I. Multiple choice. Write all your answers “IN CAPITAL” on the space provided below.

ANSWERS:
1. A 6. D 11. D 16. A
2. A 7. D 12. C 17. B
3. C 8. A 13. C 18. A
4. C 9. C 14. B 19. A
5. B 10. C 15. A 20. A

1. Under a periodic inventory system, the entry to record a purchase of P60,000, with terms of 2/10, n/30 would
include a
A. debit to a Accounts Payable for P58,800. C. credit to Accounts Payable for P60,000.
B. credit to Purchases for P60,000. D. debit to Purchases Discounts for P1,200
2. A P5,000 purchases on account was made. The entry to record the payment on account after the expiration of
the 2% discount period would include a
A. debit to Accounts Payable for P5,000. C. credit to Cash for P4,900.
B. debit to Purchases Discounts for P100 D. credit to Accounts Payable for P4,900.
3. The entry to record a payment on a P15,000 account within the 2% discount period would include a
A. debit to Cash for P15,000. C. credit to Purchases Discounts for P300.
B. debit to Accounts Payable for P14,700. D. credit to Accounts Payable for P15,000.
4. Goods totalling P50,000 were purchased February 2 with terms of 2/10, n/30. Returns of P10,000 were made
on February 10. What discounts, if any, can be availed of if the invoice was paid on February 12?
A. None B. P1,000 C. P800 D. P200
5. The collection of a P5,000 account beyond the 2% discount period would result in a
A. debit to Cash for P4,900 C. credit to Cash for P5,000.
B. credit to Accounts Receivable for P5,000. D. debit to Sales Discounts for P100.
6. The entry to record a sale of P7,500 with terms of 2/10, n/30 would include a
A. debit to Sales Discounts for P150. C. credit to Accounts Receivable for P7,500.
B. debit to Sales for P7,350. D. credit to Sales for P7,500.
7. Which of the following is not considered in computing net cost of purchases?
A. Purchases returns and allowances C. Transportation paid on purchased goods.
B. Purchases D. Transportation paid in goods shipped to customers.
8. A salaries expense account showed a credit balance on the first day of a new accounting period. Assuming
there was no error, the explanation of this balance is
A. To close the account C. To reverse the account
B. To adjust the account D. Impossible to happen
9. Merchandise inventory becomes part of cost of goods sold when a company
A. pays for the inventory C. sells the inventory
B. purchases the inventory D. receives payment from the customer
10. Under the perpetual inventory system, in addition to making the entry to record a sales return, a company
would
A. debit Cost of Goods Sold and credit Merchandise Inventory.
B. debit Cost of Goods Sold and credit Purchases.
C. debit Merchandise Inventory and credit Cost of Goods Sold.
D. make no additional entry until the end of the period.
11. Under the perpetual inventory system, the entry to record a purchase return would include a credit to
A. Accounts Payable C. Cost of goods Sold
B. Purchases Returns and Allowances D. Merchandise Inventory
12. The entry to record the return of goods from a customer would include a
A. debit to Sales C. debit to Sales Returns and Allowances
B. credit to Sales D. credit to Sales Returns and Allowance
13. Under the perpetual inventory system, in addition to making the entry to record a sale, a company would
A. debit Merchandise Inventory and credit Cost of Goods Sold.
B. debit Cost of Goods Sold and credit Purchases.
C. debit Cost of Goods Sold and credit Merchandise Inventory.
D. make no additional entry until the end of the period.
14. Under the perpetual inventory system, which of the following accounts would not be used?
A. Sales B. Purchases C. Cost of Goods Sold D. Merchandise Inventory
15. An amount deducted from the catalog price for an item of merchandise is called a
A. trade discount B. sales discount C. customer discount D. purchase discount
16. A sale on March 21 with terms of n/10 eom is due to be collected by
A. March 31 B. April 1 C. April 10 D. April 30
17. Which of the following goods would not be included in merchandise inventory for a purchasing company?

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 A. Goods in transit shipped FOB shipping point C. Goods ordered and received from the supplier
B. Goods in transit shipped FOB destination D. Goods on hand in the showroom
18. Which of the following is not considered an operating expense?
A. Cost of goods sold C. Transportation out
B. Advertising expense D. Administrative expense
19. Which of the following activities is not a component of the operating cycle?
A. Ordering of merchandise C. collection of cash from merchandise sales
B. Sale of merchandise D. Purchase of merchandise
20. A merchandiser will earn an operating income of exactly zero when
A. net sales equals cost of goods sold C. operating expenses equals net sales
B. cost of goods sold equals gross margin D. gross margin equals operating expenses

II. Give the requirements accordingly.

A. Journalizing Sales and Purchase-Related Transactions.

Ramos Company and Cammayo Supply Company engaged in the following transactions during the month of
May 2020. Both are VAT registered. VAT is billed separately.

May 4 - Ramos sold merchandise on account to Cammayo, P162,000. Terms: FOB destination, 2/10, n/30.
Freight charges amounted to P2,000.
5 – Ramos sold merchandise on account to Cammayo, P710,000. Terms: FOB shipping point; 2/10, n/30.
Freight charges amounted to P8,000.
6 – Cammayo paid freight charges on the purchase of May 5.
7 – Ramos received returned merchandise from Cammayo in the amount of P12,000 from the May 4 sale.
9 – Ramos received payment from Cammayo for the May 4 transaction less returns and discounts.
10 – Ramos paid the transaction charges on the May 4 shipment.
12 – Ramos received payment from Cammayo for the May 5 transaction.
18 – Ramos sold merchandise on account to Cammayo, P250,000. Terms: 40% trade discounts; FOB
shipping point; 2/10, n/30.
21 – Cammayo paid freight charges on the May 18 transaction, P3,000.
23 – Ramos received payment from Cammayo for the amount due from the transaction of May 18.
Required: 1. Prepare the journal entries for Ramos Company.
2. Prepare the journal entries for Cammayo Company.
Answers:
1. Books of Ramos Company:
May 4 Accounts Receivable 162,000
Sales 162,000
To record sales
Freight-out 2,000
Accounts Payable 2,000
To record transportation

May 5 Accounts Receivable 710,000

Sales 710,000
To record sales

May 7 Sales Return and allowances 12,000

Accounts Receivable 12,000
To record sales return and allowances

May 9 Cash 147,000

Sales Discount 3,000
Accounts Receivable 150,000
To record received cash and record discount.

May 10 Accounts Payable 2,000

Cash 2,000
To record payment
May 12 Cash 695,800
Sales Discount 14,200
Accounts Receivable 710,000
To record received payment.

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 May 18 Accounts Receivable 150,000
Sales 150,000
To record sales

May 23 Cash 150,000

Accounts Receivable 150,000
To record received cash

2. Books of Cammayo Company:

May 4 Purchases 162,000
Accounts Payable 162,000
To record purchases

May 5 Purchases 710,000

Freight-In 8,000
Accounts Payable 718,000
To record purchases and freight

May 6 Accounts Payable 8,000

Cash 8,000
To record payment

May 7 Accounts Payable 12,000

Purchases Return and allowances 12,000
To record purchases returned and allowances

May 9 Accounts Payable 150,000

Purchase Discount 3,000
Cash 147,000
To record payment

May 12 Accounts Payable 710,000

Purchases Discount 14,200
Cash 695,800
To record payment

May 18 Purchases 150,000

Accounts Payable 150,000
To record purchases

May 21 Freight-In 3,000

Cash 3,000
To record freight payment

May 23 Accounts payable 150,000

Sales Discount 3,000
Cash 147,000

B. Journalizing Merchandising Transactions.

Below is the list of transactions for the Lerin Bookstore for the month of March 2020. VAT is billed
separately.
March 2 – Purchased merchandise on credit from Digao Publishers, terms 2/10, n/30, FOB destination,
P74,000.
3 – Sold merchandise on credit to Detoya Books Shop, terms 1/10, n/30, FOB shipping point,
P10,000.
5 – Sold merchandise for cash, P7,000.
6 – Purchased and received merchandise on credit from Made Easy Bookstore, terms 2/10, n/30, FOB
shipping point, P42,000.
7 – Received freight bill from Super Express from shipment received on March 6, P570.

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 9 – Sold merchandise on credit to Recoletos Books, terms 1/10, n/30, FOB destination, P38,000.
10 – Purchased merchandise from Digao Publishers, terms 2/10, n/30, FOB shipping point, P26,500,
including freight costs of P500.
11 – Received freight bill from Super Express for sale on March 9, P291.
12 – Paid Digao Publishers for purchase of March 2.
13 – Received payment in full for Detoya Books Shop’s purchase of March 3.
14 – Paid Made Easy Bookstore half the amount owed on the March 6 purchase. A discount is
allowed on partial payment.
15 – Returned faulty merchandise worth P3,000 to Digao Publishers for credit against purchase of
March 10.
16 – Purchased office supplies from Olamit Supplies for P4,780, terms n/10.
17 – Received payment from Recoletos Books for half of the purchase of March 9. A discount is
allowed on partial payment.
18 – Paid Digao Publishers in full for amount owed on purchase of March 10, less return on March
15.
19 – Sold merchandise to Sir Ed Trading on credit, terms 2/10, n/30, FOB shipping point, P7,800.
20 – Returned for credit several items of office supplies purchased on March 16, P1,280.
22 – Issued a credit memo to Sir Ed Trading for returned merchandise, P1,800.
25 – Paid for purchase of March 16, less returns on March 20.
26 – Paid freight company for freight charges for March 7 and 11.
27 – Received payment of amount owed by Sir Ed Trading for purchase of March 19, less credits of
March 22.
28 – Paid Made Easy Bookstore for the balance on the March 6 purchase.
31 – Sold merchandise for cash, P9,730.

Required: Prepare the journal entries.

Answers: PERIODIC INVENTORY SYSTEM
March 2 Merchandise inventory 74,000
Accounts payable 74,000
To record purchases

3 Accounts Receivable 10,000

Sales 10,000
To record sold merchandise

5 Cash 7,000
Sales 7,000
To record sold merchandise

6 Merchandise Inventory 42,000

Accounts Payable 42,000
To record purchases and received merchandise on credit

7 Merchandise Inventory 570

Accounts Payable 570
To record purchases

9 Accounts receivable 38,000

Sales 38,000
To record sold merchandise

10 Merchandise Inventory 26,500

Accounts Payable 26,500
To record purchases

11 Transportation-out 291
Accounts Payable 291
To record transportation bill
12 Accounts Payable 74,000
Cash 72, 520
Merchandise Inventory 1,480

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 To record payment of purchases

13 Cash 9,900
Sales Discounts 100
Accounts Receivable 100
To record received payment

14 Accounts Payable 21,000

Cash 20,580
Merchandise Inventory 420
To record payment

15 Accounts payable 3,000

Merchandise Inventory 3,000
To record returned faulty merchandise
16 Office supplies 4,780
Accounts Payable 4,780
To record purchases

17 Cash 18,810
Sales Discount 190
Accounts Receivable 19,000
To record received payment

18 Accounts Payable 23,500

Cash 23,040
Merchandise Inventory 460
To record payment

19 Accounts Receivable 7,800

Sales 7,800
To record sales

20 Accounts Payable 1,280

Office Supplies 1,280
To record returns

22 Sales return and allowances 1,800

Accounts Receivable 1,800
To record sales returned and allowances

25 Accounts Payable 3,500

Cash 3,500
To record payment

26 Accounts Payable 861

Cash 861
To record payment

27 Cash 5,880
Sales Discount 120
Accounts Receivable 6,000
To record received payment
28 Accounts Payable 21,000
Cash 21,000
To record payment

31 Cash 9,730
Sales 9,730
To record sales

Answers: PERPETUAL INVENTORY SYSTEM

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 2 Inventory 74,000
Accounts Payable 74,000
#
3 Accounts Receivable 10,000
Sales 10,000
#

Cost of Goods Sold 5,000

Inventory 5,000
#

5 Cash 7,000
Sales 7,000
#
Cost of Goods Sold 3,500
Inventory 3,500
#

6 Inventory 42,000
Accounts Payable 42,000
#

7 Inventory 570
Accounts Payable 570
#

9 Accounts Receivable 38,000

Sales 38,000
#
Cost of Goods Sold 19,000
Inventory 19,000
#

10 Inventory 26,500
Accounts Payable 26,500
#

11 Freight-Out 291
Accounts Payable 291
#

12 Accounts Payable 74,000

Cash 72,520
Inventory 1,480
#

13 Cash 9,900
Sales Discount 100
Accounts Receivable 10,000
#
14 Accounts Payable 21,000
Cash 20,580
Inventory 420
#

15 Accounts Payable 3,000

Inventory 3,000
#

16 Office Supplies 4,780

Accounts Payable 4,780

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 #

17 Cash 18,810
Sales discounts 190
Accounts Receivable 19,000
#

18 Accounts Payable 23,500

Cash 23,040
Merchandise Inventory 460
#

19 Accounts Receivable 7,800

Sales 7,800
#
Cost of Goods Sales 3,900
Merchandise Inventory 3,900
#

20 Accounts Payable 1,280

Office supplies 1,280
#

22 Sales returns and allowances 1,800

Accounts Receivable 1,800
#
Accounts Receivable Inventory 900
Cost of Goods Sold 900
#

25 Accounts Payable 3,500

Cash 3,500
#

26 Accounts Payable 861

Cash 861
#

27 Cash 5,880
Sales discounts 120
Accounts Receivable 6,000
#

28 Accounts Payable 21,000

Cash 21,000
#

31 Cash 9,730
Sales 9,730
#
Cost of Goods Sales 4,865
Merchandise Inventory 4,865
#

C. Merchandise Inventory, 6/30/2008 P310,000

Merchandise Inventory, 7/1/2007 260,000
Purchases 830,000

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 Purchase Returns and Allowances 8,300
Purchase Discounts 16,600
Transportation In 12,450

Required: Cost of goods sold 767,550

D. Determining the Missing Elements of the Income Statement.

The partial income statements of five different companies are as follows:
___1___ 2___ ____3____ ___4____ ____5_____
Net Sales a d 250,000 290,000 400,000
Merchandise Inventory, 1/1/2007 b 50,000 70,000 j 120,000
Net Cost of Purchases 80,000 e g 160,000 390,000
Goods Available for Sale 110,000 160,000 h k m
Merchandise Inventory, 1/31/2007 40,000 f 30,000 70,000 n
Cost of Goods Sold c 140,000 230,000 l 380,000
Gross Profit 50,000 40,000 I 160,000 o

Required: Replace the lettered blanks with the appropriate amounts.

Answer:
a. 120,000
b. 30,000
c. 70,000
d. 180,000
e. 110,000
f. 20,000
g. 190,000
h. 260,000
i. 20,000
j. 40,000
k. 200,000
l. 130,000
m. 510,000
n. 130,000
o. 20,000

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