1. A Branch store in Caloocan was established by Carlo Company on March 1.

Merchandise was billed to the branch at 125% of cost. Shipments of

merchandise were as follows:

March 5 . . . . . . . . . P 120,000(at billed price)

March 10. . . . . . . . . 50,000(at billed price)
March 20. . . . . . . . . 35,000(at billed price
On March 22, the branch returned defective merchandise worth P3,050.
On March 31, the branch reported a net loss of (P6,200) And
merchandise inventory of P85,000
In the Home office books, the cost of merchandise sold by branch was:
2. Pangasinan Branch of Malate Company, at the end of its first quarter of
operations, submitted the following income statement:

Sales P 300,000
Cost of sales:
Shipments from home
Office P 280,000
Local purchases 30,000
Total 310,000
Inventory at end 50,000 260,000
Gross profit on sales P 40,000
Expenses 35,000
Net income P 5,000

Shipments to the branch were billed at 140% of cost. The branch

inventory at September 30 amounted to P50,000 of which P6,600 was locally
purchased. Markup on local purchases, 20% over cost. Branch expenses
incurred by Head Office amounted to P2,500 not yet recorded by the branch.

Compute the (1) branch ending inventory that should be presented in

the combined income statement and (2) true branch net income:

3. On August 31,2008, a fire destroyed totally the rented “bodega” or

stockroom of Isabela Company. The following are some of the data of the
company:

Merchandise inventory, Dec.31,2007 . . .P 110,000

For the period Jan.1-Aug.31,2008:
Purchases . . . . . . . . . . . . . 560,500
Freight in . . . . . . . . . . . . 5,600
Purchases returns . . . . . . . . . 10,200
Sales . . . . . . . . . . . . . . . 695,000
Sales Returns and Allowances. . . . 7,500

Using a 20% gross profit rate, the cost of the merchandise lost in
the fire was:

4. Lobster Trading bills its Iloilo City branch for shipments of goods at
25% above cost, at the close of business on October 31,2008, a fire
gutted the branch warehouse and destroyed 60% of the merchandise stock
stored therein. Thereafter, the following data were gathered:

January 1 inventory, at billed price . .P 50,000

Shipments from home office to Oct.31 . . 130,000
Net sales on October 31. . . . . . . . . 225,000
 If undamaged merchandise recovered are marked to sell for P30,000,
the estimated cost of the merchandise destroyed by the fire was:

5. Luge Co., which began operations on January 2, 2009, appropriately uses the
installment method of accounting. The following information is available for
2009:
Installment accounts receivable
December 31, 2009 800,000
Deferred gross profit, Dec. 31
(before recognition of
realized gross profit for 2009) 560,000
Gross profit on sales 40%

For the year ended December 31, 2009, cash collections and realized gross
profit on sales should be

Cash Realized
Collections Gross Profit
A. 400,000 320,000
B. 400,000 240,000
C. 600,000 320,000
D. 600,000 240,000

6. The books of Paiyakan Company show the following balances on December 31,
2009:

Accounts receivable 313,750

Deferred gross profit (before
adjustment) 38,000

Analysis of the accounts receivable reveal

the following:

Regular accounts 207,500

2008 installment accounts 16,250
2009 installment accounts 90,000

Sales on an installment basis in 2008 were made at 30% above cost; in 2009, at
33 1/3% above cost. Expenses paid was P1,500 relating to installment sales.
How much is the net income on installment sales?
A. 11,000
B. 11,500
C. 16,000
D. 10,250

7. In its first year of operations, Giant Corp. reported cost of goods sold in
the amount of P900,000 and sales were as follows:
Mark-up on
cost Sales
Cash basis 25% 250,000
Charge basis 33 1/3% 400,000
Installment basis 50% 600,000

If collections on installment sales during the year amounted to P240,000, how

much was the total gross profit realized at the end of the year?

A. 50,000
B. 60,000
C. 80,000
D. 230,000
8. Baker Co. is a real estate developer that began operations on January 2, 2008.
Baker appropriately uses the installment method of revenue recognition.
Baker’s sales are made on the basis of a 10% down payment, with the balance
payable over 30 years. Baker’s gross profit percentage is 40%. Relevant
information for Baker’s first two years of operations is as follows:

2009 2008
Sales 16,000,000 14,000,000
Cash collections 2,020,000 1,400,000

1) At December 31, 2008, Baker’s deferred gross profit was

A. 5,040,000
B. 5,600,000
C. 8,400,000
D. 12,600,00

2) Baker’s realized gross profit for 2009 was

A. 6,400,000
B. 2,020,000
C. 1,212,000
D. 808,000

9. On January 2, 2009, Easy Pay Co. sold a plant to Menchie Co. for P1,500,000.
On that date, the plant’s carrying amount was P1,000,000. Menchie gave Easy
Pay P300,000 cash and a P1,200,000 note, payable in four annual installments
of P300,000 plus 12% interest. Menchie made the first principal and interest
payment of P444,000 on December 31, 2009. Easy Pay uses the installment method
of revenue recognition. In its 2009 income statement, what amount of realized
gross profit should Easy Pay report?

A. 344,000
B. 200,000
C. 148,000
D. 100,000

10. Watson Co. sold some machinery to the Finney Co. on January 2, 2009. The
cash selling price would have been P473,850. Finney entered into an
installment sales contract which required annual payments of P125,000,
including interest at 10% over five years. The first payment was due on
December 31, 2009. What amount of interest income should be included in
Watson’s 2010 income statement (the second year of the contract)?

A. 12,500
B. 39,624
C. 25,000
D. 34,885