Documente Academic
Documente Profesional
Documente Cultură
Revenue Cycle 4. On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt
Trade discounts allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was
1. Melissa Company sold an item on credit for P5,000,000 less multiple trade discounts of 20 made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation.
and 5. Which entry to record this sale is correct? On June 12, Pitt received from Burr a remittance in full payment amounting to:
A. Debit Accounts Receivable for P4,125,000 and credit Sales for P3,750,000 and Output A. $2,744 C. $2,944
Tax for P375,000. B. $2,940 D. $3,140 Becker 2013
B. Debit Accounts Receivable for P4,180,000 and credit Sales for P3,800,000 and Output
Tax for P380,000. 2. On June 1, 2012, Jeanah Company sold merchandise with a list price of P5,000,000 to a
C. Debit Accounts Receivable for P5,500,000 and credit Sales for P5,000,000 and Output customer. The entity allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30
Tax for P500,000. and the sale was made FOB shipping point. The entity prepaid P100,000 of delivery cost for
D. Debit Accounts Receivable for P5,500,000 and Trade Discount for P1,200,000 and credit the customer as an accommodation. On June 11, 2012, what is the full remittance from the
Sales for P5,000,000, Output Tax for P500,000 and Allowance for Sales Discount for customer? (M1)
P1,200,000. CPAR 0503 A. 3,420,000 C. 3,600,000
B. 3,520,000 D. 3,700,000 CPAR 1012
2. Bernadette Company sold an item on credit for P5,000,000 less multiple trade discounts of
20 and 5. The correct entry to record this sale is 5. On June 1, 2014 Compassion Company sold merchandise with a list price of P 1,000,000 to
A. Debit Accounts Receivable for P4,180,000 and credit Sales for P3,800,000 and Output a customer. The entity allowed trade discounts of 20% and 10%. Credit terms were 5/10,
tax for P380,000. n/30 and the sale was made FOB shipping point. The entity prepaid P50,000 of delivery cost
B. Debit Accounts Receivable for P5,500,000 and credit Sales for P5,000,000 and Output for the customer as an accommodation On June 11, 2014, what amount is received from the
Tax for P600,000. customer as full remittance?
C. Debit Accounts Receivable for P4,300,000 and Sales Discount for P1,200,000 and credit A. 684,000 C. 770,000
Sates for P5,000,000 and Output Tax for P500,000. B. 720,000 D. 794,000 FA © 2014
D. Debit Accounts receivable for P5,500,000 and Trade Discount for P1,200,000 and credit
Sales for P5,000,000, Output Tax for P500,000 and Allowance for Sales Discount for 35. Crabtree & Evelyn Corp. normally sells ladies’ apparels to preferred customers on account.
P1,200,000. CPAR 1004 Trade discounts of 20% and 10% are granted with credit terms of 2/15, n/60. On August 1,
2004, apparels with a list price of P250,000 were sold FOB seller’s warehouse. Crabtree &
Accounts Receivable Evelyn prepaid the freight of P150 as an accommodation.
3. The following data are given for Mazda, Inc.: The amount that Crabtree & Evelyn should receive on August 10, 2004 when the customer
Cash Credit Total remits the full payment is
Cost of sales P50,000 P450,000 P500,000 A. P171,603 C. P176,506
Cash received from customers 65,000 585,000 650,000 B. P171,650 D. P176,550 CRC 0504
Assuming merchandise was marked to sell as follows: Cash sales, at 30% about cost and
credit sales, at 40% above cost, all of which are collectible. The balance of accounts 15. On April 28, 2012 Malcom Company sold merchandise with a list price of P5,000,000 to
receivable at the end of the period was (M) Forbes. Malcom allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30.
A. P12,500 C. P135,000 The goods were shipped FOB destination, freight collect. Total freight charges paid by the
B. P45,000 D. P147,500 R&E 2012 Forbes amounted to P50,000. On May 8, 2012, Malcom received from Forbes full remittance
of (M1)
Collection A. P3,370,000 C. P3,550,000
B. P3,420,000 D. P3,600,000 Cabarles A. $14,000 C. $15,600
B. $14,400 D. $20,000 AICPA 0590
Purchases – Gross Method
Inventoriable costs 11. MORO Co. purchased an item of merchandise quoted and listed at P150,000 under the
List price, trade discount following terms: Trade discounts of 15%, 10% and 5%; 2/10, n/30. What was the invoice
6. Ami Retailers purchased merchandise with a list price of $100,000, subject to a trade price of the merchandise? (E)
discount of 20 percent and credit terms of 2/10, n/30. At what amount should Ami record the A. P105,000.00 C. P100,842.00
cost of this merchandise if the gross method is used? (E) B. P109,012.50 D. P104,695.60 RPCPA 1087
A. $100,000 C. $98,000
B. $80,000 D. $78,400 S, S & S 12. Kindness Company regularly buys sweaters and is allowed a trade discount of 20% and 10%.
The entity made a purchase on March 20 and received an invoice with a list price of
9. Walters Co. purchased raw materials with a catalog price of $70,000 on March 2, 2010. P900,000, a freight charge of P50,000, and payment terms of net 30 days. The entity should
Credit terms of 4/20, n/60 applied. Walters uses a perpetual inventory system and the gross record the purchase at what amount?
price method. If Walters pays for the purchase on March 18, 2010, calculate what amount is A. 630,000 C. 680,000
recorded for inventory on March 2, 2010. B. 648,000 D. 698,000 FA © 2014
A. $42,000 C. $67,200
B. $56,000 D. $70,000 NB&J 11e List price, trade discount, freight-in
13. Dean Sportswear regularly buys sweaters from Mill Company and is allowed trade discounts
7. West Retailers purchased merchandise with a list price of $20,000, subject to trade discounts of 20% and 10% from the list price. Dean made a purchase on March 20, 2004, and receive
of 20% and 10%, with no cash discounts allowable. West should record the cost of this an invoice with a list price of P600,000, a freight charge of P15,000 and payment terms of
merchandise as (E) 2/10, n/30. Dean should record the purchase at (E)
A. $14,000 C. $15,600 A. 432,000 C. 438,360
B. $14,400 D. $20,000 AICPA 0590 B. 447,000 D. 435,000 AICPA
8. Walsh Retailers purchased merchandise with a list price of $50,000, subject to trade 14. Galleria Sportswear, Inc. regularly buys sweaters from Bon Company and is allowed a trade
discounts of 20% and 10%, with no cash discounts allowable. Walsh should record the cost discount of 20% and 10% from the list price. Galleria made a purchase on March 20, 2012,
of this merchandise as and received an invoice with a list price of P90,000, a freight charge of P5,000, and payment
A. $35,000. C. $39,000. terms of net 30 days. What is the total cost of the inventory purchase? (E)
B. $36,000. D. $50,000. AICPA adapted A. P63,000 C. 69,000
B. P64,000 D. P69,800 R&E 2012
9. Utley Retailers purchased merchandise with a list price of $30,000, subject to trade discounts
of 20% and 10%, with no cash discounts allowable. Utley should record the cost of this 81. Ella Company regularly buys sweaters from Millard Company and is allowed trade discount of
merchandise as (E) 20% and 10% from a list price. Ella made a purchase on March 20 and received an invoice
A. $21,000. C. $23,400. with a list price of P4,000,000, a freight charge of P100,000, and payment terms of net 30
B. $21,600. D. $30,000. K, W & W days. Ella should record the purchase at (E)
A. 2,880,000 C. 4,000,000
10. West Retailers purchased merchandise with a list price of $20,000, subject to trade discounts B. 2,980,000 D. 4,100,000 Siy
of 20% and 10%, with no cash discounts allowable. West should record the cost of this
merchandise as (E) List price, trade discount, freight, insurance, import-related costs
15. Brilliant Company purchased motorcycles from various countries for export to other countries. Shipping 1,500
The entity has incurred the following costs during the current year: Special handling charges 2,000
Cost of purchases based on vendors' invoices 5,000,000 These goods were received on December 31, 2011. In Kerr’s December 31, 2011 balance
Trade discounts on purchases already deducted from vendors' invoices 500,000 sheet, what amount of cost for these goods should be included in inventory?
Import duties 400,000 A. $54,500 C. $52,000
Freight and insurance on purchases 1,000,000 B. $53,500 D. $50,000 AICPA 1191
Other handling costs relating to imports 100,000
Salaries of accounting department 600,000 Invoice price
Brokerage commission paid to agents for arranging imports 200,000 19. The following costs were among those incurred by Woodcroft Corporation during 2011:
Sales commission paid to sales agents 300,000 Merchandise purchased for resale $500,000
After-sales warranty costs 250,000 Salesmen's commissions 40,000
What is the total cost of the purchases? Interest on notes payable to vendors 5,000
A. 5,700,000 C. 6,500,000 How much should be charged to the cost of the merchandise purchases? (E)
B. 6,100,000 D. 6,700,000 FA © 2014 A: $500,000 C: $540,000
B: $505,000 D: $545
FOB Shipping point
16. An enterprise with a December 31 year-end purchased 2,000 of inventory on account. The 7. On December 28, 1996, Arlington Co. purchased goods costing P1,000,000. The terms were
seller was responsible for delivery to the shipping point, with freight of 50 paid at destination FOB destination. Some of the cost incurred in connection with the sale and delivery of the
by the buyer. The invoice date was December 27, 2001, and the goods arrived on January 3, foods were as follows:
2002. What is the correct amount of inventory and freight-in, respectively, relating to this Packaging for shipment P20,000
purchase on the 2001 financial statements? Shipping 30,000
CIA 0592 A. B. C. D. Special handling charges 40,000
Inventory 0 2,050 0 2,000 These goods were received on December 31, 1996.
Freight-In 0 0 50 50 In Arlington’s December 31, 1996 balance sheet, what amount of costs for these goods
should be included in inventory? (E))
FOB destination A. P1,040,000 C.
17. An enterprise with a December 31 year-end purchased 2,000 of inventory on account. The P1,090,000
terms required the seller to deliver to the destination, with freight of 50 paid at destination by B. P1,070,000 D. P1,0
the buyer. The invoice date was December 27, 2001, and the goods arrived on January 3,
2002. What is the correct amount of inventory and freight-in relating to this purchase on the 20. On December 28, 2001, Nord Manufacturing Co. purchased goods costing $50,000. The
2001 financial statements? terms were FOB destination. Some costs incurred in connection with the sale and delivery of
CIA 0592 IV-33 A. B. C. D. the goods were
Packaging for shipping $1,000
Inventory 0 2,050 0 2,000
Shipping 1,500
Freight-In 0 0 50 50
Special handling charges 2,000
These goods were received on December 31, 2001. In Nord’s December 31, 2001 balance
18. On December 28, 2011, Kerr Manufacturing Co. purchased goods costing $50,000. The sheet, what amount of cost should be included in inventory? (E)
terms were FOB destination. Some of the costs incurred in connection with the sale and A. $54,500 C. $52,000
delivery of the goods were as follows: B. $53,500 D. $50,000 AICPA 1191
Packaging for shipment $1,000
Freight-out 5,000
21. On December 26, 2004, Karen Company purchased goods costing P5,000,000. The freight Purchase returns 2,000
term is FOB destination. Some of the costs incurred in connection with the sale and delivery if Howe's 2010 inventoriable cost was
the goods were: A. $300,000. C. $306,000.
Packaging for shipment 100,000 B. $303,000. D. $311,000. AICPA adapted
Shipping 200,000
Special handling charges 300,000 95. The following information applied to Michaels Company for 2014:
These goods were received on December 31, 2004. In the December 31, 2004 balance sheet, Merchandise purchased for resale ..................... $400,000
what amount of cost for these goods should be included in inventory? (E) Freight-in ........................................... 7,500
A. 5,000,000 C. 5,300,000 Interest on notes payable to vendors ................. 3,000
B. 5,600,000 D. 5,500,000 CPAR Purchase returns ..................................... 2,500
Michaels' inventoriable cost for 2014 was
Purchases, freight-in A. $405,000 C. $407,500.
22. On December 15, 2011, Flanagan purchased goods costing $100,000. The terms were FOB B. $406,000. D. $409,000. S&S 19e
shipping point. Costs incurred by Flanagan in connection with the purchase and delivery of
the goods were as follows: 24. The following information applied to Fenn, Inc. for 1989:
Normal freight charges $3,000 Merchandise purchased for resale $400,000
Handling costs 2,000 Freight-in 10,000
Insurance on shipment 500 Freight-out 5,000
Abnormal freight charges for express shipping 1,200 Purchase return 2,000
The goods were received on December 17, 2011. What is the amount that Flanagan should Fenn’s 1989 inventoriable cost was (E)
charge to inventory and to current period expense? A. $400,000 C. $408,000
Wiley 2012 A B C D B. $403,000 D. $413,000 AICPA 1190
Inventory $3,000 $5,000 $5,500 $6,700
Current period expense $3,700 $1,700 $1,200 $0 25. The following information applied to Atlas Co. for 2001:
Merchandise purchased for resale $800,000
Purchases, Freight-in, Purchase Return Freight-in 20,000
57. The following information applied to Greer, Inc. for 2001: Freight-out 10,000
Merchandise purchased for resale $200,000 Purchase returns 4,000
Freight-in 8,000 The company’s 2001 inventoriable cost was (E)
Freight-out 5,000 A. $800,000 C. $816,000
Purchase returns 2,000 B. $806,000 D. $826,000 AICPA 1190
Greer's 2001 inventoriable cost was (E)
A. $200,000. C. $206,000. *. The following information pertains to Rasner Company for 2009:
B. $203,000. D. $211,000. K, W & W Merchandise purchased for resale 4,000,000
Freight out 200,000
23. The following information applied to Howe, Inc. for 2010: Freight in 500,000
Merchandise purchased for resale $300,000 Storage cost 50,000
Freight-in 8,000 Purchase returns 120,000
The inventoriable cost should be Insurance cost during transit of purchased goods 100
A. 4,250,000 C. 4,500,000 Total $4,925
B. 4,380,000 D. 4,630,000 Siy What amount should Den record as the cost of inventory as a result of this purchase?
A: $3,925 C: $4,825
95. The following information applied to Landon Company for 2005: B: $4,650 D: $4,925 AICPA R08
Merchandise purchased for resale ..................... $300,000
Freight-in ........................................... 7,500 Importation charges
Interest on notes payable to vendors ................. 3,000 27. Brilliant Company purchased motorcycles from various countries for export to other countries.
Purchase returns ..................................... 1,500 The entity has incurred the following costs during the current year:
Landon's inventoriable cost for 2005 was (E) Cost of purchases based on vendors' invoices 5,000,000
A. $309,000. C. $306,000. Trade discounts on purchases already deducted from vendors' invoices 500,000
B. $307,500. D. $301,500. S, S & S Import duties 400,000
Freight and insurance on purchases 1,000,000
95. The following information applied to Michaels Company for 2014: Other handling costs relating to imports 100,000
Merchandise purchased for resale ..................... $400,000 Salaries of accounting department 600,000
Freight-in ........................................... 7,500 Brokerage commission paid to agents for arranging imports 200,000
Interest on notes payable to vendors ................. 3,000 Sales commission paid to sales agents 300,000
Purchase returns ..................................... 2,500 After-sales warranty costs 250,000
Michaels' inventoriable cost for 2014 was (M) What is the total cost of the purchases?
A. $409,000. C. $406,000. A. 5,700,000 C. 6,500,000
B. $407,500. D. $405,000 S&S 18e B. 6,100,000 D. 6,700,000 FA © 2014
8. Walters Co. purchased raw materials with a catalog price of $70,000 on March 2, 2010. Invoice price, purchase return
Credit terms of 4/20, n/60 applied. Walters uses a perpetual inventory system and the net 41. Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on
price method. If Walters pays for the purchase on March 18, 2010, calculate what amount is account, $16,000, terms 2/10, n/30. Winsor returned $1,200 of the May 5 purchase and
recorded for inventory on March 2, 2010. (E) received credit on account. At May 31 the balance had not been paid. By how much should
A. $42,000 C. $67,200 the account payable be adjusted on May 31?
B. $56,000 D. $70,000 NB&J 11e A. $0. C. $320.
B. $344. D. $296. KW&W 1e
Purchase return
40. Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on 42. Pye Co. records purchases at net amounts. On May 5 Pye purchased merchandise on
account, $16,000, terms 2/10, n/30. Winsor returned $1,200 of the May 5 purchase and account, $8,000, terms 2/10, n/30. Pye returned $500 of the May 5 purchase, and received
received credit on account. At May 31 the balance had not been paid. The amount to be credit on account. At May 31 the balance had not been paid. By how much should the
recorded as a purchase return is (M) account payable be adjusted on May 31? (M)
A. $1,080. C. $1,200. A. $0. C. $160
B. $1,224. D. $1,176. KW&W 1e B. $170 D. $150 K, W & W
Total purchases, purchase returns, discounts taken 45. On July 1, Clio Company recorded purchases of inventory of $40,000 and $50,000 under
42. DATACORP a computer store in Virra Mall, Greenhills specializes in the sale of IBM credit terms of 2/15, net 30. The payment due on the $40,000 purchase was remitted on July
compatibles and software packages and had the following transactions with one of its 14. The payment due on the $50,000 purchase was remitted on July 25. Under the net
suppliers: method and the gross method, these purchases should be included at what respective net
Purchase of IBM compatibles P328,000 amounts in the determination of cost of goods available for sale? (M)
Purchases of commercial software packages 90,000 Gleim A. B. C. D.
Returns and allowances 8,000 Net Method $90,000 $89,200 $88,200 $88,200
Purchases discounts taken 2,700 Gross Method $90,000 $88,200 $89,200 $88,200
Purchases were made throughout the year on terms 3/10, n/60. All returns and allowances
tool place within 5 days of purchase and prior to any payment of account. (M) 75. On August 1, Stephan Company recorded purchases of inventory of $80,000 and $100,000
Discount lost is under credit terms of 2/15, net 30. The payment due on the $80,000 purchase was remitted
A. P9,840 C. P6,900 on August 14. The payment due on the $100,000 purchase was remitted on August 29.
B. P9,600 D. P7,140 RPCPA 1093 Under the net method and the gross method, these purchases should be included at what
respective net amounts in the determination of cost of goods available for sale? (M)
43. Rock Distributors, a computer store in Virra Mall S, S & S A. B. C. D.
Purchases of IBM compatibles P3,280,000 Net Method $178,400 $176,400 $176,400 $180,000
Purchases of commercial software package 900,000 Gross Method $176,400 $176,400 $178,400 $176,400
Returns and allowances 80,000
Purchase discounts taken 27,000 Cost of Goods Available for Sale
Purchases were made throughout the year on terms 3/10, n/30. All returns and allowances 6. On July 1, 2012, Irene Company recorded purchases of inventory of P3,000,000 and
took place within 5 days of purchase and prior to any payment of account. How much were P2,000,000 under credit terms of 2/15, net 30. The payment due on the P3,000,000 purchase
the discounts lost? (M1) was remitted on July 16. The payment due on the P2,000,000 purchase was remitted on July
A. P98,400 C. P71,400 31. Under the gross method and net method, respectively, these purchases should be
B. P96,000 D. P69,000 R&E 2012 included at what amount in the determination of cost of goods available for sale?
A. 4,940,000 and 4,900,000 C. 4,900,000 and 5,000,000
44. Duke company specializes in the sale of IBM compatibles and software packages. It had the B. 4,900,000 and 4,940,000 D. 5,000,000 and 4,900,000 CPAR 1012
following transactions with one of its suppliers:
Purchases of IBM compatibles 1,700,000 83. On August 1, Erica Company recorded purchases of inventory of P800,000 and P1,000,000
Purchases of commercial software packages 1,200,000 under credit terms of 2/15, net 30. The payment due on the P800,000 purchase was remitted
Returns and allowances 50,000 on August 14. The payment due on the P1,000,000 purchase was remitted on August 29.
Purchase discounts taken 17,000 Under the net method and the gross method, these purchases should be included at what
Purchases were made throughout the year on terms 2/10, n/30. All returns and allowances respective net amounts in the determination of cost of goods available for sale?
took place within 5 days of purchase and prior to any payment on account. Discount lost is Siy A B C D
(M1)
Net Method 1,764,000 1,764,000 1,784,000 1,800,000
A. 57,000 C. 17,000
Gross Method 1,784,000 1,800,000 1,764,000 1,764,000
B. 40,000 D. 41,000 RPCPA
Cost of Goods Sold
Purchases - Gross Method vs. Net Method
6. Catapult Corp. purchased merchandise during 2012 on credit for P200,000; terms 2/10, n/30.
Purchases
All of the gross liability except P40,000 was paid within the discount period. The remainder
was paid within the 30-day term. At the end of the annual accounting period, December 31, Accounts payable 50,000
2012, 90% of the merchandise had been sold and 10% remained in inventory. The entity has What is Saddle's accounts payable balance as of September 30, Year 2, after the
no beginning inventory. The entity uses net method of recording purchases. conversion?
If the entity used the gross method of recording purchases instead of the net method, the A. $49,200 C. $47,900
reported cost of goods sold would have been B. $49,100 D. $47,800 AICPA 1192
A. The same C. Lower by P720
B. Higher by P720 D. P176,400 Cabarles 48. Rabb Co. records its purchases at gross amounts but wishes to change to recording
purchases net of purchase discounts. Discounts available on purchases recorded from
Change from Gross Method to Net Method October 1, 1999 to September 30, 2000 totaled $2,000. Of this amount, $200 is still available
46. Andy Company records its purchases at gross but wishes to change to recording purchases in the accounts payable balance. The balances in Rabb’s accounts as of and for the year
at net. Discounts available on purchases recorded from October 1, 2002 to September 30, ended September 30, 2000 before conversion are
2003 totaled P400,000. Of this amount P50,000 is still available in the accounts payable Purchases $100,000
balance. The balances in the accounts before conversion are: Purchase discounts taken 800
Purchases 8,000,000 Accounts payable 30,000
Purchase discounts taken 100,000 What is Rabb’s accounts payable balance as of September 30, 2000 after the conversion?
Accounts payable 3,000,000 A. $29,800 C. $28,800
The adjusted accounts payable on September 30, 2003 should be B. $29,200 D. $28,200 AICPA 1192
A. 2,950,000 C. 2,600,000
B. 2,900,000 D. 3,000,000 CPAR 49. Rabb Company records its purchases at gross amount but wishes to change to recording
purchases net of purchase discounts. Discount available on purchases recorded from
2. Danielle Company records its purchases at gross amount but wishes to change to recording October 1, 2004, to September 30,2005, totaled P100,000. Of this amount, P10,000 is still
purchases net of discounts. Discounts available on purchases recorded from October 1, 2008 available in the accounts payable balance. The balances in the accounts as of and for the
to September 30, 2009, totaled P200,000. Of this amount, P50,000 is still available in the year ended September 30, 2005, before conversion are:
accounts payable balance. The balances in the accounts as of and for the year ended Purchases 5,000,000
September 30, 2009, before conversion are: Purchase discounts taken 40,000
Purchases 8,500,000 Accounts payable 1,500,000
Purchase discounts taken 80,000 What is the accounts payable balance as of September 30, 2005, after the conversion? (M)
Accounts payable 3,600,000 A. 1,490,000 C. 1,440,000
What is the accounts payable balance as of September 30, 2009, after conversion? B. 1,460,000 D. 1,410,000 AICPA
A. 3,400,000 C. 3,520,000
B. 3,470,000 D. 3,550,000 Siy TRIAL BALANCE
Difference between Debit & Credit Total
47. Saddle Co. records its purchases at gross amounts but wishes to change to recording 50. The following errors were made in preparing a trial balance: the $1,350 balance of Inventory
purchases net of purchase discounts. Discounts available on purchases recorded from was omitted; the $450 balance of Prepaid Insurance was listed as a credit; and the $300
October 1, Year 1 to September 30, Year 2 totaled $3,000. Of this amount, $800 is still balance of Salaries Expense was listed as Utilities Expense. The debit and credit totals of the
available in the accounts payable balance. The balances in Saddle's accounts, before trial balance would differ by
conversion, for the year ended September 30, Year 2 are A. $1,350. C. $2,100.
Purchases $200,000 B. $1,800. D. $2,250. S, S & S
Purchase discounts taken 900
zzz Your examination disclosed the following:
PROFIT & LOSS STATEMENT Merchandise inventory at December 31, 1982 amounted to P130,000 and gross profit rate is
Gross Sales 20% on net sales.
Gross profit, total purchases, ending inventory given Gross sales for 1982 amounted to
51. Reyes Company had a gross profit of $360,000, total purchases of $420,000, and an ending A. P68,000 D. P63,000
inventory of $240,000 in its first year of operations as a retailer. Reyes’s sales in its first year B. P68,750 E. P69,500
must have been C. P69,000 RPCPA 1083
A. $540,000. C. $180,000.
B. $660,000. D. $600,000. KW&W 1e Net Sales
Gross sales, sales returns
Common size income statement 53. Fenn Stores, Inc. had sales of $1,000,000 during December. Experience has shown that
52. A company has a 50% gross margin, general and administrative expenses of $50, interest merchandise equaling 7% of sales will be returned within 30 days and an additional 3% will
expense of $20, and net income of $10 for the year just ended. If the corporate tax rate is be returned within 90 days. Returned merchandise is readily resalable. In addition,
50%, the level of sales revenue for the year just ended was (E) merchandise equaling 15% of sales will be exchanged for merchandise of equal or greater
A. $90 C. $150 value. What amount should Fenn report for net sales in its income statement for the month of
B. $135 D. $180 CIA 1194, 0596 December?
A. $750,000 C. $850,000
1. The expenses other than interest expense of Sydney Company for the current year is 40% of B. $780,000 D. $900,000 Becker 13
cost of sales but only 20% of sales. Interest expense is 5% of sales. The amount of
purchases is 120% of cost of sales. Ending inventory is twice as much as the beginning Gross sales, sales returns & allowances, sales discount
inventory. The income after tax of 35% for the current year is P325,000. What is the amount 47. Neptune Company's gross sales in 2004 were $3,930,000. Assuming sales returns and
of sales for the current year? allowances were $74,000, sales discounts were $35,000, and freight-out was $28,000, what
A. 1,300,000 C. 2,000,000 were Neptune's net sales in 2004? (E)
B. 1,625,000 D. 2,500,000 Siy A. $3,793,000 C. $3,856,000
B. $3,821,000 D. $3,930,000 S&S 19e
5. The operating expenses other than interest expense of Jellie Company for the current year
amount to 40% of cost of sales but only 20% of sales. Interest expense is 5% of sales. The 54. Gross billings for merchandise sold by Lang Company to its customers last year amounted to
amount of purchases is 120% of cost of sales. Ending inventory is twice as much as the $15,720,000; sales returns and allowances were $370,000, sales discounts were $175,000,
beginning inventory. The income after tax of 30% for the current year is P560,000. What is and freight-out was $140,000. Net sales last year for Lang Company were (E)
the amount of sales for the current year? A. $15,720,000. C. $15,175,000.
A. 1,485,000 C. 2,285,000 B. $15,350,000. D. $15,035,000. KW&W 1e
B. 2,080,000 D. 3,200,000 CPAR 1012
27. Gross billings for merchandise sold by Pye Company to its customers last year amounted to
8. December 31, 1982 balances of selected accounts of Rachelle Co. and pertinent information $12,720,000; sales returns and allowances were $270,000, sales discounts were $175,000,
are shown below: and freight-out was $140,000. Net sales last year for Pye Company were (E)
Merchandise inventory, Jan. 1, 1982 P 40,000 A. $12,720,000. C. $12,275,000.
Purchases 150,000 B. $12,450,000. D. $12,135,000. K, W & W
Purchase returns and allowances 5,000
Sales returns and allowances 750 Gross profit, purchases & ending inventory given
30. Hernandez Company had a gross profit of $240,000, total purchases of $280,000, and an B. 85,000 D. 265,000 CIA 0597 IV-15
ending inventory of $160,000 in its first year of operations as a retailer. Hernandez’s sales in
its first year must have been (E) . The total operating expenses of Travelodge Company for 2012 is 50% of cost of sales but
A. $360,000. C. $120,000. only 20% of sales. Finance costs are 5% of sales. The amount of purchases is 130% of costs
B. $440,000. D. $400,000. K, W & W of sales. Ending inventory is 25% greater than the beginning inventory. The profit for the
period after the tax of 30% is P2,450,000. How much were the beginning inventory? (D)
Common-size income statement A. 4,000,000 C. 6,000,000
55. A company has a 40% gross margin, general and administrative expenses of $50, interest B. 4,800,000 D. 5,000,000 HGT
expense of $20, and net income of $70 for the year just ended. If the corporate tax rate is
30%, the level of sales revenue for the year just ended was (E) Purchases
A. $170 C. $350 Cost of goods sold, inventory balances given
B. $255 D. $425 CIA 1194 IV-16 59. Haala Inc. is a merchandising company. Last month the company's cost of goods sold was
$68,000. The company's beginning merchandise inventory was $11,000 and its ending
56. A company has a 50% gross margin, general and administrative expenses of $50, interest merchandise inventory was $17,000. What was the total amount of the company's
expense of $20, and net income of $10 for the year just ended. If the corporate tax rate is merchandise purchases for the month? (M)
50%, the level of sales revenue for the year just ended was (E) A. $62,000 C. $74,000
A. $90 C. $150 B. $68,000 D. $96,000 G&N 12e
B. $135 D. $180 CIA 1194 IV-16
61. Haack Inc. is a merchandising company. Last month the company's cost of goods sold was
57. The profit of Imperial Company for the year ended December 31, 2012 was P480,000. $84,000. The company's beginning merchandise inventory was $20,000 and its ending
Percentage distribution of some of the items in profit or loss was as follows: merchandise inventory was $18,000. What was the total amount of the company's
Selling expenses – 10% of sales merchandise purchases for the month? (E)
Administrative expenses, excluding bad debts – 15% of sales ( also equal to 25% of cost A. $86,000 C. $84,000
of sales) B. $82,000 D. $122,000 G & N 9e
Bad debts expenses – 3% of sales
What was the amount of Imperial Company’s sales during 2012? 81. Haaker Inc. is a merchandising company. Last month the company's cost of goods sold was
A. P1,920,000 C. P4,000,000 $87,000. The company's beginning merchandise inventory was $21,000 and its ending
B. P3,200,000 D. P4,800,000 R&E12 merchandise inventory was $18,000. What was the total amount of the company's
merchandise purchases for the month? (E)
Cost of Goods Sold A. $84,000 C. $90,000
Beginning Inventories B. $126,000 D. $87,000 G & N 10e
58. A retail enterprise maintains a markup of 25% based on cost. The enterprise has the
following information for 2001: 60. The following information was obtained from Smith Co.:
Purchases of merchandise 690,000 Sales $275,000
Freight-in on purchases 25,000 Beginning inventory 30,000
Sales 900,000 Ending inventory 18,000
Ending inventory 80,000 Smith's gross margin is 20%. What amount represents Smith purchases?
Beginning inventory was (E) A. $202,000 C. $220,000
A. 40,000 C. 110,000 B. $208,000 D. $232,000 AICPA R05
profit rate is expected to be 35%, compute the cost of the merchandise the owner should
79. Haagen Inc. is a merchandising company. Last month the company's cost of goods sold was expect to purchase during 2007.
$92,000. The company's beginning merchandise inventory was $14,000 and its ending A. $ 925,000. C. $1,025,000.
merchandise inventory was $16,000. What was the total amount of the company's B. $ 975,000. D. Some other amount.
merchandise purchases for the month? (E)
A. $92,000 C. $122,000 63. On July 1, the inventory of at Comfee Shoes was $50,000. Because of anticipated back-to-
B. $94,000 D. $90,000 G & N 10e school sales, the owner wants to have an inventory of $95,000 on hand at the beginning of
August. Net sales during July are expected to total $60,000, with a gross profit rate of 45%.
80. Haak Inc. is a merchandising company. Last month the company's cost of goods sold was During July, the company should purchase merchandise costing:
$62,000. The company's beginning merchandise inventory was $15,000 and its ending A. $57,500. C. $78,000.
merchandise inventory was $21,000. What was the total amount of the company's B. $128,000. D. Some other amount.
merchandise purchases for the month? (E)
A. $98,000 C. $68,000 64. At the beginning of 2007, England Dresses has an inventory of $140,000. However,
B. $62,000 D. $56,000 G & N 10e management wants to reduce the amount of inventory on hand to $80,000 at December 31. If
net sales for 2007 are forecast at $400,000 and the gross profit rate is expected to be 40%,
Cost of sales, inventory balances, freight-in, purchase discounts given compute the cost of the merchandise which management should expect to purchase during
33. All of the information required in the computation of cost of goods sold is presented below, 2007. (Hint: First compute the expected cost of goods sold.)
except for purchases, which must be what amount? A. $240,000. C. $320,000.
Purchase discounts $ 200 B. $180,000. D. Some other amount.
Inventory, December 31 1,500
Cost of goods sold 9,500 Cost of sales, ending inventory, average inventory, freight in, purchase returns & allowances, given
Purchases ? 3. The following are data of SIMPLE Corp. for 1986:
Inventory, January 1 1,500 Average merchandise inventory P170,000
Freight-in 500 Merchandise inventory, Dec. 31 165,000
A. $ 9,800 C. $ 8,700 Freight in 25,000
B. $10,200 D. $ 9,200 NB&J 11e Purchase return and allowances 35,000
Cost of sales 955,000
Sales & gross margin ratio, inventory balances given The gross purchases of SIMPLE Corp. in the year 1986 amounted to (M)
61. The following information was obtained from Smith Co.: A. P955,000 C. P965,000
Sales $275,000 B. P945,000 D. P975,000 RPCPA 1087
Beginning inventory 30,000
Ending inventory 18,000 Inventory balances, inventory turnover, freight-in, purchase returns & allowances given
Smith’s gross margin is 20%. What amount represents Smith purchases? 8. The following data pertain to Charter Co. for the year 1980:
A: $202,000 C: $220,000 Merchandise inventories
B: $208,000 D: $232,000 Wiley 2011 December 31, 1979 P50,000
December 31, 1980 60,000
62. At the beginning of 2007, Grand Hardware has an inventory of $300,000. Because sales Freight in 12,000
growth was strong during 2007, the owner wants to increase inventory on hand to $350,000 Purchase return and allowances 7,000
at December 31, 2007. If net sales for 2007 are expected to be $1,500,000, and the gross Inventory turnover rate 6
The gross purchase for the year amounted to (M) 27. The following information is available for the Brown Company for 2010:
A. P340,000 C. P330,000 Gross profit $ 30,000
B. P335,000 D. Answer not given RPCPA 0581 Net sales 500,000
Beginning inventory 220,000
Common-size income statement Ending inventory 40,000
6. The following information is provided by Eloisa Company for the current year. What was the amount of net purchases? (E)
Beginning inventory 400,000 A. $290,000 C. $180,000
Freight in
300,000 B. $210,000 D. $150,000 NB&J 11e
Purchase returns 900,000
Ending inventory 500,000 66. An enterprise had the following account balances in the pre-closing trial balance:
Selling expenses 1,250,000 Opening inventory 100,000
Sales discount 250,000 Closing inventory 150,000
The cost of goods sold is six times the selling expenses. What is the amount of gross Purchases 400,000
purchases? Transportation-in 6,000
A. 6,500,000 C. 8,000,000 Purchase discounts 40,000
B. 6,700,000 D. 8,200,000 CPAR 1012 Purchase allowances 15,000
Returned purchases 5,000
Freight-in The enterprise had net purchases for the period of (E)
89. From the following information, determine the amount of freight-in. A. 340,000 C. 370,000
Beginning Inventory ................................... $20,000 B. 346,000 D. 376,000 CIA 1195
Purchases ............................................. 41,000
Purchase Returns and Allowances ....................... 3,000 Common-size income statement
Purchase Discounts .................................... 4,000 67. The total operating expenses of Travelodge Company for 2012 is 50% of cost of sales but
Freight-In ............................................ ? only 20% of sales. Finance costs are 5% of sales. The amount of purchases is 130% of costs
Cost of Goods Available for Sale ...................... 55,000 of sales. Ending inventory is 25% greater than the beginning inventory. The profit for the
Ending Inventory ...................................... ? period after the tax of 30% is P2,450,000. How much were the purchases during the year
Cost of Goods Sold .................................... 22,000 2012? (M)
A. $1,000 C. $3,000 A. P10,000,000 C. P4,000,000
B. $2,000 D. $4,000 S&S 19e B. P5,200,000 D. P1,200,000 R&E12
13 . List price 600,000 18. (d) When the shipping terms are FOB destination, the seller bears all costs of transporting the
Trade discounts (20% x 600,000) (120,000) goods to the buyer. Therefore, the seller is responsible for the payment of packaging costs
Balance 480,000 ($1,000), shipping costs ($1,500), and the special handling charges ($2,000). The only amount
(10% x 480,000) ( 48,000) to be included as the buyer’s cost of the inventory purchased is the purchase price ($50,000).
Invoice price 432,000
Freight charge 15,000 19. Answer A is correct. The costs to be charged to merchandise purchases should include those
Total cost of purchase 447,000 costs necessary to prepare the merchandise for sale. Salesmen's commissions are a selling
expense and not related to the acquisition of the merchandise. These costs are expensed in
Purchases are normally recorded at gross. Thus, the cash discount is ignored. the period incurred. The interest is a financing expense and is also expensed in the period
incurred. Thus, only the $500,000 should be included in the cost of the merchandise
14. Answer is (D). 90,000 x .80 x ..90 = 64,800; 64,800 + 5,000 = 69,800 purchases.
15. Answer is (D). 20. REQUIRED: The amount of cost for goods included in inventory.
Cost of purchases 5,000,000 DISCUSSION: (D) FOB destination means that title passes upon delivery at the destination,
Import duties the seller bears the risk of loss, and the seller is responsible for the expense of delivering the
400,000
goods to the designated point. Consequently, the packaging, shipping, and handling costs are
Freight and insurance 1,000,000 not included in the inventory. The amount that should be included is therefore the purchase
Other handling costs 100,000 price of $50,000.
Brokerage commission 200,000 Answer (A) is incorrect because the packaging, shipping, and handling costs should not be
Total cost of purchases 6,700,000 included. Answer (B) is incorrect because the shipping and handling costs should not be
included. Answer (C) is incorrect because the handling costs should not be included.
16. Answer (D) is correct. The shipping term indicates that title and risk of loss passed to the
buyer at the shipping point. Hence, the 2001 ending inventory should include the 2,000 cost of 21 . A Cost of inventory 5,000,000
this purchase. Also, the buyer is responsible for 50 of freight regardless of which party initially
paid. The seller bears the expense of delivery to the shipping point, not the destination. 22. (c) Inventoriable costs include all costs necessary to prepare goods for sale. For a
Answer (A) is incorrect because inventory and freight-in should be 2,000 and 50, respectively. merchandising concern, these include the purchase price of the goods, freight-in, insurance,
Answer (B) is incorrect because inventory and freight-in should be 2,000 and 50, respectively. warehousing, and any costs necessary to get the goods to the point of sale. Abnormal freight
Answer (C) is incorrect because inventory should be 2,000. and handling should be charged to expense of the period. Therefore, the normal costs for
inventory are $5,500 ($3,000 + $2,000 + $500) and the abnormal freight of $1,200 is charged
17. Answer (A) is correct. Title and risk of loss passed to the buyer at the destination, and the to current expense of the period. ·
seller incurred the expense of delivery to that point. The goods did not arrive until after year-
end, so they should not be included in 2001 inventory. Freight-in should also not be recorded 23. c $300,000 + $8,000 – $2,000 = $306,000.
until 2002.
Answer (B) is incorrect because no inventory should be included in the 2001 financial 24. REQUIRED: The amount of inventoriable cost for the year.
statements. Answer (C) is incorrect because freight-in should be recorded in 2002. Answer
DISCUSSION: (C) Inventoriable cost is the sum of the applicable expenditures and charges
directly or indirectly incurred in bringing all items of inventory to their existing condition and 29. $980 ($1,000 x 98%)
location. Thus, inventoriable cost includes the $400,000 cost of the merchandise purchased,
plus the $10,000 of freight-in, minus the $2,000 of purchase returns. Freight-out is not a cost 30. P5,697.72 (P8,000 x 85% x 90% x 95% x 98%)
incurred in bringing the inventory to a salable condition. Consequently, the inventoriable cost
for Fenn was $408,000 ($400,000 + $10,000 – $2,000). 31. P106,832.25 (P109,012.50 x 98%)
Answer (A) is incorrect because $400,000 excludes freight-in and purchase returns. Answer
(B) is incorrect because $403,000 excludes freight-in. Answer (D) is incorrect because 32. Answer is (A). 109,012.50 x .98 = 106,832.25
$413,000 includes freight-out.
33. (c) Purchases are always recorded net of trade discounts. When more than one trade
25. REQUIRED: The amount of inventoriable cost. discount is applied to a list . price, it is called a chain discount. Chain discounts are applied
DISCUSSION: (C) Inventoriable cost is the sum of the applicable expenditures and charges in steps; each discount applies to the previously discounted price. The cost, net of trade
directly or indirectly incurred in bringing all items of inventory to their existing condition and discounts, is $2,800 [$5,000 – (30% x $5,000) = $3,500; and $3,500 – (20% x $3,500) =
location. Thus, inventoriable cost includes the $800,000 cost o the merchandise purchased, $2,800]. Payment was made within the discount period, so the net purchase price is $2,744
plus the $20,000 of freight-in, minus the $4,000 of purchase returns. Freight-out is not a cost [$2,800 – (2% x $2,800)]. The remittance from Burr would also include reimbursement of the
incurred in bringing the inventory to a salable condition. The inventoriable cost for Atlas during $200 of delivery costs. Since the terms were FOB shipping point, Burr is responsible for
2001 is $816,000 ($800,000 + $20,000 - $4,000) paying this amount, and must reimburse Pitt, who prepaid the freight. Thus, the total
Answer (A) is incorrect because $800,000 is the amount of gross purchases. Answer (B) is remittance is $2,944 ($2,744 + $200).
incorrect because $806,000 incorrectly includes freight-out as a cost instead of freight-in.
Answer (D) is incorrect because $826,000 incorrectly includes freight-out. 34. P11,200 (P12,000 – P800)
26. Answer D is correct. The requirement is to determine the amount that Den should record as 35. The correct answer was B.
the cost of inventory as a result of the purchase. Inventory costs include all costs necessary to After removal of the returned merchandise, the company owes $24,000. The net method
prepare goods for sale. For a merchandising concern, these costs include the purchase price assumes that it is only normal and necessary to pay the amount due after the discount has
of the goods, freight-in, insurance, warehousing, and any costs necessary to get the goods to been taken (3 percent according to the terms). The discount here is $720 (3 percent of
the point of sale (except interest on loans obtained to purchase the goods). Therefore, the $24,000) so that the company only anticipates paying $23,280 ($24,000 less $720) which is
correct answer is (d) because inventory costs are equal to $4,925 ($3,750 + $175 + $900 + the amount recorded when the net method is applied. If the entire $24,000 is eventually paid,
$100). the additional $720 is recorded as a loss or as interest expense.
50. $2,250 ($1,350 + $450 x 2) 58. Answer (B) is correct. Cost of goods sold equals beginning inventory, plus purchases
(including freight-in), minus ending inventory. Given that sales reflect 125% of cost, cost of
51. a $360,000 + ($420,000 – $240,000) = $540,000. goods sold must equal 720,000 (900,000 sales ÷ 1.25). Consequently, the beginning inventory
must have been 85,000 (720,000 CGS + 80,000 EI - 690,000 purchases - 25,000 freight-in).
52. Answer (D) is correct. Net income before taxes is $20 [$10 NI ÷ (1.0 - .5 tax rate)]. Hence, the Answer (A) is incorrect because 40,000 is based on a 25% markup on sales. Answer (C) is
gross margin (sales - cost of sales) is $90 ($20 NI before taxes + $20 interest + $50 G&A incorrect because 110,000 omits the freight-in from the computation of cost of goods available
expenses). Sales must then be $180 ($90 gross margin ÷ 50% gross margin ratio). for sale. Answer (D) is incorrect because 265,000 uses the sales figure for cost of goods sold.
Answer (A) is incorrect because $90 is the cost of goods sold. Answer (B) is incorrect because
$135 is calculated by adding the 50% gross margin to 1 and multiplying the resulting 1.5 by 59. Answer is (C).
the $90 cost of goods sold. Answer (C) is incorrect because $150 results from calculating Merchandise inventory, beginning $11,000
earnings before tax as .5 times net income instead of 2 times net income. Add: Merchandise purchased ?
Goods available for sale ?
53. Choice "D" is correct. Deduct: Finished goods inventory, ending 17,000
Gross sales $1,000,000 Cost of goods sold $68,000
Sales returns ($1,000,000 x (7% + 3%) (100,000)
Net sales $ 900,000 Goods available for sale = $68,000 + $17,000
Goods available for sale = $85,000
54. c $15,720,000 – $370,000 – $175,000 = $15,175,000.
Merchandise purchased = $85,000 − Merchandise inventory, beginning
55. REQUIRED: The sales revenue for the year. Merchandise purchased = $85,000 − $11,000
DISCUSSION: (D) Net income before taxes is $100 [$70 NI (1.0 – 0.3 tax rate)]. Hence, Merchandise purchased = $74,000
the gross margin (sales – cost of sales is $170 ($100 NI before taxes + $20 interest + $50
G&A expenses). Sales must then be $425 ($170 gross margin 40% gross margin ratio). 60. Choice "b" is correct. Using the BASE account analysis format, purchases can be squeezed
Answer (A) is incorrect because $170 is the gross margin. Answer (B) is incorrect because out as follows:
$255 is the cost of goods sold. Answer (C) is incorrect because $350 assumes pre-tax net Beginning Inventory (given) 30,000
income was $70. Purchases (squeezed) 208,000
Goods available for sale (added up) 238,000
56. Answer (D) is correct. Net income before taxes is $20 [$10 NI ÷ (1.0 - .5 tax rate)]. Hence, the COGS (275,000 x 1-.20) (220,000)
gross margin (sales - cost of sales) is $90 ($20 NI before taxes + $20 interest + $50 G&A Ending Inventory (given) 18,000
expenses). Sales must then be $180 ($90 gross margin ÷ 50% gross margin ratio).
Answer (A) is incorrect because $90 is the cost of goods sold. Answer (B) is incorrect because 61. Answer B is correct. To solve the problem, first calculate cost of sales. Since gross margin is
$135 is calculated by adding the 50% gross margin to 1 and multiplying the resulting 1.5 by 20%, cost of sales is equal to $220,000 ($275,000 x 80%). Then, purchases are calculated by
adding ending inventory and deducting beginning inventory from cost of sales. $208,000 CGS x 130%=5.2M
($18,000 – $30,000 + $220,000).
68. REQUIRED: The cost of goods available for sale.
62. 1,500,000 x .65 = 975,000(Cost of Goods SolD. DISCUSSION: (C) Because the gross margin equals 40% of net sales, cost of goods sold
975.000 + 350,000 = 1,325,000 (Goods Available) equals 60% of net sales, or $2,160,000. Cost of goods available for sale equals the cost of
1,325,000 - 300,000 = 1,025,000 (Purchases) goods sold plus the cost of the goods in ending inventory. Hence, cost of goods available for
sale equals $2,160,000 plus $240,000, or $2,400,000 (BI + PUR = GAFS* = CGS + EI).
63. Cost of Goods Sold = 55% x 60,000 = 33,000 Freight-in and purchase discounts are not used to estimate CGS or GAFS in the gross margin
Goods Available = 33,000 + 95,000 = 128,000 approach.
Purchases = 128,000 - 50,000 = 78,000 Ending inventory $ 240,000
Cost of goods sold 2,160,000
64. Cost of Goods Sold = 60% x 400,000 = 240,000 Goods available for sale $2,400,000
Goods Available = 80,000+240,000 = 320,000 Answer (A) is incorrect because $1,680,000 is gross margin plus ending inventory. Answer
Purchases = 320,000 - 140,000 = 180,000 (B) is incorrect because $1,920,000 is cost of goods sold minus ending inventory. Answer (D)
is incorrect because $2,440,000 is cost of goods available for sale plus freight-in and minus
65. Choice "B" is correct. Using the BASE account analysis format, purchases can be squeezed purchase discounts.
out as follows:
Beginning Inventory (given) 30,000 69. Answer C is correct. Gross margin is 40% of net sales ($1,800,000), or $720,000. Therefore,
Purchases (squeezed) 208,000 cost of goods sold is $1,080,000 ($1,800,000 net sales less $720,000 gross margin). Finally,
Goods available for sale (added up) 238,000 cost of goods available for sale is $1,200,000 ($1,080,000 cost of goods sold plus $120,000
COGS (275,000 x 1-.20)
220,000 ending inventory). The amounts for freight-in ($45,000) and purchase discounts ($25,000) are
Ending Inventory (given) 18,000 not necessary for the computation.
66. Answer (B) is correct. Purchase discounts, allowances, and returns are subtractions from 70. (D) Beginning inventory $ 94,000
purchases because they are reductions of cost. Transportation-in is an addition because it Inventory purchased 400,000
increases cost. Thus, net purchases equals 346,000 (400,000 + 6,000 - 40,000 - 15,000 - Freight charges 6,000
5,000). Merchandise returned (5,000)
Answer (A) is incorrect because 340,000 omits transportation-in from the calculation. Answer Discounts [($400,000 - 5,000) x 1%)] (3,950)
(C) is incorrect because 370,000 omits transportation-in and adds, rather than subtracts, Ending inventory $491,050
purchase allowances. Answer (D) is incorrect because 376,000 adds, rather than subtracts,
purchase allowances. 71. Answer is (B).
Beginning inventory $ 94,000
67. Answer is (B). Inventory purchased 400,000
Cost of sales = 20/50 = 40%
Freight 7,500
100%-40% = 60% - 20%-5% = 35% Merchandise returned (5,000)
Profit before tax
2,450,000/70% = 3.5M; Discounts [($400,000 – 5,000) x 1%] (3,950)
3.5M/35% = 10M; Cost of goods available for sale $492,550
10M x 40% = 4M
72. (B) Beginning inventory $ 62,000 $800,000 + $1,600,000 – $1,500,000 = $900,000.
Inventory purchased 280,000
Freight charges 9,000 80. Answer B is correct. When using the gross margin method of inventory valuation, the CGS is
Merchandise returned ( 4,000) estimated as Sales - (Sales x Gross margin). Silver Company's estimated CGS is $3,600,000
Discounts [($280,000 - 4,000) x 2%)] ( 5,520) [$4,800,000 – ($4,800,000 x .25)]. Therefore, ending inventory can be calculated as follows:
Cost of goods available for sale $341,480 Beginning inventory $ 900,000
Add: Purchases $3,400,000
73. Answer is (B). Freight-in 200,000 3,600,000
Beginning inventory $ 52,000 Cost of goods available 4,500,000
Inventory purchased 280,000 Deduct:
Freight 9,000 Cost of goods sold (estimated) ($3,600,000)
Merchandise returned (4,000) Ending inventory $ 900,000
Discounts [($280,000 – 4,000) x 2%] (5,520)
Cost of goods available for sale $331,480 81. (B) Beginning inventory $94,000
Inventory purchased 400,000
74. Answer is (D) Freight 6,000
Cost of goods sold (150,000 * 4) 600,000 Merchandise returned (5,000)
Ending Inventory 260,000 Discounts [($400,000 - 5,000) x 1%)] (3,950)
Cost goods available for sale 860,000 Cost of goods available for sale $491,050
Cost of goods sold 380,000
Ending inventory $111,050
75. Answer is (D).
150,000 x 8 = 1,200,000 + 80,000 = 1,280,000 82. (D) Beginning inventory $ 62,000
Inventory purchased 280,000
76. b COGS = $300,000 ÷ 1.25 = $240,000 Freight charges 9,000
($220,000 + $172,000 – $8,000) – $240,000 = $144,000. Merchandise returned (4,000)
Discounts [($280,000 - 4,000) x 2%)] (5,520)
77. Answer (B) is correct. The cost of goods sold equals 120,000 (180,000 sales - 60,000 gross Cost of goods available for sale 341,480
margin). Because cost of goods sold equals beginning inventory, plus purchases, minus Cost of goods sold 316,000
ending inventory, the amount of ending inventory must equal 100,000 (50,000 + 170,000 - Ending inventory $ 25,480
120,000).
Answer (A) is incorrect because 60,000 is the gross margin. Answer (C) is incorrect because 83. Answer is (B).
120,000 is the cost of goods sold. Answer (D) is incorrect because 160,000 deducts the gross Beginning inventory $ 94,000
margin from the goods available for sale. Inventory purchased 400,000
Freight 7,500
78. b $900,000 – ($800,000 × .80) = $260,000. Merchandise returned (5,000)
Discounts [($400,000 – 5,000) x 1%] (3,950)
79. c COGS = $2,000,000 × .75 = $1,500,000 Cost of goods available for sale $492,550
Cost of goods sold 380,000 DISCUSSION: (D) The entry to record cost of goods sold will be
Ending inventory $112,550 Cost of goods sold $446,000
Ending inventory 34,000
84. Answer is (B). Purchases $450,000
Beginning inventory $ 52,000 Beginning inventory 30,000
Inventory purchased 280,000 The debit to cost of goods sold often is made directly to an income summary account.
Freight 9,000 Answer (A) is incorrect because $450,000 is the amount of purchases. Answer (B) is incorrect
Merchandise returned (4,000) because $30,000 is the beginning inventory. Answer (C) is incorrect because $34,000 is the
Discounts [($280,000 – 4,000) x 2%] (5,520) ending inventory.
Cost of goods available for sale $331,480
Cost of goods sold 316,000 88. Answer is (C).
Ending inventory $ 15,480 Merchandise inventory, beginning $ 19,000
Add: Merchandise purchased 87,000
85. Answer is (B). Goods available for sale 106,000
Beginning inventory - 2015 2,355,000 Deduct: Finished goods inventory, ending 11,000
Purchases 3,180,000 Cost of goods sold $ 95,000
Freight in 220,000
Purchase discounts ( 45,000) 89. Beginning Inventory (11,200) + Purchases (32,200) = Goods Available (43,400) – Ending
Inventory (9,800) = Cost of Goods Sold (33,600)
Purchase returns (40,000)
Purchase allowances (15,000) 90. Answer is (B).
Goods available for sale 5,655,000 Inventory - December 31,2013 360,000
Cost of sales- 2015 (4,500,000 x 73%) 3,285,000 Purchases-2014 3,000,000
Ending inventory - 2015 2,370,000 Goods available for sale 3,360,000
Inventory - December 31,2014 ( 380,000)
Sales 100% Cost of goods sold 2,980,000
Cost of sales 73%
Gross profit rate 27% 91. The correct answer was C.
Cost of goods sold is determined by starting with the cost of beginning inventory and adding
86. Answer C is correct. The requirement is to determine the amount of shipping costs that should the cost of the merchandise purchased during the period before subtracting the cost of ending
be included in Seafood Trading’s year-end inventory valuation. The shipping costs to export to inventory. The issue here is what to include in the cost of the merchandise purchased. The
customers are a selling expense and not included in inventory. Shipping costs or freight-in basic rule is that all normal and necessary costs spent to get the inventory in position and
necessary to get the inventory in place to sell should be recorded in inventory. Seafood condition to be sold should be included as a capitalized cost. Thus, the freight cost to obtain
Trading should include a proportionate amount of the shipping costs of $1.5 million in ending the inventory is included but not the amount paid to deliver the merchandise to the customer.
inventory. Answer (c) is correct because $375,000 in shipping costs [($3.0 million ÷ $12.0 This second cost is viewed as a selling expense. Cost of goods sold is computed as beginning
million) × $1.5 million] should be included in the cost of ending inventory. inventory of $120,000 plus purchases of $359,000 (cost of $340,000 plus freight-in of $19,000)
to arrive at goods available for sale of $479,000. Subtract out the ending inventory that
87. REQUIRED: The net debit to cost of goods sold. remains of $165,000 which leaves cost of goods sold as $314,000.
Answer (A) is incorrect because $102,800 is the amount of gross purchases. Answer (C) is
92. REQUIRED: The cost of goods sold for the year. incorrect because $123,360 treats freight-out as a cost of goods sold. Answer (D) is incorrect
DISCUSSION: (B) Freight-in is the cost of receiving inventory and is a product cost. Freight- because $128,500 omits purchase discounts from the calculation.
out is the cost of shipping products to customers and should be treated as a selling expense
(period cost). Thus, CGS is $460,000. 96. Answer (B) is correct. Cost of goods sold equals beginning inventory, plus net purchases,
Beginning inventory $170,000 minus ending inventory. Given net purchases of 500,000, cost of goods sold equals 450,000
Purchases $450,000 (100,000 + 500,000 - 150,000).
Freight-in 50,000 500,000 Answer (A) is incorrect because 250,000 subtracts, rather than adds, beginning inventory.
Goods available $670,000 Answer (C) is incorrect because 550,000 subtracts, rather than adds, opening inventory and
Ending inventory (210,000) adds, rather than subtracts, closing inventory. Answer (D) is incorrect because 750,000 adds,
Cost of goods sold $460,000 rather than subtracts, closing inventory.
Answer (A) is incorrect because freight out should be excluded from ending inventory. Answer
(C) is incorrect because freight-in, not freight-out, should be included in the cost of goods 97. REQUIRED: The cost of goods sold for the year.
available. Answer (D) is incorrect because freight-out should not be added to the cost of DISCUSSION: (C) As indicated in the T-account analysis below, cost of goods sold equals
goods available. purchases plus any decrease in inventory or minus any increase in inventory (purchases
minus the change in inventory). The write-off of obsolete inventory is a loss, not a component
93 . Beginning inventory 1,700,000 of CGS. Thus, cost of goods sold is $300,000.
Purchases 4,500,000 Inventory
Freight in 500,000 12/31/00 $180,000 $ 68,000 obsolescence
Goods available for sale 6,700,000 Purchases 248,000 300,000 CGS
Less: Ending inventory 2,100,000 $ 60,000
Cost of goods sold 4,600,000 Answer (A) is incorrect because $436,000 results from adding obsolete inventory to, not
subtracting it from, beginning inventory. Answer (B) is incorrect because $368,000 includes
Freight out is a selling expense. the obsolete inventory in CGS. Answer (D) is incorrect because $248,000 equals purchases.
94. Answer is (A). 98. (c) To compute cost of goods sold, the solutions approach is to set up a T-account for
Beginning inventory 160.000 inventory
Purchases 530.0,00 Inventory
Purchase discounts ( 10,000) 12/31/02 90 ,000
Goods available for sale 680,000 Purchases 124,000 34,000 Write-off
Ending inventory (215,000) ? Cost of goods sold
Cost of goods sold 465.000 12/31/03 30,000
Purchases increase inventory, while the write-off and cost of goods sold decrease inventory.
95. REQUIRED: The cost of goods sold reported for the year. Cost of goods sold can be computed as $150,000 using the T-account. An alternate solutions
DISCUSSION: (B) Cost of goods sold equals beginning inventory, plus net purchases, plus approach is to use the CGS computation
freight-in, minus ending inventory. Freight-out is a cost of selling the goods rather than a cost BI $ 90,000
of acquiring the goods. Thus, cost of goods sold is $118,220 [$30,840 + ($102,800 – $10,280) + Purchases 124,000
+ $15,420 – $20,560]. CGAS 214,000
- EI 30,000 purchase allowances. Answer (D) is incorrect because 376,000 adds, rather than subtracts,
$184,000 purchase allowances.
Accounted for as follows:
$ 34,000 recognized as invy. loss* 102. Answer (B) is correct. Cost of goods sold equals beginning inventory, plus net purchases,
$150,000 recognized as CGS minus ending inventory. Given net purchases of 500,000, cost of goods sold equals 450,000
* Theoretically correct treatment. (100,000 + 500,000 - 150,000).
Answer (A) is incorrect because 250,000 subtracts, rather than adds, beginning inventory.
99 . Inventory – 12/31/2003 360,000 Answer (C) is incorrect because 550,000 subtracts, rather than adds, opening inventory and
Purchases – 2004 3,000,000 adds, rather than subtracts, closing inventory. Answer (D) is incorrect because 750,000 adds,
Goods available for sale 3,360,000 rather than subtracts, closing inventory.
Inventory – 12/31/2004 380,000
Cost of goods sold 2,980,000 103. c $650,000 – ($650,000 ÷ 1.20) = $108,333.
The physical inventory of P380,000 rather than the perpetual inventory of P420,000, is 104. Answer D is correct. Gross margin is sales minus cost of goods sold and is computed as
considered in computing cost of goods sold because the company’s policy is to indicate follows for this question:
inventory shortages in cost of goods sold. Sales $150,000
Less cost of goods sold
100. Choice "B" is correct, $512,000 cost of goods sold on the income statement. Beginning inventory $ 35,000
Rule: Consignor must include consigned goods (in the hands of the consignee) in his own Purchases 70,000
inventory, at his cost plus warehousing costs of consignor before goods are transferred to Goods available $105,000
consignee plus shipping costs to consignee.
Ending inventory (50,000)
Beginning inventory $122,000 Cost of goods sold (55,000)
Add (deduct): Gross margin $ 95,000
Purchases 540,000 Note that the $5,000 of sales commissions are not included in the calculation of cost of goods
Freight in 10,000 sold. This is because cost of goods sold includes only those costs associated with bringing
Transportation to consignees 5,000 goods to the point of sale and converting the goods into a salable condition. Sales
Cost of goods available for sale 677,000 commissions do not fit this definition because sales commissions are a cost from the point of
Ending inventory sale.
Held by Kam (145,000)
Held by consignees (20,000) 105. Choice "a" is correct. $190,000.
Cost of goods sold $512,000 Sales: $300,000
Less: Cost of sales:
101. Answer (B) is correct. Purchase discounts, allowances, and returns are subtractions from Beginning inventory Jan. 1 $ 70,000
purchases because they are reductions of cost. Transportation-in is an addition because it Add: Purchases 140,000
increases cost. Thus, net purchases equals 346,000 (400,000 + 6,000 - 40,000 - 15,000 - Subtotal 210,000
5,000). Less: Ending inventory (100,000)
Answer (A) is incorrect because 340,000 omits transportation-in from the calculation. Answer Cost of sales (110,000)
(C) is incorrect because 370,000 omits transportation-in and adds, rather than subtracts, Gross margin $190,000 A
Note: The sales commissions of $10,000 is a selling expense. 112. c 25% ÷ (100% – 25%) = 33%.
120. Answer (A) is correct. Cost of goods sold equals beginning inventory, plus purchases, minus
ending inventory. Hence, cost of goods old is $440,000 ($140,000 + $530,000 - $230,000).
Answer (B) is incorrect because $530,000 equals purchases. Answer (C) is incorrect because
$620,000 is obtained by reversing the opening and closing inventory figures. Answer (D) is
incorrect because $670,000 omits closing inventory from the calculation.
121. Answer (B) is correct. The year-end total assets can be determined by summing all of the
assets and deducting accumulated depreciation (including the current year's depreciation).
Total accumulated depreciation at the end of the second year is $120,000 [($600,000 ÷ 10
years) x 2 years]. Total assets equal $890,000 ($80,000 cash + $100,000 A/R + $230,000 EI +
$600,000 gross fixed assets - $120,000 accumulated depreciation).
Answer (A) is incorrect because $800,000 uses the beginning balance of inventory. Answer
(C) is incorrect because $950,000 omits second-year depreciation from the calculation.
Answer (D) is incorrect because $1,010,000 omits total accumulated depreciation from the
calculation.
122. Answer (D) is correct. The debt was issued on July 1 and has only been outstanding for 6
months. Interest expense equals the face amount of the debt multiplied by the interest rate
and the fraction of the year ($1,000,000 x 10% x 6/12 = $50,000). Because interest is payable
on July 1, 6 months' interest is accrued and expensed in the current period. The payable is
also recognized in the current period. Thus, the adjusting entry should be
Interest expense $50,000
Interest payable $50,000
Answer (A) is incorrect because the debt has been outstanding for only 6 months so accrued
interest is only $50,000. Answer (B) is incorrect because the debt pays annual interest on July