SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY

Accountancy Department

ACCT 1026- Financial Accounting and Reporting

First Semester, SY 2021-2022

Exercises
PART 2 OF 2 PARTS
ACCOUNTING FOR MERCHANDISING BUSINESS

Make sure you have solved the following problems before attending our teleconference. Please
write your complete solution in your Journal of Learnings (JoL).

PROBLEM 1 – Periodic Inventory System VS. Perpetual Inventory System

A business had the following

Periodic Inventory System Perpetual Inventory System
transactions 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.

Computation of
COST OF GOODS SOLD:

Requirements:
a. Provide the journal entries under the Periodic inventory system and Perpetual inventory system,
respectively.
b. Compute for the costs of goods sold under each of the inventory systems. The physical count of
inventory reveals a balance of P38,400 in ending inventory.

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

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PROBLEM 2 – Periodic Inventory System VS. Perpetual Inventory System
On September 1, Home Office Supply started its business. One of its saleable items is the calculator
which is being sold for P500 each. During September, the following transactions occurred:
Periodic Inventory System Perpetual Inventory System
06 – Purchased 80 LCD
calculators at P200 each from De
Vida Co. Terms: cash.
10 – Purchased 50 LDX
calculators at P250 each from De
Castro Co. Terms: credit.
12 – Sold 26 LCD calculators,
coming from the purchases on the
6th. Terms: cash.

24 – Sold 30 LDX calculators,

coming from the purchase on the
10th. Terms: n/30.

30 – Inventory count was made: 54

LCD and 20 LDX.

Computation of Gross Profit:

Requirements:
a. Prepare entries using the periodic and inventory system.
b. Prepare a computation of gross profit.
c. Under perpetual system, prepare a T-account for Merchandise Inventory and determine the
balance and compare it against the count.

PROBLEM 2 – List Price, Trade Discounts, Comparison of entries on the books of seller and buyer
On February 4, 2021, Bernie’s Potteries sold ceramic potteries to Vermont Towers at a list price of
P15,000. A 2% trade discount was given to Vermont. Term of the sale: 50% down, balance n/10. Bernie’s
paid cash for freight on goods sold P450. Vermont paid promptly after ten days.

Required: Prepare the entries in the books of the seller and buyer on date of sale/purchase and date of
collection/payment using the PERIODIC SYSTEM:
Seller’s Book (Bernie’s) Buyer’s Book (Vermont)

Date of Sale/Purchase

Date of collection/payment

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 2 of 10
PROBLEM 3 – Invoice Price, Cash Discounts, Return of Merchandise, Comparison of entries on
the books of seller and buyer
On March 2, Moore Company sold merchandise with a cost price of P500,000 to Chen Company, on
terms of 2/10, n/30. It was the policy of the company to sell at cost plus 50% profit. On March 6, Chen
returned P120,000 of the merchandise billed by Moore because it was defective. The cost of the
merchandise returned were also recorded at P80,000. On March 12, Moore Company collected the
balance due from Chen Company.

Required: Prepare the entries in the books of the seller and buyer using the PERPETUAL SYSTEM:
Seller’s Book (Moore) Buyer’s Book (Chen)

March 2
(Date of Sale/Purchase)

March 6
(Date of return of
merchandise)

March 12
(Date of collection/payment
of the balance)

PROBLEM 4 – List Price VS. Invoice Price, Trade Discounts VS. Cash Discounts, Freight Cost, and
Payment WITHIN VS. BEYOND the Discount Period.
Town and Country, distributor of educational books, sold to CMA on July 1 goods listed at a price of
P7,500. Trade discount of 2% was granted. CMA was allowed to pay on terms of 2/10, n/30 FOB
Shipping Point. Freight was paid by CMA amounting to P1,344 on July 10. CMA paid P5,000 on July 5
and the balance on July 10.

Required: Prepare the entries in the books of the seller and buyer using the PERIODIC SYSTEM:
Seller’s Book (Town) Buyer’s Book (CMA)

July 1
(Date of Sale/Purchase)

July 5
(Date of the first
collection/payment)

July 10
(Date of freight payment by
CMA)

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 3 of 10
 July 10
(Date of collection/payment
of balance)

Assuming CMA paid the

balance on July 15
instead of on July 10.
Give the entry on their
respective books.

PROBLEM 5 – Credit card sales

Teddy Bear Company, an importer of Toys, sold goods to a customer on September 9 who paid using a
credit card. A credit card draft was prepared and signed by the customer for P6,720.

a. Provide the entry on September 9 by Teddy

Bear Company if the credit card is owned by
BDO who is also Teddy Bear’s depository
bank. BDO charges 1.5%.

b. Provide the entry on September 9 by Teddy

Bear Company if the credit card is not
owned by a bank.

Another entry on September 19 assuming

the credit card company paid less a 3%
credit card discount.

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 4 of 10
 PROBLEM 6 – SHIPPING TERMS, ACCOUNTING FOR FREIGHT COST
Eatable Company, a non-VAT-registered entity is engaged in the following transactions during the month
of July, the last month of the fiscal year:
July 1 Purchased merchandise from A Company for P50,000, 2/10, n/30.
Freight cost paid amounted to P2,000.
July 10 Paid half to A Company for the July 1 purchases.
July 20 Sold goods on account to DCE Company for P300,000, 2/10, n/30.
Freight cost paid amounted to P5,000.
July 27 Collected the amount due from DCE Company.
July 30 Paid the balance to A Company.

Required: Prepare the journal entries under periodic system on the books of Eatable under the following
SHIPPING TERMS:
a. FOB DESTINATION AND FREIGHT COLLECT.
b. FOB DESTINATION AND FREIGHT PREPAID.
c. FOB SHIPPING POINT AND FREIGHT COLLECT.
d. FOB SHIPPING POINT AND FREIGHT PREPAID.

FOB DESTINATION FOB DESTINATION FOB SHIPPING POINT AND FOB SHIPPING POINT
AND FREIGHT COLLECT AND FREIGHT PREPAID FREIGHT COLLECT AND FREIGHT PREPAID.

July 1

July 10

July 20

July 27

July 30

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 5 of 10
PROBLEM 7 – Input VAT, Output VAT, Net Output VAT payable
Eatable Company, a VAT-registered entity is engaged in the following transactions during the month of
July and August:
July 1 Purchased merchandise from A Company for P50,000, 2/10, n/30.
July 2 Purchased merchandise from B Company for P100,000, 2/10, n/30.
July 10 Paid in full A Company for the July 1 purchases.
July 20 Sold goods on account to DCE Company for P90,000, 2/10, n/30.
July 27 Collected the amount due from DCE Company.
July 28 Returned goods to Company B amounting to P30,000.
July 30 Paid the balance to B Company.
August 5 Eatable remitted to the BIR the net output VAT payable.

Assuming the invoice price of goods purchased and sold is inclusive of 12% VAT.

Provide the journal entries on the books of Eatable Company using the periodic system.
July 1 July 27

July 2 July 28

July 10 July 30

July 20 August 5

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 6 of 10
PROBLEM 8 – Comprehensive Problem
The following selected transactions occurred during the month of March for Bellejeianne Trading

Date TRANSACTIONS
March 1 The entity has unsold goods in February amounting to P25,000.
1 Bought goods costing P6,500 on credit from Marimar Trading. Terms 2/10, n/30.
2 Sold merchandise on account to Billy Trading, P5,000 terms 3/10 EOM.
3 Paid freight on the purchase made last March 1, P300.
4 Sold merchandise for cash, P12,600.
4 Paid freight on the above sale, P256.
5 Bought goods with a list price of P5,000 terms COD with trade discount of 8%.
6 Received a 30-day 6% note from Cortez for merchandise sold P6,000.
6 Bought tables on account from Lourdes Furniture, P4,000 terms 3/20, n/40.
7 Cash sales, P12,500.
8 Cash purchases, P8,400.
8 Bought goods from Zorro Trading, P10,000, terms 2/10 EOM.
8 Issued a 60-day 6% note for P2,000 from merchandise bought from Oca Trading.
10 Bought goods from Alex Company, P7,000, terms 3/10, 2/15, n/45.
11 Sold goods to Costa Enterprise, P11,000, terms 1/10, n/30.
12 Received a cash refund for merchandise returned to a supplier, P650.
13 Gave a cash refund to a customer for defective merchandise returned, P800.
14 Bought merchandise from Rumars with a list price of P10,000, terms 2/10, n/30 with trade
discount of 5% and 2%.
21 Collected the account of Costa Enterprises in full (see transaction dated March 11)
24 Paid account of Alex Company in full (see transaction dated March 10).
25 Sold merchandise to Santos, terms COD with a list price of P8,000 with trade discount of
10% and 5%, exclusive of freight charges of P230.
25 Returned defective tables to Lourdes Furniture (see transaction dated March 6), P500.
25 Returned defective merchandise to Zorro Trading, P200 (see transaction dated March 8).
27 Paid the account of Zorro Trading in full (see transactions dated March 8 and 25).
28 Collected the note of Cortez, together with the interest (see transaction dated March 6)
28 Paid the note issued to Oca Trading in full together with the interest (see transaction dated
March 8).
29 Billy Trading returned goods, P1,000 (see transaction dated March 2).
30 Billy Trading paid its account in full (see transaction dated March 2 and 29).
31 During the physical count on this date, the cost of unsold goods amounted to P10,000

Requirement:
1. Prepare the journal entries assuming the entity is applying the periodic system.
2. Prepare the Statement of Cost of Goods Sold for the month of March.
3. Prepare the Statement of Gross Profit for the month of March.

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 7 of 10
PROBLEM 9 – Comprehensive Problem
Just like a service concern, the following are the remaining steps in the accounting process or cycle for a
merchandiser:

1. preparing the worksheet as a basis for the adjustments and the financial statements.

2. journalizing and posting the adjustments and preparing the adjusted trial balance.

3. preparing the financial statements.

4. journalizing and posting the closing entries and preparing the post-closing trial balance. And on
the first day of the next accounting period:

5. Prepare an opening entry of real accounts with balances coming from the post-closing trial
balance of the preceding year.

SOLVE THE PROBLEM BELOW!

Regal Sales Company started its operation in 2021 and has just finished its second year of operation.
The following is the chart of accounts and trial balance of Regal Sales Company:

REGAL SALES COMPANY

CHART OF ACCOUNTS
Account No. Account Title Account No. Account Title
101 Cash 401 Cases, Capital
102 Accounts Receivable 402 Cases, Drawings
103 Allowance for Doubtful Accounts 403 Income and Expense Summary
104 Notes Receivable 501 Sales
105 Interest Receivable 502 Sales Returns and Allowances
106 Merchandise Inventory 503 Sales Discount
107 Unused Supplies 601 Purchases
108 Prepaid Advertising Expense 602 Freight-in
201 Furniture and Fixtures 603 Purchase Returns and
Allowances
202 Accumulated Depreciation – 604 Purchase Discount
Furniture and Fixtures
203 Office Equipment 605 Freight-out
204 Accumulated Depreciation – 606 Salaries Expense
Office Equipment
301 Accounts Payable 607 Advertising Expense
302 Notes Payable 608 Utilities Expense
303 Salaries Payable 609 Rent Expense
303 Salaries Payable 610 Supplies Expense
304 Rent Payable 611 Doubtful Accounts Expense
305 Taxes Payable 612 Depreciation Expense – Furniture
and Fixtures
306 Interest Payable 613 Depreciation Expense – Office
Equipment
307 Withholding Taxes Payable 701 Rent Income
308 SSS Premiums Payable 801 Interest Expense
309 Philhealth Premiums Payable
310 Unearned Rent Income

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 8 of 10
 REGAL SALES COMPANY
TRIAL BALANCE
December 31, 2021
Accounts Debit Credit
Cash P 50,575
Accounts Receivable 18,500
Allowance for Doubtful Accounts P 1,200
Merchandise Inventory 27,250
Unused Supplies 750
Prepaid Advertising Expense 3,000
Furniture and Fixtures 27,000
Accumulated Depreciation – Furniture and Fixtures 2,700
Office Equipment 15,000
Accumulated Depreciation – Office Equipment 1,900
Notes Payable 20,000
Accounts Payable 5,770
Withholding Taxes Payable 875
SSS Premiums Payable 525
Philhealth Premiums Payable 350
Unearned Rent Income 1,500
Cases, Capital 117,010
Cases, Drawings 1,000
Sales 120,500
Sales Returns and Allowances 2,500
Sales Discount 1,500
Purchases 75,145
Freight-in 1,890
Purchase Returns and Allowances 475
Purchase Discount 305
Freight-out 2,900
Rent Expense 20,000
Salaries Expense 17,500
Taxes Expense 2,000
Utilities Expense 6,600
P 273,110 P 273,110

Additional information on December 31, 20121 follows:

1. Allowance for doubtful accounts should be increased to 10% of the accounts receivable.
2. Supplies on hand, P250.
3. Furniture and fixtures were acquired January 1, 2020 with an estimated useful life of ten years,
no scrap value.
4. Office equipment consists of:
10,000 acquired January l, 2020, estimated useful life of five years, P500 scrap value.
P5,000 acquired July 1, 2021, estimated useful life of five years, no scrap value.

5. Notes payable is for 30 days, 6% dated December 10, 2021.

6. Unpaid salaries amounted to P2,500.
7. Advertising was paid on December 1, 2021 to Malaya Journal for six consecutive Sundays
starting December 2, 2021.
8. Accrue 3% percentage tax on December gross sales of P 10,000.
9. On October l, a food stall owner gave an advance rental of P1,500 good for four months.
*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

Page 9 of 10
 10. Physical inventory count showed unsold merchandise on December 31, 2021 amounting to
P47,755.

Requirements:
1. Prepare the adjusting entries on December 31, 2021.
2. Prepare the adjusted trial balance.
3. Prepare the financial statements:
a. Income Statement
b. Statement of Financial Position
c. Statement of Changes in Equity
4. Prepare the closing entries
5. Prepare the post-closing trial balance.

Prepared by Jerome D. Marquez, FAR Instructor

*Problems were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition; and Sir Zeus Millan – Financial Accounting and Reporting (Fundamentals)

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