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University of Santo Tomas

Alfredo M. Velayo College of Accountancy

Hand-out in Merchandising

1. Kim Merchandising Company reported inventory of P345,600 at

December 31, 2012. You discovered that the inventory amount,
among others, included the following:

 Good costing P21,600 ordered by a customer on December 27,

2012, shipped FOB destination on December 29, 2012 and
received by the customer at their warehouse on January 5,

 Goods costing P14,800 ordered on December 25, 2012 shipped

to Kim FOB destination and received January 2, 2013.

 Goods costing P19,200 held on consignment.

 Goods costing P12,400 ordered from a supplier on December

26, 2012, shipped FOB shipping point on December 28 but had
not been received by December 31.

 Goods costing P31,500 shipped by a vendor FOB seller on

December 31, 2012 and received by Kim on January 5, 2013.

 Goods costing P12,500 which was shipped FOB destination to a

customer on December 29, 2012. The goods are still in transit
and the customer expected to receive the merchandise on
January 6, 2013.

 Goods costing P40,000 shipped by a vendor FOB destination on

December 29, 2012. The related invoice received and recorded
on December 31, 2012. The goods were received by Kim on
January 4, 2013.

What is the correct amount of inventory that should be reported by Kim

in its December 31, 2012 statement of financial position? 271,600

2. The following information was taken from AJ Company’s accounting

records for the year ended December 31, 2012:

JPIA Aaron Joshua S. Bernardino, CPA
Increase in raw materials inventory P15,000
Decrease in finished goods inventory 35,000
Raw material purchases 430,000
Direct labor payroll 200,000
Factory overhead 300,000
Freight-out 45,000
Increase in work in process inventory 20,000

What is AJ’s cost of good sold for 2012? 930,000

3. The following items were reported on Liezel Corporation in its Income


Accounting and legal fees-P120,000; Advertising-P150,000; Freight-

out-P80,000; Interest Expense-P70,000; Loss on sales of available
for sale securities-P30,000; Officers’ salaries-P225,000; Rent
expense-P220,000; Sales salaries and commissions-P140,000. One
half of the rented premises is occupied by the sales department.

What was a Liezel total selling expense for 2012? 480,000

4. The following items were reported on AA Corporation in its Income


Legal and audit fees-P170,000; Rent Expense-P240,000; Interest

Expense-P210,000; Loss on sale of equipment-P35,000. The office
space is used equally by AA’s sales and accounting departments.

What amount should be reported as general and administrative

expenses? 290,000

5. After the initial year of operations, the Auntie Alice Company had the
following data in its operating results:

Net profit is P750,000. Selling expenses are 12.5% of sales and 25%
of cost of good sold. Administrative expenses and other expenses are
17.5% and 5% of sales, respectively.

What is Auntie Alice gross profit for the year? 750,000

6. The 2012 operations of 4a5 resulted in the following:

Cost of sales amounted to P3,500,000. The beginning inventory is

P500,000 greater than the ending inventory, the latter being
equivalent to 20% of purchases during the period. Gross profit of
company is 30% of net sales. Total operating expenses amounted to

JPIA Aaron Joshua S. Bernardino, CPA
60% of the gross profit while sales returns amounted to 2% of net
sales. The company is subject to income tax rate of 30%.

What were 4a5’s net sales for the period? 5,000,000

What was the profit after income tax? 420,000
What were the total purchases for the period? 3,500,000

7. The adjusted trial balance of Charry Company includes the following

accounts at December 31, 2012:

Sales Revenue 5,000,000

Commission Income 28,000
Interest Expense 180,000
Inventory, December 31, 2012 520,000
Net Purchases 2,800,000
Sales commissions 500,000
Administrative salaries 720,000
Office supplies expense 110,000
Dividends declared 800,000
Dividend income 16,000
Gain on sale of equipment 100,000
Rent Expense 400,000
Purchase return and allowance 25,000
Unrealized gain on trading securities 55,000
Unrealized gain on available for sale securities 88,000
Depreciation expense- store equipment 70,000
Depreciation expense- office equipment 50,000
Freight-in 80,000
Freight-out 120,000

Additional information:
a. Merchandise inventory on January 1, 2012 is P450,000
b. Income tax rate is 30%
c. Rent expense is allocated 60% to selling and 40% to

What was the profit before finance cost and income tax? 419,000
How much were the selling expenses? 930,000
How much was the cost of sales? 2,810,000

JPIA Aaron Joshua S. Bernardino, CPA