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AR Problems

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15 views3 pages

AR Problems

Uploaded by

haces521
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Problem 1

Steven Company provided the following information during the first-year operations:
Total merchandise purchases for the year 7,000,000
Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000
All merchandise was marked to sell at 40% above cost. All sales are on a credit basis and all receivables
are collectible.
What amount should be reported as accounts receivable on December 31?
a. 1,000,000
b. 3,840,000
c. 5,000,000
d. 5,800,000

Solution Answer B
Purchases 7,000,000
Inventory- December 31
(1,400,000)
Cost of goods sold 5,600,000
Markup on cost (40% x 5,600,000)
2,240,000
Sales (140% x 5,600,000)
7,840,000
Collections from customers
(4,000,000)
Accounts receivable - December
31 3,840,000
Solution:
Answer – B
Purchases 7,000,000
Inventory- December 31 (1,400,000)
Cost of goods sold 5,600,000

Markup on cost (40% x 5,600,000) 2,240,000


Sales (140% x 5,600,000) 7,840,000
Collections from customers (4,000,000)
Accounts receivable - December 31 3,840,000

Problem 2
On June 1,2021, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on account. Pitt
allowed trade discounts of 30% and 20%. On June 11, 2021, the customer paid in full. Credit terms were
2/10, n/30, and the sale was made at the FOB shipping point. Pitt prepaid P200,000 of delivery costs for
Burr as an accommodation.
1. What amount should be reported as sales revenue?
a. 5,000,000
b. 2,800,000
c. 3,500,000
d. 2,500,000
2. What amount was received by Pitt from Burr as remittance in full?
a. 2,744,000
b. 2,940,000
c. 2,944,000
d. 3,140,000

Solution:
Answer for no. 1 – B
Answer for no. 2 – C

List price 5,000,000


Trade discount (30% x 5,000,000) (1,500,000)
Trade Discount (20% x 3,500,000) (700,000)
Invoice price at gross - sales revenue 2,800,000
Cash discount (2% x 2,800,000) (56,000)
Net amount 2,744,000
Add: Reimbursement of delivery cost 200,000
Total Remittance from Burr 2,944,000

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