Afar-problems-prelim.docx

ADVAC - Prelim PROBLEM 1 GMB Publishing ships 8-volume sets of encyclopedia to book dealers on consignment. The sets are to be sold at an advertised price of P99. The cost per set is P50. Consignees are allowed a commission of 30% of the sales price, and are to be reimbursed for freight relating to the consigned goods. On December 3, 20x7, 100 sets were sent to MTG Bookstore on consignment. The consignor paid packaging charges of P170 for the shipment. The shipping cost paid by the consignor was P400, and the consignee paid P60 for the freight on the sets received. 60 sets were sold in December for cash. Remittance of the amount owed to the consignor was made on December 31, 20x7. How much is the consignor’s net profit on the consignment? a. b. c. d.

P560 P780 P650 P870

Solution: Sales (60 x P99) Less applicable cost and expenses: Cost of sales: (50 x 60) Packing: (170 x 60/100) Shipping: (400 x 60/100) Freight: (60 x 60/100) Commission: (5,940 x 30%) Consignment profit

P5,940 P3,000 102 240 36 _1,782_

5,160 P 780

PROBLEM 2 On July 1,2015, the Eastern Appliance ships 5 of its appliances to the XYZ Store on consignment. Each unit is to be sold at 25,000 payable 5,000 in the month of purchase and 1,000 per month thereafter. The consignee is to be entitled to 20% of all amounts collected on consignment sales. XYZ Store sells three appliances in July 1 and one on August. Regular monthly collections are made by the consignee, and appropriate cash remittances are made to the consignor at the end of each month. The cost of the appliances shipped by the consignor was 15,500 per unit. The consignor paid shipping costs to the consignee totaling 5,000.

Compute for the cost of inventory on August 31, 2015. Soution: Cost of consigned goods. 15,500 Shipping cost. 1,000 Commission. 0 Total. 16,500

PROBLEM 3 On December 1 20x8, Anna Manufacturing Company supplies 1000 product to local distributors on consignment. Each product cost P100.Expenses incurred for Shipping includes freight 1,500 and Carriage 1,000. Commission is at 10% of sales proceeds. On December 15, 20x8 500 product were sold. How much is the consignors net Profit in the Consignment? a.

10,000

b.

2,500

c.

12,500

d.

1,000

Solution: Sales (1000x100)

100,000

Less:

Freight exp

(1,500)

Carriage exp

(1,000)

Commision (100,000x10%)

(10,000) 87,500

Sales

(100,000)

Consignment Profit

12,500

PROBLEM 4 On January 1, 201 entities A and B (the venturers) form a joint venture (entity X). Upon incorporation of entity X, entities A and B each take up 50 percent of the share capital of entity. In return for their interests in entity X, entities A and B each contribute P100,000 to entity X. Entity A contributes machine with fair value of P100,000 and a carrying amount of P80,000. Entity B’s contribution is P100,000 cash. The Machine contributed by the entity A has an estimated useful life of 10 years with no residual value.

a. b. c. d.

Entity X’s profit for the year ended December 314, 2016 is P30,000 (after deducting depreciation expense of P10,000 on the machine contributed by the entity A). Entity A accounts for his investment using the equity method. What is the cost of investment of entity A on December 31, 2016? P90,000 P121,000 P105,000 P106,000

Solution: Carrying amount Realized gain (P100,000-P80,000)50% Profit share (50%xP30,000) Realized gain on machine (P10,000/10yrs) Investment account bal., Dec. 31, 2016

P80,000 10,000

P90,000 15,000 1,000 P106,000

PROBLEM 5 On January 1, 2016 entities M and N each acquired 30 percent of the ordinary shares that carry voting rights at a general meeting of shareholders of entity Z for P300,000. Contingent consideration probable to be paid by the entity M is measures reliably at P50,000. Entities M and N immediately agreed to share control over entity Z. For the year ended December 31, 2016 entity Z recognized a profit of P400,000. On December 31, 2016, entity Z declared and paid a dividend of P150,000 for the year 2016. At December 31, 2016 the fair value of each venturers’ investment in entity Z is P425,000. However, there is no published price quotation for entity Z.

On December 31, 2016 entity M sells goods for P60,000 to entity Z. At December 31, 2016 these goods were in the inventories of Equity Z (i.e. they had not been sold by entity Z). Entity M sells goods at a 50% markup on cost. Entities M and N account for its investment in entity Z using the equity method.

a. b. c. d.

At December 31, 2016 entity M would report its investment in entity Z at: P419,000 P375,000 P363,000 P300,000

Solution: Cost of Investment, January 1, 2016 (P300,000 + P50,000) Profit Share (30% x P400,000) Unrealized Profit (50/150 x 60,000) 30% Dividend Income (30% x P150,000)

P 350,000

Investment in entity Z, December 31, 2016

P 419,000

120,000 (6,000) (45,000)

PROBLEM 6 On August 5, 20x8, Famous Furniture shipped 20 dining sets on consignment to furniture outlet, Inc. The cost of each dining set was P350 each. The cost of shipping the dining sets amounted to 1,800 and was paid for by Famous Furniture. On Dec 30, 20x8, the consignee reported the sales of 15 dining sets at P850each. The consignee remitted payment for the amount due after deducting a commission, advertising expense of p300 and installation and set up costs of P390. The total profit on units sold for the consignor is? a. 11,295 b. 4,695 c. 6,045 d. 9,945 Solution: 11,295 – (15 x 350) = 6,045

PROBLEM 7 On July 15, 2017, Din Company received a shipment of merchandise with a selling price of P150, 000 from Bin Co. The consigned goods cost Bin Co. P100, 000 and freight charger of 1, 200 had been paid to ship the goods to Din Co. The consignment agreement provided for a sale of merchandise on credit with terms of 2/10, n/30. The 15% commission is to be based on the accounts receivable collected by the consignee. Cash discounts taken by customers, expenses applicable to goods on consignment and only cash advanced to the consignor are deductible from the remittance by the consignee. Din Co. advanced P60, 000 to Bin Co. upon receipt of the shipment. Expenses of P8, 000 was paid by Din Co. By August 2017 70% of the shipment had been sold and 80% of it has been collected, all within the discount period. Remittances of the amount due was made on August 30, 2017. 1) The cash remitted by Din Co is: a) 2,789

c) 1,720

b) 2,078

d) 1,570

2) The net income/ loss on consignment is: a) 8,730

c) 9,687

b) 9,000

d) 8,760

3) The cost of unsold units in the hands of Din Company: a) 30,840

c) 30,459

b) 31,861

d) 30,360

SOLUTION: 1) C

Sales (150,000 * .70* .80)

84,000

Commission Expense (84,000 * .15)

(12,600)

Advance Payment

(60,000)

Cash Discount (84,000 * .02)

(1680)

Expenses paid by Consignee

(8,000)

Remittances

1,720

2) A Sales (150,000 * .70)

105,000

COGS: Cost (100,000 * .70) Freight-in (1,200 * .70)

70,000 ___840 _

(70, 840)

Consignees Costs: Commission (105,000* .15) 15,750 Expense

8,000

Cash Discount

1,680

NET INCOME

(25,430) 8,730

3) D Cost of Merchandise (100,000 * .30)

30,000

Freight-in (1,200 * .30)

___360__

Cost of Merchandise on Consignment

30, 360

PROBLEM 8 In September 20x6, Conanan Bookstore consigned 3,200 books, costing P60 and retailing for P100 to ReSA Store, debiting Accounts Receivable and crediting Sales for the retail sales price. Freight cost of P3,200 was debited to Freight Expense by the consignor. On September 30, 20x6, Conanan Bookstore received from ReSA Store the amount of P142,020 in full settlement of the balance due, and Accounts Receivable was credited for this amount. The consignee deducted a P20 commission for each book sold, P180 for delivery, and P200 for advertising expense. How many books were actually sold by ReSA Store? A. 1,780

C. 1,776

B. 1,778

D. 1,424

SOLUTION: Sales (unknown)

P100 x

Less: Charges by consignee— Commission (unknown) (P20 x X) ………………………………….. P

?

Advertising ……………………………………………………………………

200

Delivery Expense ………………………………………………………….

180

?

Remittance …………………………………………………………………………………………………………………………… P142,040

Therefore P100X - P20X – P200 – P180 = P142,040 P80X = P142,040 + P200 + P180 P80X = P142,400 X = P142,400 / P80 X= 1,780 Units sold = 1,780

PROBLEM 9 Jejomar Company is acquiring Ruru Company. Ruru had the following intangible assets: A. Patent on a product that is deemed to have no useful, P40 000 B. Customer list with an observable fair value of P200 000 C. A 5 year operating list with favorable terms with a discounted present value of P32 000 D. Identifiable R & D of P400 000 Required: Intangibles assets to be recorded by Jejomar

Answer: 200K + 32K + 400K = 632K

PROBLEM 10 On August 1, 2019, JBD. Inc consigned to Mags Store 10 ladies handbags costing 3,000 each, paying freight charge of 3,000. At the end of the month, Mags Store reported sales of 6 handbags at 6,000 each and expenaws incurred of 2,600 and remitted the net proceeds due to JBD after deducting a 20% commission. How much net income did JBD realozed in August on the consignment? A. 7,500 net income B. 6,500 net income C. 6,700 net loss D 6,500 net loss

PROBLEM 11 In September 2016, Reyes Bookstore consigned 3,200 books, costing P60 and retailing for P100 to ReSA Store, debiting Accounts Receivable and crediting Sales for the retail sales price. Freight cost of P3,200 was debited to Freight Expense by the consignor. On September 30, 2016, Reyes Bookstore received from ReSA Store the amount of P142,020 in full settlement of the balance due, and Accounts Receivable was credited for this amount. The consignee deducted a P20 commission for each book sold, P180 for deliver and P200 for advertising expense. How many books were actually sold by ReSA Store? a. 1,780 b. 1,778

c. 1,776 d. 1,424 Sales (unknown)

P 100 X

Less: Charges by consignee Commission (unknown) (P20 x X)

P X

Advertising

200

Delivery expense

180

Remittance

? P142,040

Therefore: P100 X – P20 – P200 – P180 = P142,040 P 80X = P142,040 + P200 + P180 P 80X = P142,400 X = P142,400 / P80 X = 1,780 ----> unit sold

PROBLEM 12 AA Company and BB Company agreed to form a joint operation to offer health services. To start the operation, the joint operators agreed to contribute cash P300,000 each. The joint operation will record which of the following entries to recognize this event? a. Joint operator contributions 600,000 Cash b. Cash 300,000 Joint operation contributions c. Venturer’s equity – AA 300,000 Venturer’s equity – BB 300,000 Cash d. Cash 600,000 Joint operation contribution – AA Joint operation contribution – BB

600,000 600,000

600,000 300,000 300,000

PROBLEM 14 A joint operation holds equipment with a carrying amount of P1,200,000. The two joint operators participating in this arrangement share control equally. They also depreciate equipment using the straight-line method. The equipment has a useful life of 5 years. At reporting date each joint operator must recognize the following entry, in relation to depreciation, in its records: a. b. c. d.

Depreciation, P240,000 Depreciation, P120,000 Investment in joint operation, P240,000 Assets in joint operation, P120,000

SOLUTION: (P1,200,000 / 5 yrs = P240,000 x 50% share = P120,000

PROBLEM 15 MM and RR agreed on a joint operations to purchase and sell car accessories. They agreed to contribute 25,000 each to be used in purchasing the merchandise, share equally in any gain or loss, and record their joint operations transactions in their individual books. After one year, they decided to terminate the arrangement, and data from their records were: Joint operations account credit balances : in books of MM, P18,000; in books of RR, P20,200, Cost of car accessories taken: by MM, P1,000; by RR, P1,800, Expenses paid: by MM P1,850; by RR, P2,600. How much was the joint operations sales? a. 83,750 b. 86,550 c. 91,000 d.92,650

investment in joint operations Purchases (25,000+25,000) Expenses (1,850+2,600) Unsold merchandise (18,000+20,200) Sales

50,000 4,450 38,200 92,650

PROBLEM 16