CHAPTER 5

SUGGESTED ANSWERS
EXERCISES
Exercise 5 1
1. Inventory on Consignment
Merchandise Inventory
To record transfer of merchandise to consignee.
2.

3.

4.

5.

90,000
90,000

Consignee Receivable (P24,000 x 130%)

Consignment Sales Revenue
To record consignment sales.

31,200

Cost of Consignment Goods Sold

Inventory on Consignment
To record cost of goods sold.

24,000

Merchandise Inventory
Inventory on Consignment
To record return of consigned goods.

66,000

Commission Expense (P31,200 x 10%)

Cash
Consignee Receivable

3,120
28,080

31,200

24,000

66,000

31,200

or
2.

3.

4.

Commission Expense
Cash
Consignment Sales Revenue

3,120
28,080

Cost of Consignment Goods Sold

Inventory on Consignment
To record cost of goods sold.

24,000

Merchandise Inventory
Inventory on Consignment
To record return of consigned goods.

66,000

Exercise 5 2
1. Consignor Books:
Inventory on Consignment
Finished Goods Inventory
Inventory on Consignment
Cash
Consignee Payable

31,200
24,000

66,000

500,000
500,000
40,000
30,000
10,000

AA1 - Chapter 5 (2008 edition)

page 2

Commission Expense (P420,000 x 10%)

Consignee Receivable
Consignment Sales

42,000
378,000

Cost of Consignment Goods Sold

Inventory on Consignment

362,880

420,000
362,880

*Cost of goods sold P420,000 /1.25 = P336,000

Freight costs P40,000 / P500,000 = 8%
Freight on goods sold P336,000 x 8% = P26,880
Total costs of goods sold P336,000 + P26,880 = P362,800
Cash
Consignee Payable
Consignee Receivable
2.

278,000
10,000
288,000

Consignee Books:
Memorandum entry to record receipt of goods on consignment.
Consignor Receivable
Cash

10,000

Cash
Consignor Payable

420,000

10,000
420,000

Consignor Payable
Commission Revenue

42,000

Consignor Payable
Cash
Consignor Receivable

288,000

42,000
278,000
10,000

3. Consignor financial statements:

Statement of Financial Position Assets section
Consignee receivable
Inventory on consignment

P 90,000
177,120

Statement of Recognized Income and Expenses

Consignment sales
P420,000
Less Cost of consignment sales
362,880
Commission expense
Profit from consignment

P57,120
42,000
P15,120

Exercise 5-3
Requirement 1 Consignment profits calculated separately
Books of Consignor
1.
Consignment Out
Merchandise Shipment on Consignment

7,000
7,000

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2.

3.

page 3

Cash
Consignment-Out
Consignment-Out

3,500
2,500

Consignment-Out
Consignment Income
Sales (4 sets @P1,500)
CGS (4 sets @P700)
Freight-in (4/10 x P1,000)
Commission (25% x P6,000)
Consignment income

1,300

6,000
1,300
P6,000
( 2,800)
( 400)
( 1,500)
P1,300

Books of Consignee
1.
Received 10 sets of electric fan from Ledesma
2.
3.
4.
5.

Consignment-In
Cash

1,000

Cash
Consignment-In

6,000

Consignment-In
Consignment Income

1,500

Consignment-In
Cash

3,500

1,000
6,000
1,500
3,500

Requirement 2 Consignment profits not calculated separately

Books of Consignor
1.
Shipped merchandise to Amoranto, a consignee,
2.

3.

Cash
Freight
Commission Expense
Merchandise on Consignment
Sales

3,500
400
1,500
600

Merchandise on Consignment
Income Summary
Unsold merchandise on consignment (6 sets @P700)

4,200

Books of Consignee
1.
Received 10 sets of electric fan from Ledesma, a consignor..
2.
3.

6,000
4,200

..

Ledesma
Cash

1,000

Cash
Sales

6,000

1,000
6,000

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4.
5.

page 4

Purchases (P6,000 P1,500 commission)

Ledesma

4,500

Ledesma
Cash

3,500

4,500
3,500

Exercise 5 4
1. Sales of laser discs, net of commissions and cartage
Less: Cost
Freight and handling
Loss on laser discs consignment
2.

P181,800
P180,000
5,400

Sales of TV sets, net of commissions and delivery & installation costs

Less: Cost (15 x P9,000)
Freight and handling [(15 + 3*)/24** x P10,800]
Freight on return of defective units
Profit on TV sets on consignments

185,400
P 3,600
P173,250

P135,000
8,100
1,080

144,180
P 29,070

* Number of units returned = Cost of returned units / Cost per unit

= P27,000 / P9,000
= 3
** Units shipped to consignee = Total cost of TV sets shipped / Cost per unit
= P216,000 / P9,000
= 24
3.

TV sets P54,000 + (P10,800 6/24 = P2,700) = P56,700

Exercise 5 5
1. Sales (300 x P1,000) + (100** x P1,100)
Cost of sales (400 x P600)
Gross profit
Expenses:
Freight (400/500 x P5,500)
Safety devices (100/200 x P10,000)
Commission (P410,000 x 10%)
Delivery cost
Consignment profit

P410,000*
240,000
P170,000
P 4,400
5,000
41,000
4,500

54,900
P115,100

*Consignee remitt6ance and charges represent only 90% of sales in as much as the 10% commission
of the consignee has not yet been included among the charges (P364,500 + P4,500 = P369,000 /
90% = P410,000)
** The 100 units with safety device sold at P1,100 is computed as follows:
Sales
Sales of units without safety device (300 x P600)
Sales of units with safety device
Units sold (P110,000 / P1,100)

P410,000
300,000
P110,000
100

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2.

page 5

Cost (100 x P600)

Freight (100/500 x P5,500)
Safety device (100/200 x P10,000)
Inventory cost of consigned goods

P60,000
1,100
5,000
P66,100
PROBLEMS

Problem 5-1
Req. 1. Books of consignee; consignment sales merged with regular sales
April

Received 20 sets of VCD player

CCM Corp.
Cash

1,750

Accounts Receivable
Sales

24,000

Purchases
CCM Corp.

20,000

Cash
Accounts Receivable

10,000

CCM Corp.
Cash
May

1,750

24,000
20,000
10,000
5,000
5,000

Accounts Receivable
Sales

18,000

Purchases
CCM Corp.

15,000

Cash
Accounts Receivable

15,000

18,000
15,000
15,000

CCM Corp.
Cash
Req. 2 Books of consignor; consignment profits calculated separately

10,000

April

Consignment-Out
Merchandise Inventory

36,000

Cash
Consignment Out
Receivable Consignee
Consignment Out

5,000
1,750
13,250

Consignment Out
Consignment Income

4,900

10,000

36,000

20,000
4,900

AA1 - Chapter 5 (2008 edition)

page 6

Sales (8 sets @P2,500)

CGS (8 sets @P1,800)
Freight-in (P1,000 x 8/20)
Cartage-in (P750 x 8/20)
Consignment profit
May

P 20,000
( 14,400)
(
400)
(
300)
P 4,900

Cash
Receivable Consignee
Consignment Out

10,000
5,000
15,000

Consignment Out
Consignment Income
Sales (6 sets @P2,500)
CGS (6 sets @P1,800)
Freight-in (P1,000 x 6/20)
Cartage-in (P750 x 6/20)
Consignment profit

3,675
3,675
P15,000
( 10,800)
( 300)
( 225)
P 3,675

3. Charge and Profit analysis

Charges by consignor:
Cost of consigned goods
Charges by consignee
Freight-in
Cartage-in
Total
Sales price
Consignment profit

April
Inventory

Sales

May
Inventory

Total

Sales

P36,000

P14,400

P21,600

P10,800

P10,800

1,000
750
P37,750

400
300
P15,100
20,000
P 4,900

600
450
P22,650

300
225
P11,325
15,000
P 3,675

300
225
P11,325

Problem 5-2
Books of consignor
1.
2.
3.

4.

Consignment Out
Merchandise Shipment on Consignment
Consignment Out
Cash
Cash
Consignment Out
Receivable Consignees
Consignment Out
Merchandise Shipment on Consignment
Consignment Out
Returned merchandise (4 sets @P1,000)

50,000
50,000
750
750
5,000
10,600
16,400
32,000
4,000
4,000

AA1 - Chapter 5 (2008 edition)

5.

page 7

Consignment Out
Consignment Income

5,700
5,700

Total
Sales
Inventory
Charges by consignor:
Cost of consigned goods
P46,000
P16,000
P30,000
Freight-out
750
300
450
Charges by consignee
Cartage-in
1,000
400
600
Delivery and installation
1,600
1,600
Commission
8,000
8,000
Total
P57,350
P26,300
P31,050
Sales price
32,000
Consignment profit
P 5,700
*Note: Freight and cartage on sets returned are charged against sales of the period.
Books of consignee
1.
Received 50 cordless phones.
2.
3.

Accounts Receivable
Consignment In

32,000

Cash
Accounts Receivable
P32,000 P16,400 (collectible) = P15,600

15,600

32,000
15,600

4.

Returned four (4) defective cordless phones.

5.

Consignment In
Delivery and Installation Expense
Commission on Consignment
Cash
Remittance

15,600
1,600
8,000
5,000

Problem 5-3
Correcting entry to bring accounts with Alejo up to date
Consignment Commissions
Freight on Consignment Shipments (P2,600 x 65/100)
Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100)
Consignment Sales
Alejo
Account sales Alejo
Sales (65 stoves @ P3,600)
Commission (25% of P234,000)
Freight
Amount owed
Total amount remitted

P234,000
( 58,500)
( 2,600)
P172,900
( 187,900)

58,500
1,690
910
6,000
67,100

AA1 - Chapter 5 (2008 edition)

page 8

Balance-charge against Sunstar

P 15,000
Entry that should have been made for transactions of Alejo on the books of consignor:
Cash
Consignment Commission
Freight on Consignment Shipments
Prepaid Expenses on Consigned Merchandise
Consignment Sales
Alejo

187,900
58,500
1,690
910
234,000
15,000

Net effect of entries already made with Alejo for transfer of merchandise and remittance
Cash
Alejo
Consignment Sales

187,900
52,100
240,000

Correcting entry to bring accounts with Burgos up to date

Consignment Commissions
Freight on Consignment Shipments (P2,600 x 65/100)
Prepaid Expenses on Consigned Merchandise (P2,600 x 35/100)
Consignment Sales
Burgos

Account sales Burgos

Sales (15 stoves @ P3,600)
Commission (25% of P54,000)
Freight
Amount owed
Total amount remitted
Balance-amount owed Sunstar

13,500
750
1,250
42,000
57,500

P54,000
( 13,500)
( 2,000)
P38,500
( 11,500)
P27,000

Entry that should have been made for transactions of Burgos on the books of consignor:
Cash
Consignment Commission
Freight on Consignment Shipments
Prepaid Expenses on Consigned Merchandise
Burgos
Consignment Sales

11,500
13,500
750
1,250
27,000
54,000

Net effect of entries already made with Burgos for transfer of merchandise and remittance
Cash
Burgos
Consignment Sales
Problem 5-4
Entries to bring account with Domingo up to date

11,500
84,500
96,000

AA1 - Chapter 5 (2008 edition)

1.

2.

3.

Cash
Operating Expenses
Receivables-Consignees
Remittance for 10 sets less charges

5,100
900

Sales
Receivables Consignees
Unsold units previously recognized as sales.

3,000

Merchandise in Transit
Cost of Goods Sold
Merchandise returned and still in transit.

1,600

Entries to bring account with Estrella up to date

1.
Cash
Merchandise on Consignment
Operating Expenses
Receivables Consignees
2.

3.

4.

3.

3,000

1,600

13,400
600
1,000
15,000
9,000

Merchandise on Consignment
Cost of Goods Sold
Unsold units in the hands of consignee

4,800

Merchandise on Consignment
Operating Expenses
Expenditures related to unsold consigned goods
charged to expense

1,700

9,000

4,800

1,700

960
600
360

Sales
Receivables Consignees

2,400

Merchandise in Transit
Receivables Consignees

1,280

Closing Entries
1.
Sales
Cost of Goods Sold
Operating Expenses
Income Summary
2.

6,000

Sales
Receivables Consignees

Entries to bring account with Fajardo up to date

1.
Operating Expenses
Receivables Consignees
Accounts Payable
2.

page 9

Income Tax

2,400
1,280
715,600
420,100
89,160
206,340
72,219

AA1 - Chapter 5 (2008 edition)

page 10

Income Tax Payable

3.
4.

72,219

Income Summary
Income Tax

72,219
72,219

Income Summary
Retained Earnings

134,121
134,121

2.
Moonstar Company
Statement of Financial Position
December 31, 2008
Current assets:
Cash
Receivables Consignees
Inventories:
On hand
In transit
On consignment
Total Current Assets
Plant and Equipment
Total Assets

P134,000
62,720
P112,000
2,880
7,100

Current Liabilities:
Accounts Payable
Income Tax Payable
Ordinary Share Capital, P100 par
Retained Earnings
Balance, beginning
Net income for 2008
Total Shareholders Equity
Total Liabilities and Shareholders Equity

121,980
318,700
170,000
P488,700

P25,360
72,219
P200,000
P 57,000
134,121

191,121
391,121
P488,700

MULTIPLE CHOICE
1.
2
3.
4.

A
C
A
A

5.

Receipts (215 x P500)

Less Shipping charges
Remittance

P107,500
2,100
P105,400

6.

(215 x 40% x P580) + (215 x 60% x P640) (215 x P500) =

P24,860

7.

Receipts ( 7 dozens x 12 x P2,000)

Charges: Expenses
Commissions (15% x P168,000)

P168,000

P180,000 + P9,000 = P189,000

P 3,000
25,200

28,200

AA1 - Chapter 5 (2008 edition)

8.

9.
10.

C
B

page 11

Remittance

P139,800

Sales 7 x 12 x P2,000
Cost of Sales 7 x 12 x P1,000
Freight 7 x P30
Expenses
Commission P168,000 x 15%

P168,000

Sales ( 4 x P7,000)
Charges: Commission (20% x P28,000)
Freight
Remittance

P84,000
210
3,000
25,200

112,410
P 55,590
P28,000

P5,600
1,600

7,200
P20,800

11

Cost (6 x P4,000)
Freight (P1,600 x 6/10)
Balance of Merchandise on Consignment account

P24,000
960
P24,960

12

Sales
Cost (4 x P4,000)
Gross profit
Less: Commission
Freight (P1,600 x 4/10)
Net profit on consignment

P28,000
16,000
P12,000

13.

Remittance
Charges:
Delivery expense
Repairs
Total
Sales
Cost of sales
Gross profit
Expenses:
Commission (P79,800 x 15%)
Repairs (P2,000 x 60/100)
Delivery
Shipping cost (P900 x 260/300)
Consignment profit
*Sales
Less Sales of units with defects (200 x P300)
Sales of repaired units
Selling price of repaired units
Number of repaired units that were sold
Units sold without repairs
Total number of units sold
Unit cost
Cost of sales

P5,600
640

6,240
P 5,760
P64,980

P 850
2,000

P11,970
1,200
850
780
P79,800
60,000
P19,800
P330
60
240
300
x P200
P52,000

2,850
P67,380
85%
P79,800
52,000*
P27,800

14,800
P13,000

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14

Cost (40 x P200)

Repairs (P2,000 x 40/100)
Shipping cost (P900 x 40/300)
Value of inventory on consignment

P 8,000
800
120
P 8,920

15.

Remittance
Charges:
Cartage
Advertising
Delivery and installation
Total

P54,600
P 600
3,600
2,400

Sales
16

17.

Sales
Cost and expenses:
Cost (6 x P7,200)
Freight (P4,800 x 6/10)
Cartage (P600 x 6/10)
Advertising
Delivery and installation
Commission (15% x P72,000)
Consignment income

P72,000
P43,200
2,880
360
3,600
2,400
10,800

Remittance
Consignee charges, excluding the 15% commission
(P4,500 + P3,000 + P750)
Sum of remittances and charges

Sales
Cost of sales (6 x P9000)
Gross profit
Expenses:
Commission (P90,000 x 15%)
Freight-out (P6,000 x 6/10)
Marketing expense
Delivery and installation
Cartage (P750 x 6/10)
Net profit from the sale of consigned goods

19

P90,000 x 15% = P13,500

20

Sales collected [(2 x P1,500) + (1 x P1,800 x 25%)]

Commission (P3,450 x 15%)
Remittance

63,240
P 8,760
P68,250
8,250
P76,500
85%
P90,000

Sales price of 6 refrigerators

18

6,600
P61,200
85%
P72,000

P90,000
54,000
P36,000
P13,500
3,600
4,500
3,000
450

25,050
P10,950

P3,450
720
P2,730

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22

Sales
Cost of sales ( 3 x P800)
Gross profit
Expenses:
Trucking (P200 x 3/5)
Delivery
Commission
Profit resulting from consignment
Sales
Cost (7 x P2,000)
Gross profit
Expenses:
Advertising
Commission
Freight (P600 x 7/10)
Net income on the consignment

23

( 3 x P2,000) + (P600 x 3/10) = P6,180

24

Remittance
Charges by consignor
Cost (P3,840 x 30/48)
Freight and handling (P1,000 x 30/48)
Freight and handling charged by consignee
Net income

25

26.

27.

T-shirts:
Cost (P3,840 x 18/48)
Freight and handling (P1,000 x 18/48)
Baby dresses:
Cost (P2,400 x 4/24)
Freight and handling (P540 x 4/24)
Cost of the inventory in the hands of consignee
Sales
Cost of sales (P90,000 x 7/10)
Gross profit
Expenses:
Freight (P3,000 x 7/10)
Commission
Cartage-in (P1,050 x 7/10)
Profit on consignment of TV sets

TV sets (P94,050 x 3/10)

DVD sets (P84,450 x 2/5)
Cost of inventory in the hands of consignee

page 13

P4,800
2,400
P2,400
P120
170
720

_____
P1,390
P21,000
14,000
P 7,000

P1,000
4,200
420

5,620
P 1,380

P3,750
P2,400
625
75

P1,440
375
P 400
90

3,100
P 650

P1,815
490
P2,305
P84,000
63,000
P21,000

P2,100
8,400
735

11,235
P 9,765
P28,215
33,780
P61,995

AA1 - Chapter 5 (2008 edition)

page 14

28.

P3,375 / 15% = P22,500 / P1,500

15 units

29

Sales (15 x P1,500)

Less: Advertising
Delivery expense
Commission
Advances (150 x P900 x 60% x 15/150)
Remittance

P22,500
P2,250
1,125
3,375
8,100

Sales
Less Cost (15 x P900)
Expenses (P2,250 + P1,125 + P3,375)
Consignment profit

P13,500
6,750

Sales
Less: Cost (P8,400 x 9/12)
Freight-out (P720 x 9/12)
Delivery
Commission
Advertising
Net income

P6,300
540
450
2,160
500

30

31

32.

P10,800 P450 P2,160 P500 = P7,690

33

P9,120 x 3/12 = P2,280

34.

Net income
Expenses:
Freight (P240 x 6/10)
Advertising
Commission
Gross profit
Less Sales
Cost of goods sold

35

Cost per unit (P1,200 / 6 units)

Unsold units
Total cost of unsold units
Inventoriable cost freight (P240 x 4/10)
Total cost

36.

Remittance
Charges: Advertising
Delivery
Total proceeds from sales, net of 20% commission

37

14,850
P 7,650
P22,500
20,250
P 2,250
P10,800

3,650
850

P 426
P 144
150
480

774
P1,200
2,400
P1,200
P200
x 4
P800
96
P896
P3,165

P120
75

Total sales price of the 7 handbags

195
P3,360
80%
P4,200

Cost (3 x P300)
Freight (3/10 x P150)

P 900
45

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38

39.

40

page 15

Advertising ( 3/10 x P120)

Inventory of unsold handbags

36
P 981

Sales
Cost of sales (7 x P300)
Gross profit
Expenses:
Freight ( 7/10 x P150)
Commission (4,200 x 20%)
Advertising ( P120 x 7/10)
Delivery
Net income on the consignment

P4,200
2,100
P2,100

Sales (80 x P1,500)

Charges:
Cost of returning defective units
Transportation
Insurance
Commissions (P120,000 x 20%)
Reconditioning cost
Balance
Advances (80 + 10) x P300
Remittance
Sales
Cost of sales (80 x P500)
Gross profit
Expenses:
Transportation (90/120 x P1,500)
Insurance
Cost of returning defective units
Transportation of consignee (90/120 x P350)
Insurance consignee (90/120 x P200)
Insurance loss (P500 x 10% x 10)
Commission
Reconditioning cost
Profit on consignment

P 105
840
84
75

1,104
P 996
P120,000

100
350
200
24,000
150

24,800
P 95,200
27,000
P 68,200
P120,000
40,000
P 80,000

P 1,125
900
100
265
150
500
24,000
150

27,190
P 52,810