Cedrick P. Dela Rosa
Easy Problems
Corolla Company incurred the following costs:
Materials
Storage costs
Delivery to customers
Irrecoverable Taxes
700,000
180,000
40,000
60,000
Materials
700,000
Irrecoverable Taxes
60,000
Total cost of Inventory 760,000
What amount should the inventory be measured?
(Problem 26-5 , Practical Accounting 1, Valix
2016) - Cedrick P. Dela Rosa
Bentirosa Company incurred the following costs
in relation to a certain product:
Direct Materials and Labor
Variable production overhead
Factory administrative costs
Selling and Distribution costs
180,000
25,000
15,000
20,000
DM and DL
VR production overhead
Factory admin. Costs
Correct Amount
180,000
25,000
15,000
220,000
What is the correct measurement of the product?
(Problem 26-6 , Practical Accounting 1, Valix
2016) - Cedrick Dela Rosa
Fenn Company provided the following
information for the current year:
Merchandise purchased for resale
Freight In
Freight Out
Purchase Return
Interest on inventory loan
4,000,000
100,000
50,000
20,000
200,000
What is the inventoriable cost of the purchase?
(Problem 26-7 , Practical Accounting 1, Valix
2016) - Cedrick Dela Rosa
Merchandise purchased for resale
Freight In
Purchase Return
Inventoriable Costs
4,000,000
100,000
(20,000)
4,080,000
Moderate
Ronna Company uses the perpetual inventory system. The entity reported
the following inventory transactions for the month of August:
Units
Unit Cost
Total Cost
Jan. 1 Beg Balance
Jan. 6 Purchase
Feb. 5 Sale
Mar. 5 Purchase
Mar. 8 Purchase Return
Apr. 10 Sale
Apr. 30 Sales Return
8,000
3,000
10,000
11,000
800
7,000
300
70.00
70.50
560,000
211,500
73.50
73.50
808,500
58,800
March 5 purchases
(4500 x 73.50)
330,750
If the FIFO cost flow method is used, what is the cost of the inventory on
April 30?
(Problem 29-3, Practical Accounting 1, Valix 2016) - Cedrick P. Dela Rosa
Mamamiya Company uses the weighted average inventory system. The
entity reported the following inventory transactions for the month of
August:
Units
Unit Cost
Jan. 1 Beg Balance
8,000
70.00
Jan. 6 Purchase
3,000
70.50
Jan. 15 Sale
10,000
Jan. 18 Purchase
11,000
73.50
Jan. 22 Purchase Return
800
73.50
Jan. 25 Sale
7,000
Jan. 30 Sales Return
300
TGAS
8000 x 70 = 560,000
3000 x 70.50= 211500
10200 x 73.50 = 749700
21200 x 71.75 = 1521200
4500 x 71.75 = 322,875
What is the cost of the inventory on Jan 30?
(Problem 29-7, Practical Accounting 1, Valix 2016) - Cedrick P. Dela Rosa
Hero Company reported inventory on December 31, 2016 at P6,000,000
based on a physical count of goods priced at cost and before any necessary
year-end adjustments relating to the following:
 Included in the physical count were goods billed to a customer FOB
shipping point on December 30, 2016. These goods had a cost of
P125,000 and were picked up by the carrier on January 7,2017.
 Goods shipped FOB shipping point on December 28, 2016, from a
vendor to Hero were received and recorded on January 4, 2017.
The invoice cost was P300,000.
Physical count
6,000,000
Goods shipped FOB sp to
Hero
300,000
What amount should be reported as inventory on December 31, 2016?
6,300,000
(Problem 27-1 , Practical Accounting 1, Valix 2016) - Cedrick Dela Rosa
Difficult
Harutin mo ako Company provided the following
data:
Items included in the
bodega
4,000,000
Items included in the specifically
segregated per sale on
contract
100,000
Items in receiving department,
returned by customer, in good
condition
50,000
Items ordered and in the
receiving department
400,000
Items ordered, invoice received
but goods not received. Freight
is on account on seller
300,000
Items shipped today, invoice
mailed, FOB shipping point 250,000
Items shipped today, invoice
mailed, FOB destination
150,000
Items currently being used for
window display
200,000
Items on counter for sale
800,000
Items in receiving department,
refused because of damage
50,000
Items in the shipping
Department
250,000
What is the correct amount of inventory?
(Problem 26-1, Practical Accounting 1, Valix,
2016) – Cedrick Dela Rosa
Sana Ako Nalang Company has incurred the
following costs during the current year:
Items included in the
bodega
4,000,000
Items included in the
specifically segregated
(100,000)
Items in receiving department,
returned by customer, in good
condition
50,000
Items ordered and in the
receiving department
400,000
Items shipped today, invoice
mailed, FOB destination
150,000
Items currently being used for
window display
200,000
Items on counter for sale
800,000
Damage and unsalable items
included in count
(50,000)
Items in the shipping
Department
250,000
Answer: 5,700,000
Cost of purchases based
On vendors’ invoices
5,000,000
Trade discounts on
purchases already
deducted from
vendors’ invoices
500,000
Import duties
400,000
Freight & insurance on
purchases
1,000,000
Other handling costs
relating to imports
100,000
Salaries of accounting
department
600,000
Brokerage commission
paid to agents for
arranging imports
200,000
Sales commission paid
to sales agents
300,000
After-sales warranty
costs
250,000
Cost of purchases 5,000,000
Import duties
400,000
Freight and insurance 1,000,000
Other handling costs 100,000
Brokerage commission 200,000
Total cost of purchases 6,700,000
What is the total cost of purchases?
(Problem 26-4, Practical Accounting 1, Valix 2016)
– Cedrick P. Dela Rosa
Umasa Company provided the following
information at the end of current year.
Finished goods in storeroom, at cost, including
overhead of P400,000 or 20%
Finished goods in transit, including freight charge
of
P20,000, FOB shipping point
Finished goods held by salesmen, at selling price,
cost, P100,000
Goods in process, at cost of materials and direct
labor
Materials
Materials in transit, FOB destination
Defective materials returned to suppliers
Shipping supplies
Gasoline and oil for testing finished goods
Finished goods
FG held by salesmen at cost
Goods in process
Materials
Factory supplies:
Gasoline and oil
Machine lubricants
Correct inventory
2,000,000
100,000
900,000
1,000,000
110,000
60,000
4,170,000
Machine lubricants
What is the correct amount of inventory?
(Problem 26-3, Practical Accounting 1, Valix 2016)
– Cedrick Dela Rosa
Dianna P. Pastrana
Audit of Inventory
Problem
Solution
Easy:
1. Ram Company provided the following information at
the end of current year.
Finished goods in storeroom, at cost, including
overhead of P400,000 or 20%
Finished goods in transit, including freight charge of
P20,000, FOB shipping point
Finished goods held by salesmen, at selling price, cost,
P100,000
Goods in process, at cost of materials and direct labor
Materials
Materials in transit, FOB destination
Defective materials returned to suppliers
Shipping supplies
Gasoline and oil for testing finished goods
Machine lubricants
Answer: 4,170,000
2,000,000
250,000
140,000
720,000
1,000,000
50,000
100,000
20,000
110,000
60,000
Finished goods
FG held by salesmen at cost
Goods in process
Materials
1,000,000
Factory supplies:
Gasoline and oil
Machine lubricants
Correct inventory
Goods in process, incl. OH
Overhead
Goods in process, excl. OH
2,000,000
100,000
900,000
110,000
60,000
4,170,000
100%
20%
80%
Total cost of GIP (720,000/80%) 900,000
What is the correct amount of inventory?
(Practical Accounting by Valix, Problem 26-3, page 307)
2. Corolla Company incurred the following costs:
Materials
Storage costs of finished goods
Delivery to customers
Irrecoverable purchase taxes
Answer: 760,000
700,000
180,000 Materials
Irrecoverable Historical cost
40,000
Total cost of inventory
60,000
700,000
60,000
760,000
At what amount should the inventory be measured?
(Practical Accounting by Valix, Problem 26-5, page 309)
3. Bakun Company began operations late in 2015. For the first quarter
ended March 31, 2016, the entity provided the following information:
Total merchandise purchased through March 15, 2016
recorded at net
Answer: 6,000,000
Purchase (4,900,000/98%)
Inv., beg. (1,500,000/150%)
4,900,000
5,000,000
1,000,000
Merchandise inventory on January 1, 2016, at selling
price
Total gross amt. to be paid
6,000,000
1,500,000
All merchandise was acquired on credit and no payments have been
made on accounts payable since the inception of the entity.
All merchandise is marked to sell at 50% above invoice cost before time
discounts of 2/10, n/30. No sales were made in 2016.
What amount of cash is required to eliminate the current balance in
accounts payable?
(Practical Accounting by Valix, Problem 27-11, page 327)
Moderate
1. Leila Company conducted a physical count on December 31, 2016
which revealed a total cost of P3,600,000.
However, the following items were excluded from the count:
Goods sold to a customer are being held for the customer
to call for at the customer’s convenience
Inv. Per physical count
Inv. “hold for shipping inst.”
Goods in process inventory
Goods shipped FOB seller
200,000 Correct inventory
A packing case containing a product standing in the
shipping room when the physical count was
taken was not included in the inventory because it was
marked “hold for shipping instructions”
80,000
Good in process held by an outside processor for further
processing
300,000
Good shipped by a vendor FOB seller on Dec. 28, 2016
and received by Leila Company on January 10,
2017
Answer: 4,030,000
3,600,000
80,000
300,000
50,000
4,030,000
50,000
What is the correct inventory on December 31,2016?
(Practical Accounting by Valix, Problem 27-5, page 322)
2. Kew Co. reported accounts payable on December 31, 2016 at
P2,200,000 before considering the following data:
 Goods shipped to Kew FOB shipping point on December 22, 2016,
were lost in transit. The invoice cost of P40,000 was not recorded by
Kew. On January 7,2017, Kew filed a P40,000 claim against the
Answer: 2,670,000
A/P per book
Goods shipped FOB SP on
Dec. 22,2016 and lost
Purchase returns
2,200,000
40,000
(70,000)
common carrier.
Advance payment error entry
Adjusted A/P
500,000
2,670,000
 On December 27,2016, a vendor authorized Kew to return, for full
credit, goods shipped and billed at P70,000 on December 3,2016.
The returned goods were shipped by Kew on December 28,2016. A
P70,000 credit memo was received and recorded by Kew on January
5,2017.
 On December 31,2016, Kew has a P500,000 debit balance in
accounts payable to Ross, a supplier, resulting from a P500,000
advance payment for goods to be manufactured.
What amount should be reported as accounts payable on December 31,
2016?
(Practical Accounting by Valix, Problem 27-7, page 324)
3. On October 31,2016, Pamela Company reported that a flood caused
severe damage to the entire inventory.
Based on recent history, the entity has a gross profit of 25% of sales.
The following information is available from the records for ten months
ended October 31, 2016:
Inventory, January 1
Purchases
Purchase returns
Sales
Sales returns
Sales allowances
520,000
4,120,000
60,000
5,600,000
400,000
100,000
Answer: 3,900,000
Sales
Sales returns
Net sales
5,600,000
(400,000)
5,200,000
Cost ratio (100%-25%)
COGS (75%*5,200,000)
75%
3,900,000
A physical inventory disclosed usable goods which can be sold for
P70,000.
What is the estimated cost of goods sold for the ten months ended
October 31, 2016?
(Practical Accounting by Valix, Problem 32-4, page 378)
Difficult
Answer: 2,500,000
1. Baritone Company counted and reported the ending inventory on
December 31, 2016 at P2,000,000.
None of the following items were included when the total amount of
the ending inventory was computed:
Reported Inventory
Goods sold in Transit, FOB D
Purchased in Transit, FOB SP
Correct amount of Inventory
2,000,000
200,000
300,000
2,500,000
Goods located in the entity’s warehouse that are on
consignment from another entity
150,000
Goods sold by the entity and shipped on December 30
FOB destination were in transit on December
31,2016 and received by the customer on
January 2,2017
200,000
Goods purchased by the entity and shipped on
December 30 FOB shipping point in transit on
December 31, 2016 and received by the entity on
January 2, 2017
300,000
Goods sold by the entity and shipped on December 30
FOB shipping point were in transit on December
31, 2016 and received by customer on January 2,
2017
400,000
What is the correct amount of inventory on December
31, 2016?
(Practical Accounting by Valix, Problem 27-3, page 320)
2. Joy Co. conducted a physical count on December 31, 2016 which
revealed inventory with a cost of P4,410,000.
The following items were excluded from the physical count:
Merchandise held by Joy on consignment
610,000
Merchandise shipped by Joy FOB destination to a
customer on December 31, 2016 and was
received
by the customer on January 5, 2017
380,000
Merchandise shipped by Joy FOB shipping point to a
customer on December 31, 2016 and was
received
by the customer on January 5, 2017
460,000
Merchandise shipped by a vendor FOB destination on
December 31, 2016 was received by the entity on
January 5, 2017
830,000
Merchandise purchased FOB shipping point was shipped
by the supplier on December 31, 2016 and
received by Joy on January 5, 2017
510,000
Answer: 5,300,000
Physical count
Goods sold in transit, FOB D.
Goods purchased, FOB SP
Adjusted inventory
4,410,000
380,000
510,000
5,300,000
What is the correct amount of inventory on December 31, 2016?
(Practical Accounting by Valix, Problem 27-4, page 321)
3.Emco Co had the following transactions in 2016:
 Emco sold goods to a customer for P50,000, FOB shipping point on
December 30,2016.
 Emco sold three pieces of equipment on a contract over a threeyear period. The sale price of each piece of equipment is P100,000.
Delivery of each piece of equipment is on February 10 of each year
In 2016, the customer paid a P200,000 down payment, and will pay
P50,000 per year in 2017 and 2018. Collectability is reasonably
assured.
 On June 1, 2016, Emco signed a contract for P200,000 for goods to
be sold on account. Payment is to be made in two installments of
P100,000 each on December 1, 2016 and December 1,2017.
The goods are delivered on October 1, 2016. Collection is
reasonably assured and the goods may not be returned.
 Emco sold goods to a customer on July 1, 2016 for P500,000. If the
customer does not sell the goods to retail customers by December
31,2017, the goods can be returned to Emco.
The customer sold the goods to retail customers on October 1,
2017.
What amount of sales revenue should be reported in the income
statement for 2016?
(Practical Accounting by Valix, Problem 28-10, page 333)
Answer: 350,000
Goods sold FOB SP
Delivery of 1 equip. 02/10/16
Goods sold on account
Total sales revenue
50,000
100,000
200,000
350,000
Harriet Ramos (AUDITING IN INVENTORIES)
PROBLEMS
SOLUTIONS
Easy
Easy
1. Corolla Company incurred the following costs:
Materials
Storage costs of finished goods
Delivery to customers
Irrecoverable purchase taxes
700,000
180,000
40,000
60,000
Materials
Irrecoverable purchase taxes
700,000
60,000
Total cost of inventory
760,000
At what amount should the inventory be
measured?
a.
b.
c.
d.
880,000
760,000
980,000
940,000
All costs are inventoriable.
(Practical Financial Accounting, V1, pg. 309)
240,000
2. Eagle Company incurred the following costs in
relation to a certain product:
Direct materials and labor
Variable production overhead
Factory administrative costs
Fixed production costs
180,000
25,000
15,000
20,000
What is the correct measurement of the product?
a. 205,000
b. 225,000
c. 195,000
d. 240,000
(Practical Financial Accounting, V1, pg. 309)
3. Fen Company provided the following information
for the current year:
Merchandise purchased for resale
Freight in
Freight out
Purchase returns
Interest on inventory loan
Merchandise purchased
Freight in
Purchase returns
4,000,000
100,000
( 20,000 )
Inventor able cost
4,080,000
4,000,000
100,000
50,000
20,000
200,000
What is the inventoriable cost of the purchase?
a.
b.
c.
d.
4,280,000
4,030,000
4,080,000
4,130,000
(Practical Financial Accounting, V1, pg. 310)
Moderate
Moderate
1. On December 28, 2016, Kerr Company purchased
goods costing P500,000 FOB Destination. These
goods were received on December 31, 2016. The
costs incurred in connection with the sale and
delivery of goods were:
Packaging for shipment
Shipping
Special handling charges
10,000
15,000
25,000
On December 31, 2016, what total cost should be
included in inventory?
a.
b.
c.
d.
545,000
535,000
520,000
500,000
(Practical Financial Accounting, V1, pg. 310)
Answer: 500,000
When goods are purchased FOB Destination,
the seller is responsible for cost incurred in
transporting the goods to the buyer.
2. Venice Company included the following in
inventory at year end:
Merchandise out on consignment
at sales price, including 40%
markup om sales
Goods purchased in transit,
shipped FOB Shipping point
Goods held on consignment by Venice
Markup on goods on consignment
(1,400,000 x 40%)
Goods held on consignment
Total reduction
560,000
900,000
1,460,000
1,400,000
1,200,000
900,000
At what amount should the inventory be reduced?
a.
b.
c.
d.
1,460,000
3,500,000
2,300,000
1,740,000
(Practical Financial Accounting, V1, pg. 310)
3. Harris Company provided the following
information for an inventory at year end:
Historical cost
Estimated selling price
Estimated completion and selling cost
Replacement cost
What amount should be reported as inventory at
year end?
a.
b.
c.
d.
1,100,000
1,150,000
1,200,000
1,300,000
(Practical Financial Accounting, V1, pg. 358)
Historical cost
Net realizable value
(1,300,000-150,000)
1,200,000
1,150,000
LCNRV
1,150,000
Difficult
Difficult
1. Joy Company conducted a physical count on
December 31, 2016 which revealed inventory with
a cost of P4, 410,000.
The following items were excluded from physical
count:





Merchandise held by Joy
on consignment
Merchandise shipped by Joy
FOB Destination to a customer
on December 31, 2016 and was
received by the customer on
January 5, 2017
Merchandised shipped by Joy
FOB shipping point to a customer
On December 31, 2016 and was
Received by the customer on
January 5, 2017
Merchandise shipped by the
vendor FOB destination on
December 31, 2016 was received
by Joy on January 5, 2017
Merchandise purchased FOB
shipping point by the supplier
on December 31, 2016 and
received by Joy on Jan 5, 2017
610,000
380,000
460,000
830,000
510,000
What is the correct amount of inventory on
December 31, 2016?
a. 5,300,000
b. 4,690,000
c. 3,800,000
d. 4,920,000
(Practical Financial Accounting, V1, pg. 321)
Physical count
4,410,000
Goods sold in transit, FOB DP
380,000
Goods purchased in transit, FOB SP 510,000
Adjusted inventory
5,300,000
2. Leila Company conducted a physical count on
December 31, 2016 which revealed total cost of
P3,600,000.
However the following items were excluded from
the count;
Inventory per physical count
3,600,000
Inventory marked “hold for shipping
Instructions”
80,000
Goods in process inventory
300,000
Goods shipped FOB seller
50,000
Correct inventory




Goods sold to a customer are
being held for the customer to
call for at the customer’s
convenience
A packing case containing a
product standing room when
the physical count was taken
was not included in the invent
tory because it was marked
“hold for shipping instructions”
Goods in process held by an
outside processor for further
processing
Goods shipped by a vendor
FOB seller on December 28,
2016 and received by Leila
Company on Jan 10, 2017
4,030,000
The term FOB seller is the same as FOB
shipping point
200,000
80,000
300,000
50,000
What is the correct inventory on December 31,
2016?
a. 4,180,000
b. 4,230,000
c. 3,980,000
d. 4,030,000
(Practical Financial Accounting, V1, pg. 322)
3. Brilliant Company has incurred the following
costs during the current year:









Cost of purchases based on
5,000,000
vendor’s invoices
Trade discounts on purchases
already deducted from vendor’s
invoices
500,000
Import duties
400,000
Freight and insurance on
purchases
1,000,000
Other handling costs relating
to imports
100,000
Salaries of accounting dept.
600,000
Brokerage commission paid
200,000
to agents for arranging imports
Sales commission paid to sales
agent
300,000
After sales warranty costs
250,000
What is the total cost of purchases?
a.
b.
c.
d.
5,700,000
6,100,000
6,700,000
6,500,000
(Practical Financial Accounting, V1, pg. 308)
Cost of purchases
Import duties
Freight and insurance
Other handling cost
Brokerage commission
Total cost of purchases
5,000,000
400,000
1,000,000
100,000
200,000
6,700,000
The salaries of accounting department, sales
commission and after sales warranty costs are
not inventor able but should be expensed
immediately.
Simon, Chenah Mae V.
Easy
PROBLEM 1
Hero Company reported inventory on
December 31, 2016 at P6,000,000 based on
a physical count of goods priced at cost and
before any necessary year-end adjustments
relating to the following:
 Included in the physical count were
goods billed to a customer FOB
shipping point on December 30, 2016.
These goods had a cost of P125,000
and were picked up by the carrier on
January 7,2017.
 Goods shipped FOB shipping point on
December 28, 2016, from a vendor to
Hero were received and recorded on
January 4, 2017. The invoice cost was
P300,000.
What amount should be reported as
inventory on December 31, 2016?
-Practical 1 Valix
Page 318
Solution to problem 1
Physical count
Goods shipped FOB sp to
Hero
PROBLEM 2
Chris company provided the following
information for the current year:
 Merchandise purchased for resale
P4,000,000
 Freight in 100,000
 Freight out 50,000
 Purchase returns 20,000
 Interest on inventory loan 200,000
What is the inventoriable cost of the
purchase?
-Practical 1 Valix
Page 310
Solution to problem 2
PROBLEM 3
On December 28, 2016, Kerr Company
purchased goods costing P500,000 FOB
destination. These goods were received on
December 31, 2016. The costs incurred in
connection with the sale and delivery of the
goods were:
6,000,000
300,000
6,300,000
Merchandise purchased P4,000,000
Freight in
100,000
Purchase returns
(200,000)
4,080,000
Solution to problem 3
P500,000
Packaging for shipments
Shipping
Special handling
10,000
15,000
25,000
On December 31, 2016, what total cost
should be included in inventory?
-Practical 1 Valix
Page 310
Moderate
PROBLEM 1
Venice Company included the following in
inventory at year-end:
- Merchandise out on consignment at
sale price, including 40% markup on
sales P1,400,000.
- Goods purchased in transit, shipped
FOB shipping point P1,200,000.
- Goods held on consignment by Venice
P900,000.
At what amount should the inventory be
reduced?
Solution to problem 1
Markup on goods on
Consignment
Goods held on consignment
560,000
900,000
1,460,000
-Practical 1 Valix
Page 314
PROBLEM 2
Lin Company sells merchandise at a gross
profit of 30%. On June 30, 2016, all of the
inventory was destroyed by fire. The
following figures pertain to the operations for
the six months ended June 30, 2016:
Net sales
Beginning inventory
Net purchases
8,000,000
2,000,000
5,200,000
What is the estimated cost of the destroyed
inventory?
-Practical 1 Valix
Page 374
PROBLEM 3
Mae Company reported during the current
Solution to problem 2
Beginning inventory
Net purchases
CGAS
COGS (8M x 70%)
Ending Inv. Destroyed
by fire
2,000,000
5,200,000
7,200,000
(5,600,000)
1,600,000
year:
Beginning inventory
Net purchases
Net sales
500,000
2,500,000
3,200,000
A physical count at year-end resulted in an
inventory of P575,000. The gross profit on
sales had remained constant at 25%.
Solution to problem 3
Beg. Inv.
Net purchases
CGAS
COGS (3.2M x 75%)
Ending inventory
Physical inventory
Missing Inventory
500,000
2,500,000
3,000,000
(2,400,000)
600,000
575,000
25,000
The entity suspected that some inventory
may have been taken by a new employee.
What is the estimated cost of missing
inventory at year-end?
-Practical 1 Valix
Page 375
Hard
Calasiao, Inc., owner of a trading company,
engaged your services as auditor. There is a
discrepancy between the company’s income
and the sales volume. The owner suspects
that the staff is committing theft. You are to
determine whether or not this is true your
investigations revealed the following:
1. Physical inventory, taken December
31, 2010 under your observation
showed that cost was P265,000 and
net realizable value, P244,000. The
inventory on January 1, 2010 showed
cost of P390,000 and net realizable
value of P375,000. It is the
corporation’s practice to value
inventory at “lower of cost or NRV.”
Any loss between cost and NRV is
included in “Other expenses.”
2. The average gross profit rate was 40%
of net sales.
3. The accounts receivable as of January
1, 2010 were P135,000. During 2010,
accounts receivable written off during
the year amounted to P10,000.
Accounts receivable as of December
Solution to # 1
A/R, 12/31/10
Accounts written off
Collections
A/R, 1/1/10
Sales in 2010
375,000
10,000
3,000,000
(135,000)
3,250,000
Solution to #2
A/P, 12/31/10
Payments
A/P, 1/1/10
Purchases in 2010
300,000
2,000,000
(375,000)
1,925,000
Solution # 3
Inventory, 1/1/10 (at cost)
390,000
Add purchases
1,925,000
CGAS
2,315,000
Less Cost of sales
(3,250,000 x 60%)
(1,950,000)
Estimated inv., 12/31/10
at cost
365,000
Inv., 12/31/10 per physical
31, 2010 were P375,000/
4. Outstanding purchase invoices
amounted to P300,000 at the end of
2010. At the beginning of 2010 they
were P375,000.
5. Receipts from customers during 2010
amounted to P3,000,000.
6. Disbursements to merchandise
creditors amounted to P2,000,000.
Based on the above and the result of your
audit, determine the following:
1. The total sales in 2010
2. The total purchases in 2010
3. The amount of inventory shortage as
of December 31, 2010
-Reviewer in Auditing problems by
Ocampo
Page 180
count at cost
Inventory shortage
(265,000)
100,000
OSTULANO, ELGENEROSE B.
EASY:
Problem 1
Solution:
In connection with your audit of the Lake Unshipped goods
P 100,000
Company, you reviewed its inventory as of Purchased merchandise shipped
700,000
December 31, 2006 and found the following items:
FOB shipping point
(a) A packing case containing a product costing Goods used as collateral for a
500,000
P100,000 was standing in the shipping room when loan
the physical inventory was taken. It was not Total
P 1,300,000
included in the inventory because it was marked
“Hold for shipping instructions.” The customer’s
order was dated December 18, but the case was
shipped and the costumer billed on January 10,
2007.
(b) Merchandise costing P600,000 was received on
December 28, 2006, and the invoice was recorded.
The invoice was in the hands of the purchasing
agent; it was marked “On consignment”.
(c) Merchandise received on January 6, 2007,
costing P700,000 was entered in purchase register
on January 7. The invoice showed shipment was
made FOB shipping point on December 31, 2006.
Because it was not on hand during the inventory
count, it was not included.
(d) A special machine costing P200,000, fabricated
to order for a particular customer, was finished in
the shipping room on December 30. The customer
was billed for P300,000 on that date and the
machine was excluded from inventory although it
was shipped January 4, 2007.
(e) Merchandise costing P200,000 was received on
January 6, 2007, and the related purchase invoice
was recorded January 5. The invoice showed the
shipment was made on December 29, 2006, FOB
destination.
(f) Merchandise costing P150,000 was sold on an
installment basis on December 15. The customer
took possession of the goods on that date. The
merchandise was included in inventory because
Alcala still holds legal title. Historical experience
suggests that full payment on installment sale is
received approximately 99% of the time.
(g) Goods costing P500,000 were sold and
delivered on December 20. The goods were
included in the inventory because the sale was
accompanied by a purchase agreement requiring
Alcala to buy back the inventory in February 2007.
Question:
Based on the above and the result of your audit,
how much of these items should be included in the
inventory balance at December 31, 2006?
a. P1,300,000
b. P 800,000
c. P1,650,000
d. P1,050,000
Problem 2
Presented below is a list of items that may or may
not reported as inventory in a company’s
December 31 balance sheet:
(a) Goods out on consignment at
another company’s store
P
800,000
(b) Goods sold on installment basis
100,000
(c) Goods purchased f.o.b. shipping point
that are in transit at December 31
120,000
(d) Goods purchased f.o.b. destination
that are in transit at December 31
200,000
(e) Goods sold to another company,
for which our company has signed an
agreement to repurchase at a set price that
covers all costs related to the inventory
300,000
(f) Goods sold where large returns
are
predictable
280,000
(g) Goods sold f.o.b. shipping point
that
are
in
transit
December
31
120,000
(h) Freight charges on goods purchased
80,000
(i) Factory labor costs incurred on goods
still
unsold
50,000
(j) Interest cost incurred for inventories
that
are
routinely
manufactured
40,000
(a) Goods out on consignment at
another company’s store
P
800,000
(c) Goods purchased f.o.b. shipping point
that are in transit at December 31
120,000
(e) Goods sold to another company,
for which our company has signed an
agreement to repurchase at a set price that
covers all costs related to the inventory
300,000
(h) Freight charges on goods purchased
80,000
(i) Factory labor costs incurred on goods
still
unsold
50,000
(l) Materials on hand not yet placed
into
production
350,000
(n) Raw materials on which a the
company has started production, but
which
are
not
completely
processed
280,000
(o)
Factory
supplies
20,000
(q) Costs identified with units completed
but
not
yet
sold
260,000
(r) Goods sold f.o.b. destination that are
in
transit
at
December
31
40,000
Total
P
2,300,000
(k) Costs incurred to advertise goods
held
for
resale
20,000
(l) Materials on hand not yet placed
into
production
350,000
(m)
Office
supplies
10,000
(n) Raw materials on which a the
company has started production, but
which
are
not
completely
processed
280,000
(o)
Factory
supplies
20,000
(p) Goods held on consignment from
another
company
450,000
(q) Costs identified with units completed
but
not
yet
sold
260,000
(r) Goods sold f.o.b. destination that are
in
transit
at
December
31
40,000
(s) Temporary investment in stocks and
bonds that will be resold in the near future
500,000
Question:
How much of these items would typically be
reported as inventory in the financial statements?
a. P2,300,000
b. P2,000,000
c. P2,260,000
d. P2,220,000
Problem 3
Ocean Company provided the following data with
respect to its inventory:
(a) Items counted in the bodega
P
4,000,000
(b) Items included in the count specifically
segregated
per
sale
contract
100,000
(c) Items in receiving department, returned
by
customer
in
good
condition
50,000
(d) Items ordered and in the receiving
Solution:
(a) Items counted in the bodega
P
4,000,000
(b) Items included in the count specifically
segregated per sale contract
(
100,000)
(c) Items in receiving department, returned
by
customer
in
good
condition
50,000
(d) Items ordered and in the receiving
department,
invoice
not
received
400,000
department,
invoice
not
received
400,000
(e) Items ordered, invoice received but goods
not received. Freight is on the account of seller
300,000
(f) Items shipped today, invoice mailed,
FOB
shipping
point
250,000
(g) Items shipped today, invoice mailed,
FOB
destination
150,000
(h) Items currently being used for window
Display
200,000
(i)
Items
on
counter
for
sale
800,000
(j) Items in receiving department, refused by
Ocean
Company
because
of
damage
180,000
(k) Items included in count, damaged
and
unsalable
50,000
(l) Items in the shipping department
250,000
(g) Items shipped today, invoice mailed,
FOB
destination
150,000
(h) Items currently being used for window
Display
200,000
(i)
Items
on
counter
for
sale
800,000
(k) Items included in count, damaged
and unsalable
(
50,000)
(l) Items in the shipping department
250,000
Total
P
5,700,000
Question:
What is the correct amount of inventory?
a. P5,700,000
b. P6,000,000
c. P5,800,000
d. P5,150,000
MODERATE:
Problem 1
On August 1 of the current year, River Company
recorded purchases of inventory of P800,000 and
P1,000,000 under credit terms of 2/15, net 30. The
payment due on the P800,000 purchase was
remitted on August 16. The payment due on the
P1,000,000 purchase was remitted on August 31.
Under the net method and the gross method,
these purchases should be included at what
respective amounts in the determination of cost of
goods available for sale?
Net Method
a. P 1,784,000
Gross Method
P 1,764,000
Solution:
Net Method:
Purchases
(800,000
+
1,000,000)
1,800,000
Purchase discount taken (2% x 800,000)
(
16,000)
Purchases (800,000 + 1,000,000)
(
20,000)
Net
amount
1,764,000
Gross Method:
Purchases
1,800,000
b. P 1,764,000
c. P 1,764,000
d. P 1,800,000
P 1,800,000
P 1,784,000
P 1,764,000
Problem 2
You obtained the following information
connection with your audit of Sea Corporation:
Cost
Retail
Beginning inventory
P1,987,200
P2,760,000
Sales
7,812,000
Purchases
4,688,640
6,512,000
Freight in
94,560
Mark ups
720,000
Mark up cancellations
120,000
Markdown
240,000
Markdown cancellations
40,000
Purchase discount taken
16,000)
Net
1,764,000
(
purchases
Solution:
in
Cost
Retail
Beginning inventory
P1,987,200
P2,760,000
Purchases
4,688,640
6,512,000
Freight in
94,560
Net mark up (P720,000 - P120,000)
720,000
Net mark down (P240,000 - P40,000)
120,000
Goods available for sale
P6,770,400
P9,672,000
Cost Ratio (P6,770,400/P9,672,000) = 70%
Sea Corp. uses the retail inventory method in
estimating the values of its inventories and costs.
The cost ratio to be used considering the provisions
of PAS 2 is ___.
a. 68.58%
b. 69.20%
c. 70.00%
d. 75.78%
Problem 3
A physical count on December 31, 2017 revealed
that Gulf Company had inventory with a cost of
P4,410,000. The audit identified that the following
items were excluded from this amount:
(a) Merchandise of P610,000 is held by Gulf on
consignment.
(b) Merchandise costing P380,000 was shipped by
Gulf FOB destination to a customer on December
31, 2017. The customer was expected to receive the
goods on January 5, 2018.
(c) Merchandise costing P460,000 was shipped by
Solution:
Physical
count
4,410,000
Golds sold in transit, FOB destination
380,000
Goods purchased in transit, FOB shipping point
510,000
Adjusted
inventory
5,300,000
Gulf FOB shipping point to a customer on December
29, 2017. The customer was expected to receive the
goods on January 5, 2018.
(d) Merchandise costing P830,000 shipped by a
vendor FOB destination on December 31, 2017 was
received by Gulf on January 5, 2018.
(e) Merchandise costing P510,000 purchased FOB
shipping point was shipped by the supplier on
December 31, 2017 and received by Gulf on January
5, 2018.
Question:
What is the correct amount of inventory on
December 31, 2017?
a. P5,300,000
b. P4,690,000
a. P3,800,000
b. P4,920,000
DIFFICULT:
Problem:
The Bay Co. values its inventory at the lower of FIFO
cost or net realizable value (NRV). The inventory
accounts at December 31, 2017, had the following
balances:
Solutions:
Question No. 1
Estimated
selling
price
P24,000
Less
refinishing
costs
6,800
Raw materials
P
Net
realizable
value
650,000
17,200
Work
in
process Less
normal
profit
1,200, 3,200
000
Valuation
of
repossessed
inventory
Finished
goods P14,000
1,640,
000
Question No. 2
Estimated
selling
price
(NRV)
The following are some of the transactions that P6,400
affected the inventory of the Bay Company during Less
normal profit (6,400
x
25%)
2018.
1,600
Valuation
of
trade-in
inventory
Jan. 8
Bay Co. purchased raw materials with a list P4,800
price of P200,000 and was given a trade
discount of 20% and 10%; terms 2/15, n/30. Question No. 3
Bay values inventory at the net invoice price. Accounts receivable (P59,200 – P8,000)
Feb. 14 Bay Co. repossessed an inventory item from a P51,200
customer who was overdue in making Trade-in
inventory
payment. The unpaid balance on the sale is 4,800
P15,200. The repossessed merchandise is to Sales
be refinished and placed on sale. It is P56,000
expected that the item can be sold for
P24,000 after estimated refinishing costs of
P6,800. The normal profit for this item is
considered to be P3,200.
Mar. 1 Refinishing costs of P6,400 were incurred on
the repossessed item.
Apr. 3 The repossessed item was resold for P24,000
on account, 20% down.
Aug. 30 A sale on account was made of finished
goods that have a list price of P59,200 and a
cost P38,400. A reduction of P8,000 off the
list price was granted as a trade-in
allowance. The trade-in item is to be priced
to sell at P6,400 as is. The normal profit on
this type of inventory is 25% of the sales
price.
Questions:
Based on the above and the result of your audit,
answer the following: (Assume the client is using
perpetual inventory system)
1. The repossessed inventory on Feb. 14 is most
likely to be valued at _____.
2. The trade-in inventory on Aug. 30 is most
likely to be valued at _____.
3. How much will be recorded as Sales on Aug.
30?
References:
Practical Accounting One by Valix
Cebu CPAR Center, Inc.
Jimerezel Loyde A. Lara
PROBLEMS
SOLUTIONS
A. EASY
A. EASY
1)Candy Company incurred the following
costs:
Materials
700,000
Storage costs
180,000
Delivery to customers
40,000
Irrecoverable purchase
taxes
60,000
At what amount should the inventory be
measured?
(Problem 26-5, Practical Accounting
Volume 1 by Conrado T. Valix)
2) Unique Company incurred the
following costs in relation to a certain
product:
Direct materials and labor
Variable production overhead
Factory administrative costs
Fixed production costs
1) Materials
Irrecoverable purchase
Taxes
Total cost of inventory
700,000
60,000
760,000
2) Direct materials and labor
Variable production overhead
Factory administrative costs
Fixed production costs
Product measurement
180,000
25,000
15,000
20,000
240,000
180,000
25,000
15,000
20,000
What is the correct measurement of the
product?
(Problem 26-6, Practical Accounting
Volume 1 by Conrado T. Valix)
3) Ferb Company provided the following
information for the current year:
Merchandise purchased
For resale
4,000,000
Freight in
100,000
Freight out
50,000
Purchase returns
20,000
Interest on inventory loan
200,000
What is the inventoriable cost of the
purchase?
(Problem 26-7, Practical Accounting
3) Merchandise purchased
Freight in
Purchase returns
Inventoriable cost
4,000,000
100,000
(20,000)
4,080,000
Volume 1 by Conrado T. Valix)
B. MODERATE
B. MODERATE
1) ABC Company has incurred the
following costs during the current year:
Cost of purchases based
On vendors’ invoices
5,000,000
Trade discounts on
purchases already
deducted from
vendors’ invoices
500,000
Import duties
400,000
Freight & insurance on
purchases
1,000,000
Other handling costs
relating to imports
100,000
Salaries of accounting
department
600,000
Brokerage commission
paid to agents for
arranging imports
200,000
Sales commission paid
to sales agents
300,000
After-sales warranty
costs
250,000
1) Cost of purchases
5,000,000
Import duties
400,000
Freight and insurance 1,000,000
Other handling costs
100,000
Brokerage commission 200,000
Total cost of purchases 6,700,000
What is the total cost of purchases?
(Problem 26-4, Practical Accounting
Volume 1 by Conrado T. Valix)
2) Chill Company commenced operations
during the year as large importer and
exporter of seafood. The imports were all 2)
from one country overseas. The entity
Percent of inventory
reported the following data:
at year end
(3,000,000/12,000 purchases)
Purchases during year 12,000,000
Inventoriable shipping costs
Shipping costs from
from overseas
Overseas
1,500,000
(25% x 1500,000)
Shipping costs to export
Customers
1,000,000
.25
375,000
Inventory at year end
3,000,000
What amount of shipping cost be
included in the year-end inventory
valuation?
(Problem 26-14, Practical Accounting
Volume 1 by Conrado T. Valix)
3) Blonde Company shipped inventory on
consignment to Heart Company with
original cost to 500,000. Heart paid
3) Consignment sales
320,000
12,000 for advertising that was
Cost of goods sold
reimbursable from Blonde.
(40% x 500,000)
(200,000)
Advertising
(12,000)
At the end of the year 40% of the
Commission
inventory was sold for 320,000. The
(10% x 320,000)
(32,000)
agreement stated that a commission of
Net income from consignment 76,000
10% will be provided to Heart for all
sales.
What should amount be reported as net
income from the consignment?
(Problem 26-13, Practical Accounting
Volume 1 by Conrado T. Valix)
C. Difficult
1) Daya Company reported inventory on
Dec. 31, 2016 at 6,000,000 based on a
physical count of goods priced at cost
and before any necessary year-end
adjustments relating to the following:
 Included in the physical count
were goods billed to a customer
FOB shipping point on Dec. 30,
2016. These goods had a cost of
125,000 and were picked up by
the carrier on Jan 7, 2017
 Goods shipped FOB shipping
point on Dec. 28, 2016 from a
vendor to Daya were received
and recorded on Jan. 4, 2017.
The invoice cost was 300,000.
C. Difficult
1) Physical count 6,000,000
Goods shipped
FOB shipping
point on Dec.
30, 2016 to
Daya and
received Jan.
4, 2017
300,000
Inventory,
Dec. 31, 2016 6,300,000
What amount should be reported as
inventory on Dec. 31, 2016?
(Problem 27-1, Practical Accounting
Volume 1 by Conrado T. Valix)
2) Soprano Company counted and
reported the ending inventory on Dec.
31,2016 at 2,000,000
None of the following items were
included when the total amount of the
ending inventory was computed:
Goods located in the entity’s
warehouse that are on
consignment from another
entity
150,000
Goods sold by the entity and
shipped on Dec. 30 FOB
destination were in transit
on Dec 31 2016 and received
by the customer on Jan 2
2017
200,000
Goods purchased by the entity
and shipped on Dec 30 FOB
shipping point were in transit
on Dec 31 2016 and received
by the entity on Jan 2 2017 300,000
Goods sold by the entity and
shipped on Dec 30 FOB
shipping point were in transit
on Dec 31 2016 and received
by customer on Jan 2 2017 400,000
What is the correct amount of inventory
on Dec 31 2016?
(Problem 27-3, Practical Accounting
Volume 1 by Conrado T. Valix)
3) Saya lang Company conducted a
2) Reported inventory 2,000,000
Goods sold in transit
FOB destination
200,000
Goods purchased in
transit, FOB shipping
point
300,000
Correct amount of
Inventory
2,500,000
physical cout on Dec 31 2016 which
revealed inventory with a cost of
4,410,000.
The following items were excluded from
the physical count:
Merchandise held by Saya lang
on consignment
610,000
Merchandise shipped by Saya lang
FOB destination to a customer
on Dec 31 2016 and was
received by the customer
on Jan 5 2017
380,000
Merchandise shipped by Saya lang
FOB shipping point to a customer
on Dec 31 2016 and was
received by the customer
on Jan 5 2017
460,000
Merchandise shipped by a vendor
FOB destination on Dec. 31 2016
was received by Saya lang on
Jan 5 2017
830,000
Merchandise purchased FOB shipping
Point was shipped by the supplier
On Dec 31 2016 and received by
Joy on Jan 5 2017
510,000
What is the correct amount of inventory
on December 31, 2016?
(Problem 27-4, Practical Accounting
Volume 1 by Conrado T. Valix)
3) Physical count
4,410,000
Goods sold in
transit, FOB
destination
380,000
Goods purchased
in transit FOB
shipping point
510,000
Adjusted inventory 5,300,000
Renz A. Repollo
PROBLEMS
EASY
1. Stone Company had the following
transactions during December 2016:
Inventory shipped in consignment to
Beta Company
1,800,000
Freight prepaid by stone
90,000
Inventory received on consignment
from Alpha company
1,200,000
Freight paid by Alpha
50,000
SOLUTION
Inventory shipped in
consignment to
Beta Company
Freight prepaid by stone
What amount should be included in
inventory on December 31, 2016?
(Problem 26-9, Practical Accounting 1,
Valix, 2016)
1,800,000
90,000
1,890,000
Renz A. Repollo
2. On December 28, 2016, Kerr Company
purchased goods costing 500,000 FOB
Destination. These goods were
received on December 31, 2016. The
costs incurred in connection with the
sale and delivery of goods were:
Packaging for shipment
Shipping
Special handling charges
10,000
15,000
25,000
Purchased cost
500,000
On December 31, 2016, what total cost
should be included in inventory?
(Problem 26-8, Practical Accounting 1,
Valix, 2016)
Renz A. Repollo
3. Fenn Company provided the following
information for the current year:
Merchandise purchased
for resale
4,000,000
Freight in
100,000
Freight out
50,000
Purchase returns
20,000
Interest on inventory loan
200,000
What is the inventoriable cost of the
purchase? (Problem 26-7, Practical
Accounting 1, Valix, 2016)
Merchandise purchased
Freight in
Purchase returns
Inventoriable cost
4,000,000
100,000
(20,000)
4,080,000
Renz A. Repollo
MODERATE
1. Aman Company provided the following
data:
Items included in the
bodega
4,000,000
Items included in the specifically
segregated per sale on
contract
100,000
Items in receiving department,
returned by customer, in good
condition
50,000
Items ordered and in the
receiving department
400,000
Items ordered, invoice received
but goods not received. Freight
is on account on seller
300,000
Items shipped today, invoice
mailed, FOB shipping point
250,000
Items shipped today, invoice
mailed, FOB destination
150,000
Items currently being used for
window display
200,000
Items on counter for sale
800,000
Items in receiving department,
refused because of damage
50,000
Items in the shipping
Department
250,000
Items included in the
bodega
4,000,000
Items included in the
specifically segregated
(100,000)
Items in receiving department,
returned by customer, in good
condition
50,000
Items ordered and in the
receiving department
400,000
Items shipped today, invoice
mailed, FOB destination
150,000
Items currently being used for
window display
200,000
Items on counter for sale
800,000
Damage and unsalable items
included in count
(50,000)
Items in the shipping
Department
250,000
5,700,000
What is the correct amount of
inventory? (Problem 26-1, Practical
Accounting 1, Valix, 2016)
Renz A. Repollo
2. Lunar Company included the following
items under inventory:
Materials
1,400,000
Advances for materials
ordered
200,000
Goods in process
650,000
Unexpired insurance on
inventory
60,000
advertising catalogs and
shipping cartons
150,000
Finished goods in factory 2,000,000
Finished goods in entity-owned
retail store, including 50%
profit cost
750,000
Materials
1,400,000
Goods in process
650,000
Finished goods in factory 2,000,000
Finished goods in entity-owned
retail store (750k/150%)
500,000
Finished goods in hand of
consignees (400k x 60%)
240,000
Finished goods in transit to
customers, shipped FOB
destination at cost
250,000
Finished goods out on
approval , at cost
100,000
Materials in transit
(330k + 30k)
360,000
Correct inventory
5,500,000
Finished goods in hand of
consignees including 40% profit
on sales
400,000
Finished goods in transit to
customers, shipped FOB
destination at cost
250,000
Finished goods out on
approval , at cost
100,000
Unsalable finished goods,
at cost
50,000
Office supplies
40,000
Materials in transit, shipped
FOB shipping point, excluding
freight of 30,000
330,000
Goods held on consignment,
at sales price, cost 100,000 200,000
What is the correct inventory?
(Problem 26-2, Practical Accounting 1,
Valix, 2016)
Renz A. Repollo
3. Brilliant Company has incurred the
following costs during the current year:
Cost of purchases based
on vendor’s invoices
5,000,000
Trade discounts on purchases
already deducted from
vendor’s invoices
500,000
Import duties
400,000
Freight and insurance on
purchases
1,000,000
Other handling costs relating
to imports
100,000
Salaries of accounting
department
600,000
Brokerage commission
paid to agents for
arranging imports
200,000
Sales commission paid to
sales agent
300,000
After-sales warranty costs
250,000
What is the total cost of purchases?
(Problem 26-4, Practical Accounting 1,
Valix, 2016)
Renz A. Repollo
DIFFICULT
1. Hero Company reported inventory on
Cost of purchases based
on vendor’s invoices
5,000,000
Import duties
400,000
Freight and insurance on
purchases
1,000,000
Other handling costs relating
to imports
100,000
Brokerage commission
paid to agents for
arranging imports
200,000
Total cost of purchase
6,700,000
December 31, 2016 at 6,000,000
based on physical count of goods
priced at cost and before any
necessary year-end adjustments
relating to the following:

Included in the physical count
were goods billed to a customer
FOB shipping point on
December 30, 2016. These
goods had a cost of 125,000
and were picked up by the
carrier on January 7, 2017.
 Goods shipped FOB shipping
point on December 28, 2016
form vendor to Hero were
received and recorded on
January 4, 2017. The invoice
cost was 300,000.
What amount should be reported as
inventory on December 31, 2016?
(Problem 27-1, Practical Accounting 1,
Valix, 2016)
Physical count
Goods shipped FOB
shipping point
Inventory, Dec. 31, 2016
6,000,000
Physical count
Inventory marked “hold
for shipping instructions”
Correct amt. of inv.
5,000,000
300,000
6,300,000
Renz A. Repollo
2. Reverend Company conducted a
physical count on December 31, 2016
which revealed merchandise with total
cost of 5,000,000.
However, further investigation revealed
that the following items were excluded
from the count:


Goods sold to a customer,
which are being for the
customer to call at the
customer’s convenience with a
cost of 200,000.
A packaging case containing a
product costing 500,000 was
standing in the shipping room
when the physical inventory
was taken.
It was not included in the
inventory because it was
marked “hold for shipping
instructions”.
500,000
5,500,000

The investigations revealed that
the customer’s order was dated
December 28, 2016, but that
the case was shipped and the
customer billed on January 4,
2017.
A special machine costing
250,000, fabricated to order for
a customer, was finished and
specifically segregated at the
back part of shipping room on
December 31, 2016.
The customer was billed on that
date and the machine was
excluded from inventory
although it was not shipped on
January 2, 2017.
What is the correct amount of inventory
that should be reported on December
31, 2016? (Problem 27-2, Practical
Accounting 1, Valix, 2016)
Renz A. Repollo
3. Leila Company conducted a physical
count on December 31, 2016 which
revealed total cost of 3,600,000.
However, the following items were
excluded from the count:




Goods sold to a customer are
being held for the customer to
call for at the customer’s
convenience.
200,0000
A packaging case containing a
product standing in the shipping
room when the physical count
was taken was not included in
the inventory because it was
marked “hold for shipping
instructions”
80,000
Goods in process held by an
outside processor for further
processing
300,000
Good shipped bt a vendor FOB
seller on December 28, 2016
and received by Leila Company
Physical count
3,600,000
Inventory marked “hold
for shipping instructions”
80,000
Goods in process inventory 300,000
Goods shipped FOB seller
50,000
Correct amt. of inventory 4,030,000
on January 10, 2017.
What is the correct inventory on
December 31, 2016? (Problem 27-5,
Practical Accounting 1, Valix, 2016)
Renz A. Repollo
GAGATAM, CHRISTIANETH N. BSA-IV
AUDITING PROBLEM (INVENTORY)
EASY: VALIX
PROBLEM 26-5 (IFRS)
SOLUTIONS:
1.Corolla Co. incurred the following costs:
Q: At what amount should the inventory be
measured?
Materials
Materials
700,000
Storage costs of finished goods 180,000
Irrecoverable purchase taxes
60,000
Delivery to customers
40,000
Total cost of inventory
760,000
Irrecoverable purchase taxes
60,000
700,000
2.Eagle Co. incurred the following costs in relation
to a certain product:
Q: What is the correct measurement of the
product?
Direct materials and labor
Ans. All costs are inventoriable.
180,000
240,000
Variable production overhead 25,000
Factory administrative costs
15,000
Fixed production costs
20,000
3.Fenn Co. provided the following information for
the current year:
Q: What is the inventoriable cost of the
purchase?
Merchandise purchased for resale
Merchandise purchased
4,000,000
4,000,000
Freight in
100,000
Freight in
100,000
Freight out
50,000
Purchase returns
(20,000)
Purchase returns
20,000
Ans. Inventoriable cost
4,080,000
Interest on inventory loan
200,000
MODERATE: VALIX
1.Neth Co. had sales of ₱ 5,000,000 during December. Q: What amount should be reported for net
Experience had shown that merchandise equaling 7%
sales in the income statement for the
of sales will be returned within 30 days and an
month of December?
additional 3% will be returned within 90 days.
Gross sales
5,000,000
Returned merchandise is readily resalable. In addition,
Estimated sales returns (500,000)
merchandise equaling 15% of sales will be exchanged
(10% * 5,000,000)
for merchandise of equal or greater value.
Ans. Net sales
4,500,000
2.Belgica Co. allowed customers to return goods
within 90days of purchase. The entity estimated that
5% of sales will be returned within the 90-period .
During the month, the entity had sales of ₱ 2,000,000
of returns sales made in prior months of ₱ 50,000.
Q: What amount should be recorded as net
sales revenue for new sales made during
the month?
Sales for the month
2,000,000
Estimated sales returns
(5% * 2,000,00)
(100,000)
Ans. Net sales revenue
1,900,000
3.On July 1, 2016, Loveluck Co., a manufacturer of
office furniture, supplied goods to Kaye Co. for
₱ 1,200,000 on condition that this amount is paid in
full on July 1, 2017. Kaye had earlier rejected an
alternative offer from Loveluck whereby it could
have bought the same goods by paying cash of
₱ 1,080,000 on July 1, 2016.
Q: What amount should be recognized as
sales revenue on July 1, 2016?
Sales price
1,200,000
Cash price
1,080,000
Ans. Implied interest income 120,000
DIFFICULT: VALIX
1.John Co. used the perpetual system. The following information has been extracted from the records
about one product:
Jan.
UNITS
UNIT COST
TOTAL COST
1
Beginning balance
8,000
70.00
560,000
6
Purchases
3,000
70.50
211,500
Feb.
5
Sale
10,000
Mar.
5
Purchase
11,000
73.50
808,500
Mar.
8
Purchase return
800
73.50
58,800
Apr.
10
Sale
7,000
Apr.
30
Sale return
300
Q: If the FIFO cost flow method is used, what is the cost of the inventory on April 30?
Ans. From March 5 purchase (4,500 units * 73.50)
330,750
2. Mildred Co. is a wholesaler of office supplies. The FIFO periodic inventory is used. The entity
reported the following activity for inventory of calculators during the month of August:
UNITS
COST
August 1
Inventory
20,000
36.00
7
Purchase
30,000
37.20
12
Sale
36,000
21
Purchase
48,000
22
Sale
38,000
29
Purchase
16,000
38.00
38.60
Q: What is the ending inventory on August 31?
Ans. Beginning inventory
Purchase (30,000+48,000+16,000)
Total units available
Sales (36,000+38,000)
Ending inventory in units
From August 21 purchase (24,000*38.00)
From August 29 purchase (16,000*38.60)
Total cost of inventory, August 31
20,000
94,000
114,000
(74,000)
40,000
912,000
617,600
1,529,600
3.Mark Co. provided the following inventory card during February:
PURCHASE
PRICE
UNITS
Jan.
10
100
20,000
31
Feb.
8
UNITS BALANCE
USED
UNITS
20,000
10,000
110
30,000
9 Returns from factory (Jan. 10 lot)
10,000
40,000
(1,000)
41,000
28
11,000
30,000
Q:Using the weighted average method, what is the cost of inventory on February 28?
UNITS
Jan.
Feb.
10
8
UNIT COST
20,000
100
30,000
110
50,000
Weighted average unit cost (5,300,000/50,000)
Cost of inventory (30,000*106)
TOTAL COST
2,000,000
3,300,000
5,300,000
106
3,180,000
Peter Neil Madjus
AUDIT OF INVENTORIES
EASY
1. Stone Company had the following transactions during
December 2017:
Answer: D
Solution:
Inventory shipped on consignment
to Beta Company
Freight paid by Stone
Inventory received on consignment
From Alpha Company
Freight paid by Alpha
1,800,000
90,000
1,200,000
50,000
Inventory shipped on
consignment to Beta
Freight paid by Stone
Total cost of consigned inv.
1,800,000
90,000
1,890,000
No sales of consigned goods were made in December 2017.
What amount should be included in inventory on
Dec 31, 2017?
a. 1,200,000
c. 1,800,000
b. 1,250,000
d. 1,890,000
Peter Neil B. Madjus
Source: Conrado & Christian Valix
2. Hero Company reported inventory on December 31,
Answer: D
2016 at P6,000,000 based on a physical count of goods
priced at cost and before any necessary year-end
Solution:
adjustments relating to the following:
Physical count
 Included in the physical count were goods billed to Goods shipped FOB shipping
point on December 30, 2016
a customer FOB shipping point on December 30,
2016. These goods had a cost of P125,000 and were to Hero and received January
4, 2017
picked by the carrier on January 7, 2017.
Inventory, Dec. 31, 2016
 Goods shipped FOB shipping point on December
28, 2016, from a vendor to Hero were received and
recorded on January 4, 2017. The invoice cost was
P300,000.
What amount should be reported as inventory on
December 31, 2016?
a. 5,875,000
c. 6,175,000
b. 6,000,000
d. 6,300,000
Peter Neil B. Madjus
Source: Conrado & Christian Valix
3. Leila Company conducted a physical count on December Answer: D
6,000,000
300,000
6,300,000
31, 2016 which revealed total cost of P3,600,000.
However, the following items were excluded from the
count:
Goods sold to a customer are being held for
the customer to call for at the customer’s
convenience
200,000
A packing case containing a product standing
in the shipping room when the physical count
was taken was not included in the inventory
because it was marked
“hold for shipping instructions”
Goods in process held by an outside
processor for further processing
80,000
Solution:
Inventory per physical count
Inventory marked “hold
for shipping instructions”
Goods in process inventory
Goods shipped FOB Seller
Correct inventory
3,600,000
80,000
300,000
50,000
4,030,000
The term FOB seller is the same as FOB
shipping point.
300,000
Goods shipped by a vendor FOB Seller on
Dec. 28, 2016 and received by Leila
Company on January 10, 2017.
50,000
What is the correct inventory on December 31, 2016?
a. 4,180,000
c. 3,980,000
b. 4,230,000
d. 4,030,000
Peter Neil B. Madjus
Source: Conrado & Christian Valix
AVERAGE
1. The following information was provided by the Answers:
bookkeeper of COW, INC.:
1. A
1. Sales for the month of June totaled 286,000 units.
2. C
2. The following purchases were made in June:
Date
Quantity
Unit Cost
Solutions:
June 4
50,000
P 13.00
1. Inventory quantity, June 1
8
62,500
12.50
Add: Units purchased
11
75,000
12.00
during June
24
70,000
12.40
Units Available for sale
Less: Units sold during June
3. There were 108,500 units on hand on June 1 with a total
Inventory quantity, June 30
cost of P1,450,000.
Cow, Inc. uses a periodic FIFO costing system. The
company’s gross profit for June was P2,058,750.
1. How many units were on hand on June 30?
108,500
257,500
366,000
286,000
80,000
a. 80,000
c. 28,500
b. 177,500
d. 149,000
2. What is the FIFO cost of the company’s inventory 2.FIFO cost of June 30 inventory:
on June 30?
From
Quantity
Unit Cost
a. P1,025,000
c. P988,000
Amount
b. P1,016,000
d. P1,069,124
6/24 purchase
70,000
P12.40
P868,000
6/11 purchase
10,000
12.00
120,000
Peter Neil B. Madjus
80,000
Source: Gerardo S. Roque P988,000
2. Mildred Company is a wholesaler of office supplies. The
Answer: D
FIFO periodic inventory is used. The entity reported the
following activity for inventory of calculators during the Solution:
month of August:
Units
Cost
Beginning inventory
20,000
Aug. 1 Inventory
20,000
36.00
Purchases
7 Purchase
30,000
37.20
(30,000 + 48,000 + 16,000)
94,000
12 Sale
36,000
Total units available
114,000
21 Purchase
48,000
38.00
Sales (36,000 + 38,000)
( 74,000)
22 Sale
38,000
Ending inventory in units
40,000
29 Purchase
16,000
38.60
From Aug. 21 purchase
What is the ending inventory on August 31?
(24,000 x 38.00)
912,000
a. 1,500,800
c. 1,522,880
From Aug. 29 purchase
b. 1,501,600
d. 1,529,600
(16,000 x 38.60)
617,600
Total cost of inv., Aug. 31
1,529,600
Peter Neil B. Madjus
Source: Conrado & Christian Valix
3. Monkey Co.’s annual net income for the period 2012 – Answer: C
2016 is as follows:
Solution:
Year
Net income (loss)
2012
2013
2014
2012
P150,000
Unadjusted
2013
340,000
net income
2014
645,000
(loss)
P150,000 P350,000
2015
(100,000)
P645,000
2016
250,000
A review of the company’s records reveals the following 2012 end inv.
inventory errors:
overstatement (3,000)
3,000
2012 P3,000 overstatement, end of year
2013
6,000 understatement, end of year
2013 end inv.
2015
4,500 understatement, end of year
Understatement
6,000
2016 11,000 understatement, end o year
(6,000)
Adjusted net
1. What is the adjusted net income in 2014?
Income
P147,000
P349,000
a. P651,000
c. P639,000
P639,000
b. P648,000
d. P645,000
Peter Neil B. Madjus
Source: Gerardo S. Roque
DIFFICULT
1. SHARK, INC. was organized on January 1, 2015. On
December 31, 2016 the company lost most of its
inventory in a warehouse fire just before the year-end
count of inventory was to take place. The company’s
records disclosed the following data:
2015
2106
Inventory, January 1
P
0
P204,000
Purchases
860,000
692,000
Purchase returns
and allowances
46,120
64,600
Sales
788,000
836,000
Sales returns and
allowances
16,000
20,000
Answers:
1. A
2. A
Solutions:
1.Gross profit rate in 2016
Net sales
(P788,000 – P16,000)
P772,000
Cost of goods sold:
Net purchases
(P860,000 – P46,120) P813,880
Less: Inventory,
12/31/15
204,000 609,880
On January 1, 2016, Shark’s pricing policy was changed so Gross Profit
P162,120
that the gross profit rate would be three percentage
higher than the one earned in 2015.
Gross profit rate – 2015
(P162,120 ÷ P772,000)
21%
Salvage undamaged merchandise was marked to sell at Add: Increase in gross profit rate
3%
P24,000 while damaged merchandise marked to sell at Gross profit rate – 2016
24%
P16,000 had an estimated realizable value of P3,600.
2.Inventory fire loss
1. What is the company’s gross profit rate beginning Inventory, Jan. 1, 2016
P204,000
January 1, 2016?
Add: Net Purchase
a. 24%
c. 17%
(P692,000 – 64,600)
627,400
b. 21%
d. 20%
Goods available for sale
831,400
2. How much is the inventory fire loss?
Less: COGS
a. P189,400
c. P164,920
Net sales
b. P183,640
d. P254,000
(836,000 – 20,000)
P816,000
COS ratio (100 – 24%)
x76% 620,160
Estimated ending inv.
211,240
Less: Salvaged undamaged
merchandise (24,000 x76%) P18,240
Peter Neil B. Madjus NRV of damaged merchan.
3,600 21,840
Source: Gerardo S. Roque Inventory fire loss
P189,400
2. CHEETAH CORPORATION is a wholesale distributor of Answer:
kitchen utensils. Unadjusted balances obtained from
1. D
Cheetah’s accounting records are as follows:
2. C
Inventory (based on physical count
3. A
of goods in Cheetah’s warehouse
at December 31)
P432,000
Accounts payable, Dec. 31:
Vendor
Terms
Amount
Zonrox,Inc Net 30
P36,000
Yeba Corp
Xak, Inc
Wais Co.
Velma, Inc
Sales
Net 30
Net 30
Net 30
Net 30
28,000
83,000
-
Solutions:
P147,000
P2,600,000
The following additional information was also obtained:
1. Goods held on consignment from Zonrox, Inc., the
consignor, valued at P13,000 were included in the
physical count of goods in Cheetah’s warehouse at
December 31, and in Accounts Payable balance as of
December 31, 2016.
2. Goods costing P26,400 that were purchased from Wais
Co. and paid for in December were sold in the last week
of the current year. The sale was properly recorded at
P58,000 in December. Because the goods were in the
shipping area of Cheetah’s warehouse to be picked up by
the customer they were included in the physical count at
December 31
inventory
Unadjusted
balances
P2,600,000
Item No. 1
2
3
4
Adjusted
Balances
P2,600,000
3. Retailers were holding goods costing P25,000 (retail
price is P35,700) shipped by Cheetah under consignment
term
4. Goods were in transit from Velma, Inc. to Cheetah on
December 31. The cost of these goods was P23,500 and
they were shipped FOB shipping point on December 28
Based on the preceding information, compute the
adjusted balances of the following
1. Inventory
a. P417,600
b. P416,100
2. Accounts Payable
a. P134,000
b. P136,500
3. Sales
a. P2,600,000
b. P2,635,700
c. P467,500
d. P441,100
c. P157,500
d. P170,500
c. P2,564,300
d. P2,625,000
Peter Neil B. Madjus
Source: Gerardo S. Roque
3. In conducting your audit of Mangatarem Corporation, Answers:
a company engaged in import and wholesale business, for
1. D
the fiscal year ended June 30, 2010 instead of at June 30,
2. C
2010.
3. D
Accounts
Payable
P432,000
(13,000)
(26,400)
25,000
23,500
Sales
P147,000
(13,000)
23,500
P441,100
P157,500
You obtained the following information from the
company’s general ledger.
Sales for eleven months ended 5/31/10
P1,344,000
Sales for the fiscal year ended 6/30/10
1,536,000
Purchases for eleven months ended
5/31/2010 (before audit adjustments)
1,080,000
Purchases for the fiscal year ended 6/30/10 1,280,000
Inventory, July 1, 2009
140,000
Physical inventory, 5/31/10
220,000
Your audit disclosed the following additional information.
1. Shipments costing P12,000 were received in May and
included in the physical inventory but recorded as June
purchases.
2. Deposit of P4,000 made with vendor and charged to
purchases in April 2010. Product was shipped in July
2010.
3. A shipment in June was damaged through the
carelessness of the receiving department. This shipment
was later sold in June at its cost of P16,000.
1. The gross profit ratio for eleven months ended
May 31, 2010 is
a. 20%
c. 30%
b. 35%
d. 25%
2. The cost of goods sold during the month of June,
2010 using the gross profit ratio method is
a. P132,000
c.P148,000
b. P144,000
d.P160,000
3. The June 30, 2010 inventory using the gross
profit method is
a. P264,000
c. P268,000
b. P340,000
d.P260,000
Solutions:
1.
Sales for 11 months
Ended
5/31/10
P1,344,000
Less cost of sales for 11
months ended 5/31/10: P140,000
Inventory, July 1, 2009
Add adjusted purchases:
Unadjusted P1,080,000
Item no. 1
12,000
Item no. 2
(4,000) 1,088,000
Good available
for sale
P1,288,000
Less inv.,5/31/10
220,000
1,008,000
Gross
profit
336,000
Divide by sales for
11 mos. Ended 5/31/10
1,344,000
Gross profit rate for 11 mos.
Ended
5/31/10
25%
2.
Sales for the fiscal year
ended June 30, 2010
P1,536,000
Less sales for 11 mos.
ended May 31, 2010
1,344,000
Sales for June, 2010
192,000
Less sales without profit
16,000
Sales with profit
176,000
Multiply by cost ratio
(100% - 25%)
75%
Cost of sales with profit
132,000
Add cost of sales without profit 16,000
Total COS for June, 2010
P 148,000
3.
Inventory, 7/1/09
P 140,000
Add adjusted purchases:
Unadjusted
P1,280,000
Item no. 2
(4,000) 1,276,000
TGAS
1,416,000
Less cost of sales:
Sales w/out profit
16,000
Sales with profit
[(P1,536,000 -P16,000)
Peter Neil B. Madjus
× 75%]
1,140,000 1,156,000
Source: Reynaldo R. Ocampo Inventory, 6/30/10
P 260,000
Audit of Inventories
Chastyn V. Ramos
Questions
Easy:
1. The following information was
provided by the book keeper of
COW, INC.:
a. Sales for the month of June
totalled 286,000 units
b. The following purchases were
made on june:
Date
Quantity
Unit cost
June 4
50,000
13
8
62,500
12.50
11
75,000
12
24
70,000
12.40
c. There were 108,500 units on
hand on June 1 with a total cost
of 1,450,000.
Cow Inc. uses a periodic FIFO
costing system. The company’s
gross profit for the month of June
was 2,058,750.
How many units were on hand on
June 30?
Source: Auditing Problems (Gerardo S.
Roque)
2. What is the FIFO cost of the
company’s inventory on June 30?
Source: Auditing Problems (Gerardo S.
Roque)
3. The 286,000 units sold in June had
a unit selling price of?
Source: Auditing Problems (Gerardo S.
Roque)
Moderate:
1. The following information was taken
from the audited financial
statements of HORSE CO.:
Solutions
Inventory, June 1
Units purchased during June
Units available for sale
Units sold during June
Inventory, June 30
108,500
257,500
366,000
286,000
80,000
Date
06/24
06/11
Quantity Unit cost
Amount
70,000
12.40
868,000
10,000
12
120,000
80,000
988,000
Gross Profit
2,058,750
COGS
3,661,250
Sales
5,720,000
Divide by units sold
286,000
Sales price per unit
20
Inventory turnover= COGS/ Ave. Inventory
2015 turnover= 4,246,000
732,400
Inventories:
12/31/16
12/31/15
12/31/14
2016
Sales
10,832,000
COGS
4,482,000
Net Profit 952,800
791,000
744,000
720,800
= 5.80
2015
10,053,400
4,246,000
734,800
Based on the preceeding
information, compute for:
2015 inventory turnover
Source: Auditing Problems (Gerardo S.
Roque)
2. 2015 average days to sell inventory
Source: Auditing Problems (Gerardo S.
Roque)
3. 2016 average days to sell inventory
Source: Auditing Problems (Gerardo S.
Roque)
2015 Ave days to sell inventory
= 365 days / 5.80
= 62.9 days
2016 Ave days to sell inventory
= 365 days / (4,482,000 / 767,500)
= 365 days / 5.84
= 62.5 days
Difficult:
1. Giaval, INC. sells electric stoves. It
uses the perpetual inventory system
and allocates cost to inventory on a
FIFO basis. The company’s
Sales
reporting date is December 31. At
December 1, 2016, inventory on
COGS
hand consisted of 350 stoves at
Gross Profit
P820 each and 43 stoves at P850
each. During the month ended
December 31, 2016, the ff inventory
transactions occurred (all
purchases and sales transactions
are on credit):
2016
Dec. 1 – sold 300 stoves for 1,200
each
3 – Five stoves were returned
by customers. They had originally
cost 820 each and were sold at
545,100
(367,230)
177,870
1200 each.
9 – Purchased 55 stoves at
910 each
10 – Purchased 76 stoves at
960 each
15 – Sold 86 stoves for 1350
each
17 – returned one damaged
stove to the supplier. This stove had
been purchased on December 9.
22- sold 60 stoves for 1250
each
26 – purchased 72 stoves at
980 each
What is Giaval’s Profit in December
2016?
Source: Auditing Problems (Gerardo S.
Roque)
2. If net realizable value of Giaval’s
inventory on December 31, 2016,
falls to 920, the inventory value
should be reduced by?
Source: Auditing Problems (Gerardo S.
Roque)
3. The following audited balances
pertain to OWL COMPANY.
Accounts Payable:
1/1/16
12/31/16
286,924
737,824
Inventory Balance:
1/1/16
12/31/16
815,386
488,874
COGS – 2016
1,859,082
How much was paid by Owl
Company to its suppliers in 2016?
Source: Auditing Problems (Gerardo S.
Roque)
Cost of inv, 12/31/16
NRV ( 920 x 154 )
Decline in Value
COGS – 2016
Inv, 12/31/16
GAS
Inv, 1/1/16
Purchases
A/P, 1/1/16
Total
A/P, 12/31/16
Amount paid to suppliers
148,980
141,680
7,300
1,859,082
488,874
2,347,956
(815,386)
1,532,570
286,924
1,819,494
(737,824)
1,081,670
Kimberly Leduna
PROBLEMS
EASY
1. Terry Company had the following
transactions during December 2016:
Inventory shipped on consignment
to Irene Company
1,800,000
Freight paid by Terry
90,000
Inventory received on consignment
from Suzette Company
1,200,000
Freight paid by Suzette
50,000
SOLUTIONS
EASY
Inventory shipped on consignment
to Irene
1,800,000
Freight paid by Terry
90,000
Total cost of consigned inventory
1,890,000
What amount should be included in inventory on
December 31,2016?
2. Venice Company included the following
inventory at year end:
Merchandise out of consignment at
sale price, Including 40% mark
up on sales
1,400,000
Goods purchased in transit,
shipped FOB shipping point
1,200,000
Goods held on consignment
by Venice n
900,000
At what amount should the inventory be
reduced?
Mark up on goods out on
consignment ( 1,400,000 x 40% ) 560,000
Goods held in consignment
900,000
Total Reduction
1,460,000
3. Seafood Company commenced
operations during the year as large
importer and exporter of seafood. The
imports were all from one country
overseas. The entity reported the
following data:
Purchases during the year
12,000,000
Shipping costs from overseas
1,500,000
Shipping costs to export customers 1,000,000
Inventory at year- end
3,000,000
What amount of shipping costs should be
included in the year- end inventory valuation?
MODERATE
1. Bakun Company began operations late in
2015. For the first quarter ended March
31,2016, the entity provided the
following information:
Total merchandise purchased
Through March 15,2016
Percent of inventory at year- end
( 3,000,000 / 12,000,000 purchases )
25%
Inventoriable shipping costs from overseas
( 25% x 1,500,000 )
375,000
MODERATE
Purchases through March 15,2016
( 4,900,000/ 98%)
Inventory- 1/1/2016, at cost
(1,500,000/150% )
Total Gross amount to be paid
5,000,000
1,000,000
6,000,000
recorded at net
4,900,000
Merchandise inventory on
January 1,2016, at selling price
1,500,000
All merchandise was acquired on credit and no
payments have been made on accounts payable
since the inception of the entity.
All merchandise is marked to sell at 50% above
invoice cost before time discounts of 2/10, n/30.
No sales were made in 2016.
What amount of cash is required to eliminate the
current balance in accounts payable?
2. Acne Company reported accounts
payable of P850,000 on December
31,2016 before necessary year- end
adjustments related to the following
information:
 On December 31,2016, Acne has a
P50,000 debit balance in accounts
payable resulting from a payment to a
supplier for goods to be manufactured to
Acne’s specifications.
 Goods shipped FOB destination on
December 20,2016 were received and
recorded by Acne on January 2,2017. The
invoice cost was P45,000.
On December 31,2016, what amount should be
reported as accounts payable?
3. Marsh Company had 150,000 units of
product A on hand at January 1, costing
P21 each. Purchases of product A during
the month of January were as follows:
Units
unit cost
January 10
200,000
22
18
250,000
23
28
100,000
24
A physical count on January 31 shows 250,000
units of product A on hand.
What is the cost of the inventory on January 31,
under the FIFO method?
Adjusted accounts payable
( 850,000 + 50,000)
January 18
28
Total FIFO cost
Units
Unit cost
150,000 23
100,000 24
250,000
900,000
Total cost
3,450,000
2,400,000
5,850,000
DIFFICULT
Lagoon Company accumulated the following data
for the current year.
DIFFICULT
Raw materials- beginning
inventory
90,000 units@ P7.00
Purchases
75,000 units @ P8.00
Purchases
120,000 units@ P8.50
The entity transferred 195,000 units of raw
materials to work in process during the year.
Work in process- beginning
inventory
50,000 units@ P14.00
Direct labor
3,100,000
Manufacturing Overhead
2,950,000
Work in process – ending
inventory
48,000 units@ P15.00
The entity used the FIFO method for valuing
inventory.
1. What is the cost of raw materials used?
Purchases ( 75,000 x 8.00 )
Purchases ( 120,000 x 8.50 )
Total purchases
600,000
1,020,000
1,620,000
Beginning raw materials (90,000 x 7 )
Purchases
Raw materials available for use
Ending raw materials ( 90,000 x 8.50 )
Raw materials used
630,000
1,620,000
2,250,000
( 765,000)
1,485,000
Beginning raw materials of 90,000 units plus
purchases of 75,000 and 120,000 minus 195,000
units transferred equals 90,000 ending raw
materials.
2. What is the total manufacturing cost?
Raw materials used
Direct labor
Manufacturing overhead
Total manufacturing cost
3.
Total manufacturing cost
Beginning work in process
( 50,000 x 14 )
What is the cost of goods manufactured
for the current year?
1,485,000
3,100,000
2,950,000
7, 535,000
7,535,000
700,000
Total work in process
Ending work in process
( 48,000 x 15 )
Cost of goods manufactured
8,235,000
(720,000)
7,515,000