FABM 2 Practice Exercises

Problem 1. Trade and Cash Discount Calculations

On June 1, 2018, Basty Company sold merchandise with a P120,000 listprice.
Trade Discount Credit Terms Date Paid
a. 30% 2/10, n/30 June 8
b. 40% 1/10, n/30 June 15
c. - 2/10, n/30 June 11
d. 20% 1/15, n/30 June 14
e. 40% n/30 June 28

Required:
For each of the sales terms, determine the following:
1. the amount recorded as a sale.
2. the amount of cash received.

Problem 2. Sales Transactions

Some of the sales transactions of Daryl Distributors whose credit terms are 2/10, n/30 follow:
June 1 Cash sales, P180,000.
4 Sales on account, P650,000.
7 Received returned merchandise sold on account, P90,000.
10 Collected the amount due from credit sales

Required: Prepare the journal entries.

Problem 3. Transportation Costs

On June 8, 2018, Witty Company sold merchandise for P16,000 to Northern Interiors; terms 2/10, n/30. On June 18,
Witty received a check for the amount due. Shipping costs amounted to P1,200. Witty uses the periodic inventory
system.

Required: Prepare the journal entries for June 8 only, under the 4 cases of recording transportation (seller and buyer
POV)
a. FOB Destination, Freight Prepaid
b. FOB Shipping Point, Freight Collect
c. FOB Destination, Freight Collect
d. FOB Shipping Point, Freight Prepaid

Problem 4. Cost of Goods Sold

The following information pertains to DecoArts Company:
Transportation In P172, 000
Merchandise Inventory, 1/1/2018 1,200,000
Merchandise inventory, 12/31/2018 1,900,000
Purchases 4,300,000
Purchases Returns and Allowances 129,000
Purchases Discounts 215,000

Required: Prepare the cost of goods sold section of the income statement for the year ended Dec. 31, 2018.

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Problem 5. Purchase Transactions
1. Several purchase transactions of the Neptune Pharmacy are presented below. The credit terms of the entity are 3/10,
n/30.
Oct. 6 Purchased merchandise for cash, P200,000; FOB shipping point
12 Purchased merchandise on account, P700,000.
15 Returned merchandise purchased on account, P50,000.
17 Paid supplier the amount due. .
19 Paid freight charges of P7,000 on merchandise acquired last Oct. 6.

Required: Prepare the journal entries.

2. On Mar. 10, 2018, Franken Enterprises purchased P18,000 worth of merchandise from Aguilar Company; terms 1/10,
n/30, F.O.B. shipping point. On Mar. 12, Franken paid P360 freight on the shipment. On Mar. 15, Franken returned
P2,000 of merchandise for credit. Final payment was made to Aguilar on Mar. 19. Franken uses the periodic inventory
system.

Required:
1. Prepare the journal entries for Franken Enterprises.
2. Prepare the journal entries assuming that the terms are F.0.B destination.

Problem 6. Journalizing Merchandising Transactions

Gosling Auto Parts entered into the following transactions during the month of June 2018:
June 2 Purchased 1,000 tires at a cost of P600 per tire. Terms of payment: 1/ 10, net 45.
4 Paid trucking firm P8, 000 to ship the tires purchased on June 2.
5 Purchased 600 tires at a cost of P600 per tire. Terms of payment: 2/10, net 30.
6 Paid trucking firm P5, 000 to ship the tires purchased on June 5.
7 Returned 150 of the tires purchased on June 2, because they weredefective. Received a credit on open
account from the seller.
11 Paid for tires purchased on June 2.
13 Sold 700 tires from those purchased on June 2. The selling price wasP900 per tire. Terms: 1/10, net 30.
22 Received cash from sale of tires on June 13.
30 Paid for tires purchased on June 5.
Required: Prepare the journal entries.

Problem 7. Journalizing Merchandising Transactions

Angel Locsin Homewares engaged in the following transactions in October:

Oct. 7 Sold merchandise on credit to Lacson Co., terms n/30, FOB Shipping point, P30,000.
8 Purchased merchandise on credit from Orcajada Co., terms n/30, FOB shipping point, P60,000.
9 Paid Mendoza Co. for shipping charges on merchandise purchased on Oct. 8, P2,540.
10 Purchased merchandise on credit from Ortiz Co., terms n/30, FOB shipping, P90,000. Freight prepaid by
Ortiz, P6,000.
13 Purchased office supplies on credit from lsagan Co., terms n/10, P24,000.
14 Sold merchandise on credit to Pabelico Co., terms n/30, F0B shipping, P24,000.
14 Returned damaged merchandise received from Orcajada Co. on Oct. 8 for credit, P6,000.
17 Received check payment from Lacson Co. for his purchase on Oct. 7.

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 18 Returned a portion of the office supplies received on Oct. 13 for credit, P4,000.
19 Sold merchandise for cash, P18,000.
20 Paid Ortiz Co. for purchase of Oct. 10.
21 Paid Orcajada Co. the balance from the transaction on Oct. 8 and 14.
24 Accepted from Pabelico Co. a return of merchandise, P2,900.

Required: Prepare the journal entries.

Problem 8. 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, 1/1/2018 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
Merch. Inventory 1/31/2018 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.

Problem 9. Determining the Missing Elements of the Income Statement

The table below contains portions of the income statements of four different companies:
1 2 3 4
Net Sales 100,000 D 200,000 240,000
Beginning Inventory 15,000 12,000 G 30,000
Net Cost of Purchases 55,000 E 125,000 95,000
Goods Available for Sale A F 145,000 J
Ending Inventory 10,000 25,000 H K
Cost of Goods Sold B 40,000 I L
Gross Profit C 90,000 85,000 130,000
Required: Replace the lettered blanks with the appropriate amounts.

Problem 10. Matching type.

A. Purchase Requisition G. Invoice
B. Purchase Order H. Official Receipt
C. Credit Memorandum I. Periodic Inventory System
D. Debit Memorandum J. Perpetual Inventory System
E. FOB Destination K. Purchase Discounts
F. FOB Shipping point L. Trade Discounts

1. This is an authorization made by the buyer to the seller to deliver the merchandise as detailed in the form.
2. It is the discount taken by the buyer for the early payment of an invoice.
3. The document issued by the seller authorizing the return of merchandise or the grant of an allowance.
4. This document evidences the receipt of cash by the seller.
5. This transportation arrangement passes ownership of the goods to the buyer only when the buyer receives the
merchandise.
6. Under this inventory system, revenues from sales are recorded when sales are made, but no attempt is made on
the sales date to record the cost of goods sold.

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 7. Under this inventory system, both the sales amount and the cost of goods sold amount are recorded when each
item of merchandise is sold.
8. The document prepared by the seller of goods and sent to a buyer detailing the specifics of a sale.
9. This discount encourages the buyers to purchase goods because of markdowns from the list price.
10. This is the shipping term if the buyer shoulders the shipping costs.

Problem 11. Periodic and Perpetual Inventory Systems

Prepare the journal entries to record the merchandising transactions under periodic and perpetual inventory systems
1. Sold merchandise on account costing P8,000 for P10,000; terms were 2/10, n/30.
2. Customer returned merchandise costing P400 that had been sold on account for P500 (part of the P10,000 sale):
3. Received payment from customer for merchandise sold above [cash discount taken: (10,000 sale- P500 return) x
2% discount= P190]:
4. Purchased on account merchandise for resale for P6,000; terms were 2/10, n/30 (purchases recorded at invoice
price):
5. Paid P200 freight on the P6,000 purchase; terms were FOB shipping point, freight collect.
6. Returned merchandise costing P300 (part of the P6,000 purchase):
7. Paid for merchandise purchased, refer to no. 4 [cash discount taken: (6,000 purchase- P300 return) x 2%
discount = P114]:
8. To transfer the beginning inventory balance to the income summary account (part of the closing entries under
the periodic inventory system):
9. To record the ending inventory balance (part of the closing entries under the periodic inventory system):
10. To adjust the ending perpetual inventory balance for the shrinkage during the year

Assume that the beginning inventory for the year is P250,000. At year-end, the physical inventory is taken and it
revealed that the actual inventory on hand is P231,500.

Problem 12. Value-Added Tax

Spainhour Feeds based trades specialty feeds for race horses, fighting cocks, aquarium feeds, zoo animals and other
animals generally considered as pets. On May 13, 2018, Spainhour Feeds purchased on account specialty feeds with a
total amount payable of P784,000. A wholesaler operating in the region bought for cash all of the available feeds on May
25,2018; amount of cash received was P1,120,000. Spainhour Feeds paid the value-added tax due by month end not
minding the actual deadline.
What are the entries related to value-added tax?

ANSWER
2018
May 13 Purchases 700,000
Input Tax 84,000
Accounts Payable 784,000

May 25 Cash 1,120,000

Sales 1,000,000
Output tax 120,000

May 31 Output tax 120,000

Input tax 84,000
VAT Payable 36,000

May 31 VAT Payable 36,000

Cash in Bank 36,000

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