Reference no: EM133254264

PROBLEM 1: Inventory

The following data were taken from the books of XYZ Company for the current year:

From Cash Records:
Cash purchases	30,000
Payment to trade creditors for credit purchases	302,600
From balance sheets:
Accounts Payable, Jan 1	37,500
Accounts Payable, Dec 31	43,300
Merchandise Inventory, Jan 1	12,800
From other records:
Purchase returns and allowances	7,500
Cost of goods sold for the year	335,000

Question: What is the ending balance of merchandise inventory that year?

Answer: 16,200

• 16,200 is the given answer, but I got 8,700 with my solution below. I think the difference is in the 7,500 Purchase returns and allowances. Should we not deduct it to get the Net purchases (using the gross profit method of estimating ending inventory)? Should we deduct it or not?

My solution (deducting Purchase returns and allowances):
Merchandise Inventory, Jan 1	12,800
Net purchases
Cash purchases, 30,000
Credit purchases, (43,400 + 302,600 - 37,500) 308,400
Less: Purchase returns and allowances, 7,500	330,900
Total goods available for sale	343,700
Less: Cost of goods sold for the year	(335,000)
Merchandise Inventory, Dec 31	8,700

PROBLEM 2: PPE

On September 30, 2020, XYZ Company acquired a machine for P270,000 paying a down payment of P90,000 and the balance to be paid in two equal annual installments on September 30, 2021 and September 30, 2022. There was no stated interest provided in the note, however, an 8% interest rate is considered appropriate for a note on this type. Additional cost for freight P5,000, installation and testing for P10,000. 

XYZ Company uses the straight line method of depreciation. The machine's expected life is 5 years with a salvage value of P20,000. 

On January 1, 2023, it was determined that the machine would be useful for at least 2 more years from this date. The expected salvage value was reduced to P10,000. (For PV Factor, round it off to two decimal places).

1. What is the depreciation expense to be included in 2020 Income Statement?
   • Answer: P12,260
2. What is the depreciation expense to be included in 2023 Income Statement?
   • Answer: P72,430

Question: Please provide solutions, I'm not so sure how the answers were arrived at. Explanations will be useful, thank you!