JPIA-UdD Basic Accounting Tutorials

Week 8

Accounting of a Merchandising Business – Discussion Handouts

THEORIES:
1. The following are types of businesses according to activities except:
a. Sole-proprietorship c. Merchandising Business
b. Service Business d. Manufacturing Business

2. This is a kind of business that turns raw materials into finished goods that they eventually sell.
a. Sole-proprietorship c. Merchandising Business
b. Service Business d. Manufacturing Business

3. This is a kind of business that sells goods without changing its form.
a. Sole-proprietorship c. Merchandising Business
b. Service Business d. Manufacturing Business

4. This is a kind of business that usually sells an output based on a skill.

a. Sole-proprietorship c. Merchandising Business
b. Service Business d. Manufacturing Business

5. This is one of the major differences between a service business and a merchandising business.
a. Service business does not record discount.
b. Merchandising business does not record operating expenses.
c. Merchandising business is harder to manage than a service business.
d. Service business does not have cost of goods sold for their services.

6. Which of the following is an example of a hybrid business?

a. Schools c. Clinics
b. Hotels and Restaurants d. Hardware Store

7. Which of the following best explains the significance of recognizing cost of goods sold?
a. It is for the effective and efficient management of inventory, so the employees will not be burdened of the
tedious task of conducting physical counts.
b. It is for a more pleasing impression once the independent auditor conducts the mandatory inventory audit
either during interim dates or near year-end.
c. It follows the accounting concept of “Matching” wherein we recognize the related expenses as we recognize
income.
d. It follows the accounting theory of “Articulation” wherein each component of the financial statements must
be interrelated with each other.

8. Which of the following is an example of a manufacturing business?

a. SM Hypermarket b. Nepo Mall c. Universidad de Dagupan d. Lenovo
9. When should a business issue a credit memo?
a. When goods sold on account are returned
b. When goods sold for cash are returned
c. When goods sold on account passes through the warranty period
d. When a business receives a memo of additional credit on their bank statements

10. When should a business release a cash refund?

a. When goods are sold on account are returned
b. When goods sold for cash are returned
c. When goods sold on account passes through the warranty period
d. When a business receives a memo of additional credit on their bank statements

11. This is provided to customers to encourage timely settlements of accounts.

a. Sales Returns and Allowances c. Sales Discounts
b. Purchase Returns and Allowances d. Purchase Discounts

12. This is provided by suppliers to encourage timely settlements of accounts.

a. Sales Returns and Allowances c. Sales Discounts
b. Purchase Returns and Allowances d. Purchase Discounts

13. What does the sale credit terms 2/15, n/30 means?
a. There will be a 15% sales discount if the customer paid within 2 days. The account is payable within 30 days.
b. There will be a 2% sales discount if the customer paid within 15 days. The account is payable within 30 days.
c. There will be a 2% purchase discount if the entity paid within 15 days. The account is payable within 30 days.
d. There will be a 2% sales discount if the customer paid beyond 15 days. The account is payable within 30
days.

14. What will happen if settlement is made beyond the discount period?
a. No discount will be granted, the entire amount must be settled
b. Recognize bad debts
c. Discount will be granted, regardless
d. The auditor will flag it as fraudulent

15. This is an expense account usually recognized subsequent to a sale.

a. Cost of Goods Sold c. Purchase Returns
b. Purchase Discounts d. Purchases

16. This is the amount after adding net purchases to the beginning balance of inventory.
a. Cost of Goods Sold c. Total Goods Available for Sale
b. Ending Balance d. Estate Tax

a. Same as the Beginning b. Same as COGS c. Zero d. Same as TGAS

17. If there is an increase in inventory, what must be given a value of zero?

a. COGS b. TGAS c. Ending Balance d. Beginning Balance
 18. The following are characteristics of a perpetual inventory system except:
a. It is usually utilized for businesses with unique and high-value items.
b. Cost of goods sold and inventory balance are constantly updated.
c. Physical counts are necessary to determine cost of goods sold and inventory levels.
d. There is more than one entry every time a sale occurs.

19. The following are characteristics of a periodic inventory system except:

a. Reconciliation of purchases and related accounts are made in the year-end to update the inventory account.
b. Physical counts are not necessary to determine cost of goods sold and inventory levels.
c. It is usually utilized by businesses with various and low-value items.
d. It utilizes various accounts instead of constantly updating the inventory.

20. Which of the following businesses most likely uses a periodic inventory system?
a. Tsikots ni Gerald – a car dealership
b. Igop Modelling School ni Adrian
c. Cyrus’ Jewelry Store
d. Mareng Maricar Sari sari-sari’s Store

21. Which of the following businesses most likely uses a perpetual inventory system?
a. Tsikots ni Gerald – a car dealership
b. Igop Modelling School ni Adrian
c. Cyrus’ School Supplies Store
d. Mareng Maricar Sari sari-sari’s Store

22. This is the amount after deducting cost of goods sold from net sales.
a. Net Income c. Operating Income
b. Gross Profit d. Earning Before Interest and Taxes

23. This is the amount after deducting sales returns & allowances and sales discount from gross sales.
a. Net Sales c. Net Profit
b. Service Income d. Revenue

24. Sales returns and allowances, sales discounts, purchase returns and allowances, purchase discounts, are examples
of:
a. Nominal Accounts
b. Adjunct Accounts
c. Contra Accounts
d. Clearing Accounts

PROBLEMS:
Problem 1
Judgment Day is a bookstore operated by Dominik and Liv. On March 15, 2024, the bookstore sold a bunch of accounting
books to Rhea for Php 10,000 on account. The sold books costs Php 4,000. Prepare the appropriate journal entries.

Problem 2
On May 20, 2024, Sucre’s hardware sold some supplies to Michael Schofield for Php 15,000 on account. Such supplies
cost Php 6,500 and the credit terms were 2/10, n/30. Prepare the journal entries on each independent scenarios:
a.) Michael settled his accounts on May 30, 2024.
b.) Michael settled his accounts on June 5. 2024.

Problem 3
On April 5, 2024, QED Tek sold 100 laptops on account to a single customer with a selling price of Php 15,000 per unit.
Each of those laptops costs Php 12,000. One week later, 4 of those sold laptops were returned to QED Tek’s shop for their
defective batteries. Prepare the journal entries.

Follow up question: In an independent scenario, assume that QED Tek later granted a 2% discount. How much is the net
sales?

Problem 4
On December 31, 2023, Charm Academy’s school supplies department had an inventory balance of Php 450,000.
Throughout the year 2024, the department purchased Php 170,000 worth of supplies while receiving purchase discounts of
Php 20,000. They also returned Php 30,000 worth of defective products. They incurred a delivery expense of Php 10,000.
By December 31, 2024, their inventory amounts to Php 300,000. How much is the cost of goods sold?

Problem 5
Record the following transactions using both perpetual and periodic inventory system.
a.) You purchased goods worth Php 10,000 on account.
b.) You paid shipping costs of Php 1,000 on the puchase above.
c.) You returned damaged goods worth Php 2,000 to supplier.
d.) You sold goods costing Php 5,000 for Php 20,000 on account.
e.) A customer returned goods with a sale price of Php 800 and cost of Php 200.

Problem 6
During the year 2024, JPIA Corp’s sales amounted to Php 1,000,000. Their customers returned defective goods with
selling price of Php 150,000. They also granted Php 25,000 worth of discounts for their customers who settled their
accounts on time. The cost of goods sold reported in the statements of comprehensive income totaled Php 450,000. How
much is the gross profit?

Problem 7
During the year 2024, Ge Santos’ shop purchased Php 130,000 worth of inventories, while receiving a Php 5,000 discount
for his timely payments and returning Php 10,000 worth of defective products. Ge also paid a particular amount of freight
and recorded Php 115,000 of cost of goods sold. If his shop’s inventory account had an increase of Php 20,000 during the
year, how much is the net purchases?

Prepared by:

Cyrus Khing Helios C. Cayago

Vice President for Academic Affairs, JPIA-UdD

This material is exclusive only to 1st year JPIA members of Universidad de Dagupan. This shall not be reproduced,
redistributed, or transmitted by any means, without the express written consent of the author. ©