Chapter 6 Exercises

Exercise 6.1: Indicate whether the following statements about the characteristics of commercial
activities are true or false. For false statements, correct them:

• Commercial activity is aimed at making a profit.

• The main revenue from commercial activities is derived from providing services to
customers.
• Commercial activities involve buying and selling goods, including wholesale and retail.
• Commercial companies can simultaneously use both perpetual and periodic inventory
methods.
• The business cycle of a commercial enterprise is the period from paying for goods to
selling the last item.
• Under the perpetual system of accounting for inventory, the merchandise inventory
account is debited for the cost of all merchandise bought.
• If merchandise is shipped FOB shipping point, the merchandise is the property of the
selling company until it is received by the buying company.
• The principle of conservatism states that gains should not be anticipated but that all
potential losses should be recognized.
• Under the periodic inventory system, no entries are made to the merchandise inventory or
cost of goods sold accounts during the year.
• In the perpetual inventory system, no year-end adjusting entry is necessary, as long as the
physical inventory agrees with the amount reported in the merchandise inventory
account.
• Under the periodic system of accounting for inventory, the merchandise inventory
account is debited for the cost of all merchandise purchased.
• Under the perpetual inventory system, the balance in the merchandise inventory account
is merely a record of the most recent physical inventory account.

Exercise 6.2: Identify whether the following activities are (1) purchase transactions or (2) sales
transactions of a commercial enterprise:

• Receiving goods from suppliers into inventory

• Collecting payment from customers
• Paying suppliers for goods
• Receiving an invoice from the shipping company for incoming goods
• Paying transportation fees for goods to the buyer's company
• Shipping goods to the transportation company for delivery
• Signing a contract with a supplier
• Receiving an order from a customer
Exercise 6.3: Calculate the values for the goods (Kitkat biscuits) of Company A at specific dates
in December 20X1 using both the perpetual and periodic inventory methods.

Provided
Date Inventory Movement
Information
1/12/20X1 Opening inventory: 100 boxes, price 500,000 VND/box Opening balance
Purchased 50 boxes, unit price 500,000 VND/box,
15/12/20X1 Purchase value
transportation cost 100,000 VND
20/12/20X1 Sold 95 boxes, selling price 600,000 VND/box Sales revenue
31/12/20X1 Inventory check shows 55 boxes remain Cost of goods sold
Closing balance

Exercise 6.4 (Unit: 1,000 VND): On December 31, 20X1, Company Q had the following items:

Item Amount
Sales revenue 190,000
Inventory on 1/1/20X1 18,700
Returned goods 3,000
Transportation costs for purchases 8,000
Purchases during the year 154,000
Purchase discounts 5,000
Selling expenses 1,000
Inventory on 31/12/20X1 21,000

Task: Explain how to calculate and the timing of calculating the cost of goods sold using the
periodic inventory method.

The CEO of Company Q is considering the proposal from the Purchasing Manager to switch
from the periodic method to the perpetual inventory method. Explain the differences between
these two inventory accounting methods and discuss the benefits of the perpetual method.

Exercise 6.5: Company Y specializes in selling computers. In April 20X1, the company had the
following purchasing transactions:

• April 1: Purchased 10 computer screens at 6,200 VND per unit, paid immediately to
Supplier A in cash.
• April 7: Purchased 30 keyboards at 400 VND per unit, payment due in 15 days, not paid
to Supplier B yet.
• April 17: Paid the full amount owed to Supplier B from the April 7 purchase.
 • April 18: Purchased 65 tablets at 20,000 VND per unit, payment terms 1/10, n/30, not
paid to the supplier yet.
• April 25: Paid for the tablets purchased on April 18 to receive a discount for early
payment.

Task:

• Identify the documents used for each transaction.

• Record the journal entries for each transaction.
• Create T-accounts for the related accounting entities (including both general and detailed
accounts).

Exercise 6.6: In July 20X1, Company A, specializing in household appliances, had the following
transactions:

• July 2: Prepaid 25,000 VND to a supplier.

• July 5: Purchased a television valued at 32,000 VND, paid by bank transfer, but the
goods have not yet arrived by July 31.
• July 14: Purchased a refrigerator valued at 35,500 VND, deducted from the previous
advance payment to the supplier, with the remainder paid in cash.
• July 18: Received a stove purchased on June 26, 20X1, with a purchase price of 24,400
VND and transportation costs of 600 VND. The goods were paid by employee advance,
and transportation costs were paid in cash.

Task:

• Analyze the effect of these transactions on the accounting balance of Company A.

• Record the journal entries for the transactions.
• Determine the inventory value (detailed by shipping status including in-transit, inventory,
etc.) on July 31, 20X1, knowing that the inventory and in-transit purchases as of July 1,
20X1 were 50,000 VND and 24,400 VND, respectively.

Exercise 6.7 (Unit: 1,000 VND): In April 20X1, Company B had the following sales
transactions:

• April 1: Company B exports goods to a customer with a cost of 50,000 VND and a
selling price of 75,000 VND, with the payment terms 1/10, n/30. The customer commits
to paying within the stipulated time.
• April 12: The customer notifies that they have received a shipment sent in March 20X1
with a cost of 42,000 VND and a selling price of 68,000 VND. The payment will be
deducted from the customer's advance payment of 50,000 VND, with the remaining
balance paid in cash.
 • April 15: Payment for transportation costs by bank transfer amounting to 2,200 VND.
• April 18: Exported goods to a customer with a cost of 72,000 VND and a selling price of
90,000 VND.

Task:

• Analyze the effect of these economic transactions on Company B’s accounting balance.
• Record the journal entries for the transactions.
• Calculate the gross profit for Company B for April 20X1.

Exercise 6.8 (Unit: 1,000 VND): In March 20X1, Company A and Company B had the
following transactions:

• March 3: Company A exports goods valued at 10,000 VND to Company B at a selling

price of 15,000 VND. Company B has received the goods at Company A’s warehouse
and has paid the full amount by bank transfer.
• March 10: Company A exports goods valued at 22,000 VND to Company UTP at a
selling price of 30,000 VND. The shipping fee to Company B’s warehouse is 3,000 VND
(which Company A pays and settles by bank transfer).
• March 15: Company B notifies that they have received the goods from the March 10
transaction, with payment terms 1/10, n/30.
• March 25: Company A receives payment from Company B for the goods purchased on
March 10.

Task:

• Identify the documents used for each economic transaction.

• Record the journal entries for each transaction at Company A.
• Record the journal entries for each transaction at Company B.

Exercise 6.9 (Unit: million VND): Arrange the following items in the correct calculation
sequence and determine the missing values (a to f):

Company X Company Y Company Z

Net profit 220 C
Sales revenue a 1,315
Gross profit 435 d
Operating expenses b 565
Cost of goods sold 330 775
Exercise 6.10 (Unit: 1,000 VND): In May 20X1, Company S had the following transactions:

• May 1: Purchased goods from Company N, entering inventory at 300,000 VND, with
payment terms n/30.
• May 2: Sold goods to Company M on credit for 400,000 VND, cost of goods sold
200,000 VND, payment terms n/30.
• May 8: Purchased goods from Company F, entering inventory at a purchase price of
200,000 VND, and transportation costs of 10,000 VND.
• May 15: Sold goods for cash, with a cost of goods sold of 300,000 VND and a selling
price of 150,000 VND.
• May 30: Collected payment from the customer for the prior month’s sale through bank
transfer, amounting to 2,530 VND.
• May 31: Received payment from Company M for the May 2nd transaction via bank
transfer.
• May 31: Made full payment to Company N for the May 1st purchase.

Task:

• Record the journal entries for the economic transactions.

• Prepare the closing entries to calculate Company S’s business profit for May 20X1.
Company S did not have any financial income, financial expenses, or other income and
expenses. The company’s total selling and administrative expenses for the month were
100,000 VND and 250,000 VND, respectively.

• Determine the gross profit and the operating profit for Company S from business
operations.

COMPLETION

1. A(n) ____________________ is a document that is generated to bill the customer who made the
purchase.

2. The document created as evidence of a sale in a retail business is a(n) ____________________.

3. To the seller, a cash discount is also considered a(n) ____________________.

4. Net sales is equal to gross sales less ____________________.

5. A(n) ____________________ purchases merchandise and sells that merchandise to its customers.

6. Reductions in the price of merchandise, known as a(n) ____________________, are granted by

the seller because of defects or other problems with the merchandise.

7. A(n) ____________________ is a special ledger containing an individual account receivable for

each customer.
8. A(n) ____________________ is given to encourage prompt payment by customers who buy
merchandise on account.
9. A(n) ____________________ is merchandise returned by a customer for a refund.

10. A(n) ____________________ is a reduction from the list or catalog price offered to different
classes of customers.

11. Net sales minus cost of goods sold equals ____________________.

12. A form used to request the purchase of merchandise or other property is a(n)
____________________.

13. When the transportation charges are paid by the seller, merchandise is shipped
____________________.

14. ____________________ tells management the amount of sales dollars available to cover
expenses after covering the cost of goods sold.
15. A(n) ____________________ is a separate ledger containing an individual account for each
supplier.

16. Goods available for sale minus ending inventory equals ____________________.
17. When merchandise is shipped ____________________, the freight costs are paid by the buyer.
18. Merchandise acquired for resale to customers requires a debit to ____________________.