Finals Hand out 2:

Illustration:
10-1 Amiable company provided the following data at year end:

Items counted in the bodega 4,000,000

Items included in the count specifically segregated
Per sales contract 100,000
Items in receiving department, returned by customer,
In good condition 50,000
Items ordered and in the receiving department,,
Invoice not received 400,000
Items ordered, invoice received but goods not received.
Freight is paid by seller 300,000
Items shipped today, invoice mailed, FOB shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department, refused by us because
Of damage 180,000
Items included in count, damaged and unsalable 50,000
Items in the shipping department 250,000

How much is the correct inventory amount to be presented in the balance sheet?

Practice set 1: (15 mins)

Amiable company provided the following data at year end:

Items counted in the bodega 3,500,000

Items included in the count specifically segregated
Per sales contract 100,000
Items in receiving department, returned by customer,
In good condition 50,000
Items ordered and in the receiving department,,
Invoice not received 400,000
Items ordered, invoice received but goods not received.
Freight is paid by seller 300,000
Items shipped today, invoice mailed, FOB shipping point 250,000
Items included in count, wrong items delivered by supplier 50,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department, refused by us because
Of damage 180,000
Items included in count, damaged and unsalable 50,000
Items included in count, consigned to us 100,000
Items in the shipping department 250,000

How much is the correct inventory amount to be presented in the balance sheet?
Illustration:

Practice set 2: (30mins)

10-4 Summer company is a wholesaler of car seatcovers. At the beginning of each year, the entity’s inventory
consisted of 90 seatcovers priced at P1,000 each. During the current year, the following events occurred:
1. Purchased 800 car seatcovers on account at P1,000 each
2. Returned 50 defective car seatcovers to supplier and received credit.
3. Paid 600 of the car seatcovers purchased.
4. Sold 790 car seatcovers at P2,000 each.
5. Received 20 car seatcovers returned by a customer and gave credit. The goods were in excellent
condition.
6. Received cash for 680 of the car seatcovers sold.
7. Physical count at year end revealed 60 units on hand.

a. Prepare the journal entries, including adjustments to record the above transactions assuming the
company uses (a) periodic system; and (b) perpetual system.
b. Determine the cost of sales under each inventory system.
Illustration: Trade discounts

Practice set 3: (20 mins)

Winter company received quotations from two entities for an
item of merchandise as follows:

From company A: List price of P500,000, less 20-10-10, FOB

Shipping point, 2/10, n/30.

From Company B: List price P500,000, less 35, FOB shipping

point, 2/10, n/30.

For each quotations, compute the invoice amount and the

amount to be paid by the buyer within the discount period.

Illustration: Methods of recording purchases

Practice set 4: (30mins)

10-6 Autumn company provided the following transactions for the current year, the first year of operations.

1. Purchase of merchandise at an invoice price of P4,750,000 excluding freight. Terms are 2/10, n/30.
2. Freight paid, P250,000. The freight is allocated to each purchase.
3. Cash payment on purchases, P3,717,000 of which P1,617,000 was paid within the discount period.
4. It is expected that all discounts on unpaid accounts payable will be lost.
5. On December 31, one fifth of the merchandise remains on hand.

a. Prepare journal entries to record the transactions using gross method and net method.
Illustration:

13-1 Avarice Company has a recent gross profit history of 40% of net sales.
The following data are available from the accounting records for the three months ended March 31:

Inventory – January 1 650,000

Purchases 3,200,000
Net sales 4,500,000
Purchase return 75,000
Freight in 50,000

Using the gross profit method, what is the estimated cost of inventory on March 31?

Practice set 6: (10mins)

13-2 Itadori company provided the following information for the current year:
Beginning inventory 650,000
Purchases 2,300,000
Purchase returns 80,000
Freight in 60,000
Sales 3,400,000
Sales discounts 20,000
Sales returns 30,000

At year end, a physical inventory revealed that the ending inventory was only P420,000. The gross profit on sales
has remained constant at 30%.
The entity suspects that some inventory may have been pilfered by one of the employees.
What is the estimated cost of missing inventory at year end?

Practice set 7: 15mins

Karen company reported the following information for the current year:
Beginning inventory 5,000,000
Purchases 26,000,000
Freight in 2,000,000
Purchases returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales returns 3,000,000
Sales allowances 500,000
Sales discounts 1,000,000

A physical inventory taken at year end resulted in an ending inventory costing P4,000,000.
At year end, unsold goods out on consignment with selling price of P1,000,000 are in the hands of consignee.
Gross profit is 40% of sales.

1. What is the cost of goods available for sale?

2. What is the cost of goods sold?
3. What is the estimated cost of inventory shortage?
Practice set 1 – Multiple choice:

1. Most corporate bonds are

a. Mortgage bonds c. secured bonds
b. Debenture bonds d. collateral bonds
2. To evaluate the risk and quality of an individual bond issue, investors rely heavily on
a. Bond ratings provided by investment houses
b. Newspaper articles
c. Bond interest payments
d. The audit report
3. Bonds payable should be reported as noncurrent at
a. Face amount less any unamortized discount or plus any unamortized premium
b. Current market price
c. Face amount less any unamortized premium or plus any unamortized discount
d. Face amount less accrued interest since the last interest payment date
4. The discount on bonds payable is reported as
a. A prepaid expense c. a current liability
b. An expense account d. a contra liability
5. When bonds are retired prior to maturity date
a. GAAP has been violated
b. The issuer probably will report on ordinary gain or loss
c. The issuer probably will report an extraordinary gain or loss
d. The issuer will not report a gain or loss
6. Which statement best describes the term liability?
a. An excess of equity over current assets
b. Resources to meet financial commitments when due
c. The residual interest in the assets of the entity
d. A present obligation arising from past event
7. If a long term debt becomes callable due to the violation of a loan covenant
a. The debt may continue to be classified as noncurrent if the covenant can be renegotiated.
b. The debt should be reclassified as current.
c. Cash must be reserved to pay the debt.
d. Retained earnings must be restricted.
8. Advance payments from customers represent
a. Liabilities until the product is provided
b. A component of shareholders’ equity
c. Assets until the product is provided
d. Revenue upon receipt of the advance payment
9. Revenue associated with gift card sales should be recognized
a. When the gift card is sold
b. No later than the last day of the reporting period
c. When the probability of gift card redemption is viewed as remote.
d. Under no circumstances
10. All else equal, a large increase in unearned revenue in the current period would be expected to produce
what effect on revenue in a future period?
a. Large increase because unearned revenue becomes revenue when earned.
b. Large decrease because unearned revenue implies that less revenue has been earned which
reduces future revenue.
c. No effect because unearned revenue is a liability.
d. Large decrease because unearned revenue indicates collection problems that will reduce net
revenue in future period.
11. When a product is delivered for which a customer advance has been previously received, the appropriate
journal entry includes
a. A debit to revenue and credit to liability
b. A debit to revenue and credit to asset
c. A debit to asset and credit to revenue
 d. A debit to liability and credit to revenue
12. When cash is received from customers in the form of a refundable deposit, the cash account is increased
with a corresponding increase in
a. Current liability c. shareholders’ equity
b. Revenue d. contributed capital