Accounts Receivable/Notes Receivable-Trade Advances from Customers Advances to Suppliers Accounts payable/Notes payable-Trade

Beg. Balance(AR/NR) Beg.Balance

xxx (ADV) Beg.
xxxBalance (Adv.) Beg. Balance(AP/NP)

Sales on Account (Accrual basis) xxx Collections ( Cash basis) xxx Payments ( cash basis) Purchase on account (accrual basis)

Sales allowances Purchase

xxx discounts

Dishonored notes Sales returns * Purchase

xxx returns*

Sales discount lost (net method) Sales discounts (gross method) Purchase allowancexxx

Recovery of prev. write offs ** xxx

Write offs

End Balance (ADV) End

xxxBalance(AR/NR) End
xxx
Balance(AP/NP) End Balance (Adv.)

xxx xxx xxx xxx

* excluding refunded sales return to customers *excluding refunded purchase returns from suppliers
** included in the analysis only if collections included the said recovery

Problem 4: ABC Corp. lost considerable part of its inventory on a fire on October 31. As the auditor, you were
requested to make an estimate as to the total damages in inventories caused by the fire.
Upon inquiry and inspection of records you ascertained the following:
Merchandise inventory, January 1 P120,000
Purchases, January 1 to October 31 830,000
Purchases returns and allowances 10,000
Transportation in 20,000
Sales, January 1 to October 31 1,096,000
Sales return 40,000
Sales allowance 20,000
Sales discount 50,000
Employee discount 24,000
Merchandise not damaged by fire on October 31 48,000

Requirements:
1. Using the gross profit test, what was the estimated loss in inventory due to the fire assuming that the gross
profit rate is 30% based on sales?

2. Using the gross profit test, what was the estimated loss in inventory due to the inventory due to the fire
assuming that the gross profit rate is 25% based on cost?
Problem 5: Having been engaged as external auditor of Kagome Company on February 8, 2014, you were unable
to observe the taking of inventory on December 31, 2014, which was reported to amount to P 320,000. The following
data, however, were gathered by you:
Inventory, December 31, 2013 P320,000
Purchases during 2014 1,410,000
Cash sales during 2014 350,000
Shipment received on December 26, 2014, included in
Physical Inventory, but not recorded as purchases 10,000
Deposits made with suppliers, entered as purchases
Goods were not received in 2014 20,000
Collections on accounts receivable, 2014 1,825,000
Accounts receivable, January 1, 2014 295,000
Write-off of accounts receivable 20,000
Sales returns on sales on account 25,000
Sales discounts 30,000
Accounts Receivable, December 31, 2014 270,000
Gross profit percentage on sales 40%

Requirements:
1. How much is total gross sales for 2014?
2. How much is sales for 2014 for inventory estimation purposes?
3. How much is the estimated ending inventory using the gross profit approach?
4. How much is the inventory shortage?
Problem 6: The Jim Corporation is an importer and wholesaler. Its merchandise is purchased from several suppliers
and is warehoused by Jim Corporation until sold to consumers. In conducting her audit for the year ended June 30,
2014 the corporation’s CPA determined that the system of internal control was good. Accordingly, she observed the
physical inventory at an interim date, May 31, 2014, instead of fiscal year, end.
The CPA obtained the following information from general ledger:
Inventory, July 1, 2013 P 87,500
Physical inventory, May 31, 2014 95,000
Sales for 11 months ended May 31, 2014 840,000
Sales for year-end June 30, 2014 960,000
Purchases for 11 months ended May 31, 2014
(before audit adjustments) 675,000
Purchases for year ended June 30, 2014
(before audit adjustments) 800,000

The CPA’s audit disclosed the following information:

a. Shipments received in May and included in the physical inventory but recorded as
June purchases P7,500
b. Shipments received in unsalable condition and excluded from physical inventory;
credit memos had not been received nor had chargebacks to vendors been removed:
Total at May 31, 2014 P1,000
Total at June 30, 2014 P1,500
c. Deposit made with vendor and charged to purchases in April 2014. Product was
shipped in July 2014 P2,000
d. Deposit made with vendor and charged to purchases in May 2014. Product was
shipped, FOB destination, on May 28, 2014, and was included in May 31, 2014
physical inventory as goods in transit. P5,500
e. Through the carelessness of the receiving department, a June shipment was damaged
by rain. This shipment was later sold in June at its cost P10,000.

Requirements:
1. Compute of the gross profit ratio for 11 months ended May 31, 2014.
2. Compute by the gross profit ratio method the cost of goods sold during June 2014
3. Compute by the gross profit ratio method the estimated June 30, 2014 inventory.
Problem 7: On April 15, 2014 a fire damaged the office and warehouse of Down Wholesale Corporation. The only
accounting record saved was the general ledger, from which the following trial balance was prepared:

Down Wholesale Corporation

TRIAL BALANCE
March 31, 2014

Cash P7,000
Accounts Receivable 27,000
Inventory, December 31, 2013 50,000
Land 240,000
Building and equipment 1,200,000
Accumulated depreciation 272,200
Other assets 36,000
Accounts payable 23,700
Accrued liabilities 7,200
Capital stock 1,000,000
Retained earnings 231,100
Sales 90,400
Purchases 42,000
Other expense 22,600

The following additional information has been gathered:

a. The fiscal year of the corporation ends on December 31.

b. The examination of the April bank statement and canceled checks revealed that checks written April 1
– 15 totaled P11,600, P5,700 for account payable as of March 31; P2,000 for April merchandise
shipments, and P3,900 for other expenses. Deposits during the same period amounted to P10,650,
which consisted of receipts on account from customers, with the exception of a P450 refund from a
vendor for merchandise returned on April.

c. Correspondence with suppliers revealed unrecorded obligations at April 15 of P8,500 for April
merchandise shipments, including P1,300 for shipments in transit on that date (FOB Destination)

d. Customers acknowledged indebtedness of P26,400 at April 15, 2014. It was also estimated that
customers owe another P5,000 that will never be acknowledged or recovered. Of the acknowledged
indebtedness, P600 will probably be uncollectible.

e. The companies insuring the inventory agreed that the corporation’s fire loss claim should be based on
the assumption that the overall gross margin on sales percentage for the past two years was in effect
during the current year. The corporation’s audited statements disclosed the following:

2013 2012
Net Sales P400,000 P300,000
Net purchases 226,000 174,000
Beginning inventory 45,000 35,000
Ending inventory 50,000 45,000

f. Inventory with a cost of P6,500 was salvaged and sold for P3,350. The balance of the inventory was the
total loss.
Required:
1. Net purchases for the period January 1, 2014 to April 15, 2014
2. Net sales for the period January 1, 2014 to April 15, 2014
3. The company’s overall gross profit percentage
4. Estimated ending inventory as of April 15, 2014
5. Inventory loss due to fire