SCHOOL OF ACCOUNTANCY, BUSINESS and HOSPITALITY

Accountancy Department

ACCT 1026- Financial Accounting and Reporting

First Semester, SY 2021-2022

Exercises
PART 1 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 – Computation of Sales, Cost of Sales, Gross Profit and Inventory

On February 15, Greg’s Photo Frames purchased 500 pieces of frames at a unit cost price of P175 and
on July 15 another 300 units of frames at a total price of P60,000 on term of 30 days (n/30). During the
year, 650 units of frames were sold at P500 per unit, deliveries to SM on term of 15 days (n/15) were as
follows:

April 1 – 500 pieces

August 15 – 150 pieces

Instructions:
1. Compute for the following by supplying your answers in the table:
a. Sales
b. Cost of goods sold (use P175 for the first 500 units)
c. Gross Profit

Sales P xxx
Cost of Goods Sold: 500 @ P175 P xxx
150 @ P? xxx xxx
Gross Profit P xxx

2. Determine the inventory cost on December 31 (use the most recent price).
3. Prepare a stock card.

Item: ________________
Code no. 178
Date Received Issued Balance
Qty Unit Cost Total Cost Qty Unit Cost Total Cost Qty Unit Cost Total Cost

*Question items were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition

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PROBLEM 2 – Computation of Purchases, Ending Merchandise Inventory, Cost of Sales, and
Gross Profit

Benjo’s Battery Store sells two brands of battery: Silver and Gold. Purchases for the month of June
consisted of 30 silver brand units at P1,650 each and 20 gold brand units at P1,900 each. At the end of
the month, an inventory count showed that 12 silver brand units and 5 gold brand units were still on hand.

Instruction:
1. Compute for each brand: purchases, merchandise inventory at the end of June and cost of sales
using the following format:
Gold Silver
Purchases (computation for gold) P xxx
(computation for silver) P xxx
Less Merchandise Inventory End:
(computation for gold) (xxx)
(computation for silver) (xxx)
Cost of Sales P xxx P xxx

2. Assume a silver brand sells for P2,500 and a gold brand sells for P2,750. Compute for each
brand sales revenue and total gross profit using this format.

Gold Silver
Sales (computation for gold) P xxx
(computation for silver) P xxx
Less Cost of Sales: refer to your answer in No.1 (xxx) (xxx)
Gross Profit P xxx P xxx

PROBLEM 3 – Computation of Purchases, Beginning and Ending Merchandise Inventory, Goods

Available for Sale, Cost of Sales, and Gross Profit

Still using Exercise 2. Assume that in July, Benjo purchased another 25 silver brand units at a unit cost of
P1,750 and 20 gold brand units at a unit cost of P1,950. Benjo did not increase sales prices although cost
prices rose. On July 31, a count showed 15 silver batteries and 10 gold batteries were on hand.

Instructions:
a. Compute for each brand cost of purchases, total goods available for sale, merchandise
inventory end of July and the cost of sales for July using the following format:

Gold Silver
Inventory Beginning (brought forward) P xxx P xxx
Purchases (computation for gold) xxx
(computation for silver) xxx
Total Goods Available for Sale xxx xxx
Less Merchandise Inventory End (use new price):
(computation for gold) (xxx)
(computation for silver) (xxx)
Cost of Sales P xxx P xxx

b. Compute for each brand sales and gross income on sales using the following format:
Gold Silver
Sales (computation for gold) P xxx
(computation for silver) P xxx
Less Cost of Sales: (computed in “a” above) (xxx) (xxx)
Gross Profit P xxx P xxx
*Question items were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition

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PROBLEM 4 – Computation of Cost of Goods Available for Sale and Cost of Sales

During the year, Victoria Home and Garden purchased potteries, plants, dried flowers, candles and other
home and garden decors. In each of the following cases, calculate the cost of goods available for sale
and the cost of sales:

Case CASE 1 CASE 2 CASE 3 CASE 4 CASE 5

Beginning Inventory P 0 P 120,000 P 50,000 P 10,000 P 0
Purchases 300,000 300,000 300,000 300,000 300,000
Freight-in 25,000 0 40,000 15,000 25,000
Returns and allowances 5,000 55,000 0 21,000 11,000
Discounts 0 15,000 0 0 18,550
Ending Inventory 0 0 75,000 75,500 85,000

PROBLEM 5 – Computation of Sales, Cost of Sales, Gross Profit, Operating Expenses, and
Profit/Loss

In each of the following cases, supply the missing item(s):

Operating Net Profit

Case Sales Cost of Sales Gross Profit
Expenses (Net Loss)
A P 440,000 P ? P 215,000 P ? P 75,000
B ? 185,000 75,000 105,000 ?
C 870,000 640,000 ? ? (90,000)
D 1,250,000 ? ? 275,000 150,000
E 1,300,500 ? 579,250 ? (95,750)

PROBLEM 6 – Computation of Gross Profit and Gross Profit Ratio

The following data were taken from the books of Delta Hardware, a small retail business:

Sales P 253,000
Sales Returns and Allowances 8,000
Merchandise Inventory, January 1 134,000
Purchases 126,000
Purchase returns and allowances 4,000
Purchase discounts 3,000
Freight-in 8,500
Merchandise inventory, December 31 80,000

“I think if our gross profit ratio will reach 30%, we will earn profit”, the owner of Delta exclaimed.

Instructions:
a. Determine the gross profit of Delta Hardware.
b. Assure the owner by determining the entity’s gross profit ratio.
Formula: Gross Profit / Net Sales x 100.

On the second part of our Exercises, we will delve on the journal entries, adjusting entries,
closing entries and preparation of financial statements for a merchandising entity.

Prepared by Jerome D. Marquez, FAR Instructor

*Question items were lifted from the book of Mam Z. Manuel and M. Manuel – Simplified Accounting for Business
International Edition 2nd Edition

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