Ibon Company, a retailer of clothing merchandise, was organized on January 1, 2013.

Before
the year-end count of inventory was to take place, the company lost its inventory by fire on
December 31, 2014. The company’s records disclosed the following:

2013 2014

Inventory 1/1 0 160,700

Purchases 330, 000 ?
Purchase returns and allowances 25, 000 -
Sales 200, 000 ?
Sales return and allowances 15, 000 -

Shown below were gathered from the company’s sales and purchases accounts:

SALES

Date Reference Amount

Balance forwarded 105, 000
12/23 SI No. 0061 6, 000
12/27 SI No. 0072 2, 000
12/31 SI No. 0083 15, 000
12/31 SI No. 0094 3, 500
12/31 SI No. 0105 4, 800
12/31 Closing Entry 136, 300

PURCHASES
Date Reference Amount
Balance forwarded 150, 000
12/28 RR No. 0052 6, 000
12/30 RR No. 0071 18, 000
12/31 RR No. 0074 42, 000
12/31 RR No. 0084 26, 000
12/31 Closing Entry 242, 000

When performing the sales and cut-off tests, you found out that the last receiving report used in
calendar year 2014 is RR No. 0084 and the sales invoice number corresponding to the last
shipment made in 2014 is SI No. 0083.

You also obtained the following information:

a.) Goods costing P 10, 000 has been purchased and received on RR No. 0073 and this
was not recorded by the company.
b.) Goods were in transit from Agila Company to Ibon Company on December 27, 2014.
These goods were shipped FOB shipping point and cost of these goods was P 22,000
and was not yet recorded in the books.
c.) Temporarily stranded at Dec. 31 at the railroad siding were two delivery trucks enroute
to Maya Company. Maya Company received the goods, which were sold on SI No. 0072
terms FOB Destination, the next day.
d.) Goods in transit from a vendor to Ibon Company on December 31, 2014. The cost of
goods was P12, 000. The goods were shipped FOB Shipping point.

On January 1, 2014, Ibon’s policy was changed so that the profit rate would be three
percentage points higher than the one earned in 2013.

Salvaged undamaged merchandise was marked to sell at P 10, 000 while damaged
merchandise marked to sell at P 16, 000 had an estimated realizable value of P 6, 500.

REQUIRED:

1. Compute for the following:

 Purchases of the company for the year 2014
 Sales of the company for the year 2014
 Company’s gross profit rate beginning January 1, 2014
 Estimated ending inventory
 Amount of inventory fire loss
SUGGESTED SOLUTIONS AND ANSWERS:

I. PURCHASES AND SALES for the Year 2014

SALES PURCHASES

Unadjusted balances 136 300 242 000

( 8 300) 10 000
( 2 000) 22 000
12 000
Adjusted balances( 2014) 126 000 286 000

II. GROSS PROFIT RATE:

Net sales ( 200 000 – 15 000) 185 000

Less: Cost of goods sold
Net purchases ( 330 000 – 20 000 ) 305 000
Less: Ending inventory, 12/31/13 160 700 144 300
Gross Profit 40 700

Gross profit rate 2013 ( 40 700÷ 185 000) 22%

Add: Increase in gross profit in 2014 3%
Gross profit rate in 2014 25%

III. Estimated Ending Inventory and Inventory Fire Loss

Inventory 1/1/ 14 160 700

Add: Purchases 286 000
Goods Available for sale 446 700
Less: Cost of Sales( 126 000 × 75%) 94 500
Estimated Ending Inventory 352 200
Less: Salvaged undamaged merchandise
( 10 000 × 75%) 7 500
Net realizable value of damaged
merchandise 6 500
Inventory Fire Loss 338 200