2, 2020. The
invoice cost was P523,000.
On December 31, 2019, what amount should be reported as accounts payable?
5) ABC Company reported accounts payable on December 31, 2019 at P22,000,000 before considering the following data:
I. Goods shipped to ABC FOB shipping point on December 22, 2019, were lost in transit. The invoice cost of P4,000
was not recorded by ABC. On January 7, 2020, ABC filed a P4,000 claim against the common carrier.
II. On December 27, 2019, a vendor authorized ABC to return, for full credit, goods shipped and billed at P700,000 on
December 3, 2019. The returned goods were shipped by ABC on December 28, 2019.
III. On December 31, 2019, ABC has a P50,000 debit balance in accounts payable to XYZ, a supplier, resulting from a
P50,000 advance payment for goods to be manufactured.
What amount should be reported as accounts payable on December 31, 2019?
6) ABC Company reported accounts payable on December 31, 2019 at P9,000,000 before any necessary year-end
adjustments relating to the following:
I. Goods were in transit from a vendor to ABC on December 31, 2019. The invoice cost was P5,000, and the goods
were shipped FOB shipping point on December 29, 2019. The goods were received on January 4, 2020.
II. Goods shipped FOB destination on December 20, 2019 from a vendor to ABC were lost in transit. The invoice cost
was P250,000.
III. Goods shipped FOB shipping point on January 1, 2020 from a vendor to ABC were received on January 6, 2020. The
invoice cost was P51,000.
What amount should be reported as accounts payable on December 31, 2019?

7) ABC Company began operations late in 2018. For the first quarter ended March 31, 2019, the entity provided the following
information:
Total merchandise purchased through March 15, 2019 at net P9,400,000
Merchandise inventory on January 1, 2019, at selling price 1,248,750
All merchandise was acquired on credit and no payments have been made on accounts payable since the inception of the
entity. The total beginning inventory is marked to sell at a gross profit rate of 20% based on sales if the total cost is above
P1,000,000 (before time discounts of 2/10, n/30). Otherwise, markup on total beginning inventory will be based on 30% above
total cost. No sales were made in 2019. The company elected to use the gross method of recording purchases and accounts
payable. What amount of cash is required to eliminate the current balance in accounts payable? (Assume that purchase and
sales discount/credit terms are the same.) _____________

PROBLEM 4:

This activity allows you to apply the principles of accounting for a merchandise business by solving problems. The following
exercise sets are provided for your self-assessment. Should there be answers or items that you are unsure of or is a product
of guesswork, it is encouraged that you raise your queries or concerns during our online Q & A / feedback session. If you are
unable to attend the session, reach out by calling, texting or sending an email.
1) On April 1, ABC Company had 60,000 units of merchandise on hand that cost P210 per unit. During the month, the entity
had the following transactions with regard to the merchandise:
April 5 Purchased on account 51,000 units at P410 per unit
April 8 Returned 10,000 units from the April 5 purchase
April 29 Sold on account 61,000 units at P2,000 per unit
The entity used a perpetual inventory system and a FIFO cost flow. What is the cost of goods sold for April?
2) ABC Company used a periodic inventory system. The entity provided the following inventory transactions for the month of
January:
January 1 inventory 100,000 units P30 per unit
January 5 purchase 75,000 units P40 per unit
January 15 purchase 50,000 units P50 per unit
January 20 sales 69,000 units P69 per unit

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 The entity used the average pricing method to determine the value of inventory. What amount should be reported as cost
of goods sold for the month of January?
3) ABC Company used the periodic system. The following information has been extracted from the records about one product:
Units Cost
January 1 Beginning 80,000 P69.0
January 6 Purchase 300 69.5
February 5 Sale 10,000
March 5 Purchase 110,000 73.5
March 8 Purchase return 80 73.5
April 10 Sale 70,000
April 30 Sale return 30
If the FIFO cost flow method is used, what is the cost of the inventory on April 30?
4) ABC Company is a wholesaler of office supplies. The FIFO periodic inventory is used. The entity reported the following
activity for inventory of calculators during the month of August:
Units Cost
August 1 Inventory 200,000 P63.0
August 7 Purchase 3,000 27.3
August 12 Sale 63,000
August 21 Purchase 84,000 83.0
August 22 Sale 83,000
August 29 Purchase 61,000 68.3
What is the ending inventory on August 31?
5) ABC Company sells a new product. During a move to a new location, the inventory records for the product were misplaced.
The entity has been able to gather some information from the purchases and sales records. The July purchases are as
follows:
Quantity Cost
July 5 10,000 P56
July 9 21,000 36
July 12 51,000 6
July 25 41,000 26
On July 31, 51,000 units were on hand. The sales for July amount to P4,808,610 or 69,000 units at P69.69 per unit. Gross
profit on sales for July was P1,923,444. The entity has always used a periodic FIFO inventory costing system. What is the
cost of inventory on July 1?
6) ABC Company provided the following inventory card during February:
Purchase Units
Price Units used
January 10 P107 20,000
January 31 7,000
February 8 101 30,000
February 28 17,000
Using the weighted average method, what is the cost of inventory on February 28?
Questions 7 to 9 are based on the following information:
ABC Company used the moving average method to determine the cost of the inventory. During the month of January, the entity
recorded the following information pertaining to inventory:
Units Cost
Balance on January 1 80,000 P20
Sold on January 17 53,000
Purchased on January 28 50,000 40
7) How many units are there in the ending inventory?
8) What is the ending inventory unit cost?
9) What amount of inventory should be reported on January 31?
Questions 10 and 11 are based on the following information:
During the month of January, ABC Company which used a perpetual inventory system recorded the following information
pertaining to inventory:

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 Units Cost
Balance on 1/1 4,000 P500
Purchased on 1/7 9,000 300
Sold on 1/20 6,000
Purchased on 1/25 10,000 100
10) Under the moving average method, what amount should ABC report as inventory on January 31?
11) Under the FIFO method, what amount should ABC report as inventory on January 31?
12) ABC Company is a wholesaler of photography equipment. The entity used the periodic average cost method to account
for inventory. The activity for the inventory of cameras during July is shown below:
Units Cost
July 1 Inventory 37,000 P66.30
July 7 Purchase 27,000 73.00
July 12 Sale 63,000
July 21 Purchase 95,000 88.73
July 22 Sale 83,000
July 29 Purchase 61,000 11.83
What is the ending inventory on July 31?
Questions 13 to 17 are based on the following information:
ABC Company provided the following data relating to an inventory item:
Units Cost
January 1 Beginning 2,000 P500
January 10 Purchase 7,000 520
January 15 Sale 5,000
January 16 Sale return 3,000
January 30 Purchase 63,000 510
January 31 Purchase return 1,000 510
The company uses the perpetual system in inventory costing.
13) What is the moving average unit cost after the January 10 Purchase?
14) What is the moving average unit cost after the January 16 Sale return?
15) What is the moving average unit cost after the January 30 Purchase?
16) What is the moving average unit cost after the January 31 Purchase return?
17) What is the cost of the January 15 sale and the January 16 sale return, respectively?

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PROBLEM 5:

This activity allows you to apply the principles of accounting for a merchandise business by solving problems. The following
exercise sets are provided for your self-assessment. Should there be answers or items that you are unsure of or is a product
of guesswork, it is encouraged that you raise your queries or concerns during our online Q & A / feedback session. If you are
unable to attend the session, reach out by calling, texting or sending an email.
1) ABC Company sells merchandise at a gross profit of 34.56%. On June 30, 2019, all of the inventory was destroyed by fire.
The following figures pertain to the operations for the six months ended June 30, 2019:
Net sales 8,888,888
Beginning inventory 2,222,222
Net purchases 5,252,525
What is the estimated cost of the destroyed inventory?
2) ABC Company reported during the current year beginning inventory P555,555, net purchases P2,525,252 and net sales
P3,232,323. A physical count at year-end resulted in an inventory of P575,575. The gross profit on sales had remained
constant at 23.45%. The entity suspected that some inventory may have been taken by a new employee. What is the
estimated cost of missing inventory at year-end?
3) During the current year, ABC Company reported beginning inventory P333,333, ending inventory P181,818, sales
P2,752,752 and gross margin of 24.35% on sales. What amount was reported as purchases?
4) ABC Company had an explosion in a plant that destroyed most of the inventory. The records showed the following
information during the current year:
Beginning inventory 444,444
Purchases 4,848,484
Sales 6,262,626
Gross profit percentage 25.34%
The entity can sell some of the damaged inventory for P55,555. The insurance company will reimburse the entity for
78.96% of the loss. What amount should be reported as loss from explosion?
5) ABC Company provided the following information for the year ended December 31, 2019:
Inventory, January 1 656,565
Purchases 2,323,232
Purchase returns 88,888
Freight in 66,666
Sales 3,434,343
Sales discounts 22,222
Sales returns 33,333
On December 31, 2019, a physical inventory revealed that the ending inventory was only P424,242. The gross profit on
sales has remained constant at 35.46% in recent years. The entity suspected that some inventory may have been pilfered
by one of the entity’s employees. On December 31, 2019, what is the estimated cost of missing inventory?
6) On October 31, 2019, ABC Company reported that a flood caused severe damage to the entire inventory. Based on recent
history, the entity has a gross profit of 23.54% of sales. The following information is available from the records for 10
months ended October 31, 2019:
Inventory, January 1 525,252
Purchases 4,124,124
Purchase returns 66,666
Sales 5,656,565
Sales returns 444,444
Sales allowances 111,111
A physical inventory disclosed usable damaged goods which can be sold for P77,777. What is the estimated cost of goods
sold for the 10 months ended October 31, 2019?
7) On September 30, 2019, ABC Company reported that a fire caused severe damage to the entire inventory. The entity has
a gross profit of 36.45% on cost. The following data are available for 9 months ended September 30, 2019:
Inventory at January 1 1,111,111
Net purchases 6,666,666
Net sales 7,287,287

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 A physical inventory disclosed usable damaged goods which can be sold for P111,111. What is the estimated cost of
goods sold for the 9 months ended September 30, 2019?
8) ABC Company provided the following information for the current year:
Net sales 3,636,363
Freight in 99,999
Purchase discounts 55,555
Ending inventory 242,424
Gross margin on sales 45.67%
What is the cost of goods available for sale?
9) ABC Company estimated the cost of the physical inventory on March 31 for use in interim financial statement. The rate of
markup on cost is 24.53%. The inventory on January 1 was P5,555,555. During the period January 1 to March 31, the
entity had purchases of P4,343,434, purchase returns of P222,222 and sales of P7,575,757. What is the estimated cost
of inventory on March 31?
10) A fire destroyed ABC Company’s inventory on October 31. On January 1, the inventory had a cost of P2,525,252. During
the period January 1 to October 31, the entity had net purchases of P7,575,757 and net sales of P15,151,515. Undamaged
inventory at the date of fire had a cost of P151,515. The markup on cost is 67.89%. What was the cost of inventory
destroyed by fire?
11) ABC Company provided the following information during the first year of operations:
Total merchandise purchases for the year 7,777,777
Merchandise inventory on December 31 1,414,141
Collections from customers 4,444,444
All merchandise was marked to sell at 46.57% above cost. All sales are on a credit basis and all receivables are collectible.
What is the balance of accounts receivable on December 31?
12) ABC Company sells merchandise on a consignment basis to dealers. The selling price of the merchandise averages
25.43% above cost. The dealer is paid a 12.34% commission of the sales price for all sales made. All dealer sales are
made on a cash basis. The following consignment activities occurred during the current year:
Manufacturing cost of goods shipped on consignment 8,888,888
Sales price of merchandise sold by dealers 9,696,969
Payments remitted by dealers after deducting commission 6,363,636
What is the gross profit on sales?

PROBLEM 6:

This activity allows you to apply the principles of accounting for a merchandise business by solving problems. The following
exercise sets are provided for your self-assessment. Should there be answers or items that you are unsure of or is a product
of guesswork, it is encouraged that you raise your queries or concerns during our online Q & A / feedback session. If you are
unable to attend the session, reach out by calling, texting or sending an email.
On January 1, 2019, Mr. XYZ decided to start with a business on his own under the trade name XYZ Distributors. The following
are the transactions for the month of January 2019:
January 1 Mr. XYZ invested the following:
▪ Bank deposit with BPI, P750,000.
▪ Merchandise with a fair value of P275,000.
▪ Furniture and Equipment with acquisition cost of 1,700,000 and fair value of 1,450,000.
▪ Service vehicle with cost of 1,700,000.
▪ Supplies inventory realizable at P13,000 with past purchase price of P20,000.
January 2 Purchased merchandise in cash costing P250,000, FOB Shipping Point, Freight Prepaid P3,000.
January 3 Returned P7,000 cost of merchandise due to some defects and no replacements have been made.
January 5 Sold merchandise for cash P130,000 to Mr. ABC, FOB Shipping Point, Freight Prepaid P7,000. Mr. XYZ
gave a 3% trade discount to Mr. ABC.
January 7 Purchased merchandise on account from Mr. QWERTY P65,000, FOB Destination, Freight Collect P1,500.
Term: 3/3, 2/7, 1/10, N/30.
January 8 Sold merchandise on account to Mr. ASD P185,000. Term: 2/10, N/30. FOB Destination, Freight Collect
P4,000.

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 January 9 Purchased merchandise on account from Mr. ZXC costing P270,000. Term: 2/10, EOM. FOB Shipping
Point, Freight Collect P8,000.
January 9 Collected in full the account of Mr. ASD.
January 10 Received P4,000 of merchandise from Mr. ASD due to some defects.
January 12 Paid the account with Mr. QWERTY.
January 13 Sold merchandise on account to Mr. JKL P80,000. Term: 3/10, 2/20, N/30. Shipping Point, Freight Collect
P1,000.
January 15 Purchased merchandise on account from Mr. FGH P70,000. Term: 3/10, N/30. FOB Destination, Freight
Prepaid P11,000.
January 18 Returned P1,500 cost of merchandise to Mr. FGH due to bad order and was not replaced.
January 20 Paid the account with Mr. FGH.
January 22 Sold merchandise on account to Mr. YU P55,000 and gave a 0.5% trade discount. FOB Destination, Freight
Prepaid P2,700.
January 23 Purchased merchandise on account P210,000, FOB Shipping Point, Freight Prepaid P3,000.
January 26 Sold merchandise on account P500,000, FOB Shipping Point, Freight Prepaid P11,700.
January 28 Paid the following expenses:
o Salaries for the month, P17,000
o Utilities, P6,300
o Taxes and Licenses, P7,700
o Rent expense, P5,000
January 30 Withdrew P27,500 for personal use.
The following are given data on January 31, 2019 for adjustments:
a) Estimated uncollectible accounts should be provided at 7% of net sales.
b) Furniture and Equipment has an estimated life of 5 years without salvage value.
c) Service vehicle has an estimated life of 5 years with a salvage value of P150,000 at the end of its life.
d) 10,000 of the supplies have been used up.
e) Signed a 1-year P300,000 advertising contract with a client.
f) Merchandise inventory physical count of unsold goods, P650,000.
Requirement:
Prepare the necessary and appropriate journal entries, the corresponding adjusting entries, and an 8-column worksheet.

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