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Cost of goods sold and operating expenses

Problem 4-1 (AICPA Adapted)

Brock Company reported operating expenses in two categories, namely distribution and general and

The adjusted trial balance at year-end included the following expense and loss accounts for current year:

Accounting and legal fees 1,200,000

Advertising 1,500,000
Freight out 800,000
Interest 700,000
Loss on sale of long-term investment 300,000
Officers’ salaries 2,250,000
Rent for office space 2,200,000
Sales salaries and commissions 1,400,000

One-half of the rented premises is occupied by the sales department.

What amount should be reported as total distribution costs?

Problem 4-2 (AICPA Adapted)

Lee Company reported the following data for the current year:

Legal and audit fees 1,700,000

Rent for office space 2,400,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000
Freight out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Research and development expense 1,000,000

The office space is used equally by the sales and accounting departments.

What amount should be classified as general and administrative expenses?

Problem 4-3 (AICPA Adapted)

Vigor Company provided the following information for the current year:

Net accounts receivable at January 1 900,000

Net accounts receivable at December 31 1,000,000
Account receivable turnover 5 to 1
Inventory at January 1 1,100,000
Inventory at December 31 1,200,000
Inventory turnover 4 to 1
What is the gross margin for the current year?

Problem 4-4 (PHILCPA Adapted)

Hiligaynon Company provided the following information for the current year:

Beginning inventory 400,000

Freight in 300,000
Purchase returns 900,000
Ending inventory 500,000
Selling expenses 1,250,000
Sales discount 250,000

The cost of goods sold is six times the selling expenses.

What is the amount of gross purchases?

Problem 4-5 (PHILCPA Adapted)

Bicolano Company provided the following data for the current year:

Inventory, January 1 2,000,000

Purchases 7,500,000
Purchase returns and allowances 500,000
Sales returns and allowances 750,000
Inventory on December 31 2,800,000
Gross profit rate on net sales 20%

What is the amount of gross sales for the current year?

Problem 4-7 (AICPA Adapted)

Carmela Company provided the following information for the current year:

Net Sales 1,800,000

Ending inventory 120,000
Gross margin on sales 40%

What is the cost of goods available for sale?

Problem 4-7 (AICPA Adapted)

Kay Company provided the following information for the current year:

Increase in raw materials inventory 150,000

Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
Freight in 250,000
What is the cost of goods sold for the current year?

Problem 4-8 (IAA)

Sheraton Company reported the following information for the current year.

Ending goods in process 1,000,000

Depreciation on factory building 320,000
Beginning raw materials 400,000
Direct labor 1,980,000
Factory supervisor's salary 560,000
Depreciation on headquarters building 210,000
Beginning goods in process 760,000
Ending raw materials 340,000
Indirect labor 360,000
Purchases of raw materials 2,300,000

What is the cost of goods manufactured for the current year?

Problem 4-9 (PHILCPA Adapted)

Argentina Company incurred the following costs and expenses during the current year:

Raw material purchases 4,000,000

Direct labor 1,500,000
Indirect labor — factory 800,000
Factory repairs and maintenance 200,000
Taxes on factory building 100,000
Depreciation — factory building 300,000
Taxes on salesroom and general office 150,000
Depreciation — sales equipment 50,000
Advertising 400,000
Sales salaries 500,000
Office salaries 700,000
Utilities — 60% applicable to factory 500,000

Beginning Ending
Raw materials 300,000 450,000
Work in process 400,000 350,000
Finished goods 500,000 700,000

1. What is the cost of raw materials used?

2. What is the cost of goods manufactured for the current year?

3. What is the cost of goods sold for the current year?

Problem 4-10 (PHILCPA Adapted)

Mercury Company showed cost of goods sold of P4,320,000 in the statement of comprehensive income after
the first year of operations.
The total manufacturing cost comprised the following:
Materials used 50%
Direct labor Incurred 30%
Manufacturing overhead 20%

Goods in process at year-end amounted to 10% of the total manufacturing cost.

Finished goods at year-end amounted to 20% of the cost of goods manufactured.

What is the amount of the direct labor cost incurred?

Problem 4-11 (IAA)

Tactful Company reported that the operating expenses other than interest expense for the year amount to
40% of cost of goods sold but only 20% of sales. Interest expense is 5% of sales.

The amount of purchases is 120% of cost of goods sold. Ending inventory is twice as much as the beginning
inventory. The net income for the year P560,000. The income tax rate is 30%.

What is the amount of sales for the year?

Problem 4-12 (PHILCPA Adapted)

Jericho Company showed net income of P480,000 for the year. Selling expenses were equal to 15% of sales
and also 25% of cost of goods so All other expenses were 13% of sales.

What is the gross profit for the year?

Problem 4-13 (PHILCPA Adapted)

Ronalyn Company reported that the financial records were destroyed by fire at the end of the current year.

However, certain statistical data related to the income statement are available.

Interest expense 20,000

Cost of goods sold 2,000,000
Sales discount 100,000

The beginning inventory was P400,000 and decreased 20% during the year.

Administrative expenses are 25% of cost of goods sold but only 10% of gross sales.

Four-fifths of the operating expenses relate to sale activities.

1. What is the amount of gross sales?

2. What is the total amount of operating expenses?

3. What is the income before tax for the current year?
1) CMB Industries provided the following balances on December 31, 2019
Accounts payable Php 1,400,000
Accrued taxes 55,000
Ordinary share capital 7,700,000
Dividends – ordinary share 4,400,000
Dividends – preference share 1,600,000
Mortgage payable (Php 500,000 due in 6 months) 6,000,000
Notes payable, due on January 14, 2021 2,300,000
Preference share capital 3,250,000
Premium on notes payable 125,000
Income summary – credit balance 9,090,000
Retained earnings – January 1 8,080,000
Unamortized issue cost on note payable 65,000
Unearned rent income 35,000
What is the amount of retained earnings for the year ended?

2) LMR Enterprises provided the following data for the current year:
Net income Php 2,014,000
Unrealized gain on derivative contract 507,000
Foreign currency translation adjustment – debit 51,500
Revaluation surplus 201,400
What is the comprehensive income for the current year?

3) Promise Conglomerates incurred the following during the current year:

 Php 846,895 from condemnation of asset
 Php 689,870 from employee’s major strikes
 Php 318,545 from abandonment of equipment used in business
In the income statement, what is the total amount of infrequent losses that should be
reported as ordinary?.

4) EXODUS Trading accounts for noncurrent assets using cost model. On September 30,
2019, the entity classified a noncurrent asset as held for sale. At the date, the asset’s
carrying amount was Php 1,457,965, its fair value was estimated at Php 957,365, and the
cost of disposal at Php 68,500. On November 20, 2019, the asset was sold for net proceeds
of Php 875,000. What amount should be included as loss on disposal in the statement of
comprehensive income for the year ended, December 31, 2019?

5) EXO Entertainment has two divisions, EXO-K and EXO-M, and both qualifies as business
component. In 2019, the entity decided to dispose of the assets and liabilities of Division EXO-
M and it’s probable that the disposal will be complete next year. The revenue and expenses
of EXO Entertainment for 2018 and 2019 are as follows:
2018 2019


Sales Php 4,600,000 Php 5,000,000

Total nontax expenses 4,100,000 4,400,000


Sales 5,100,000 3,500,000

Total nontax expenses 4,500,000 3,900,000

During the latter part of 2019, EXO disposed of a portion of Division M and recognized a
pretax loss of Php 2, 00,000 on disposal. The income tax rate is 30%. What amount should
be reported as a loss from discontinued operations in 2019?