Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
INTERMEDIATE ACCOUNTING 1
DO-IT-YOURSELF EXERCISES
TABLE OF CONTENTS
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Problem
Problem
Problem
Problem
Problem
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2.3-1 Various Inventory Issues
2.3-2 Inventory Adjustments
2.3-3 Lower of Cost or Net Realizable Value
2.3-4 Retail Inventory Method
2.3-5 Comprehensive Problem
Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
PROBLEM 2.3-1
Various Inventory Issues
The following independent situations relate to inventory accounting:
1.
Kim Company, purchased goods with a list price of P 175,000, subject to trade discounts of 20% and 10%, with
no cash discounts allowable. How much should Kim Co. Record as the cost of these goods?
2.
Keillor company’s inventory of P 1,100,000 at December 31, 2020 was based on a physical count of goods priced
at cost and before any year-end adjustments relating to the following items:
a) Goods shipped from a vendor FOV shipping point on December 24, 2020, at an invoice cost of P 69,000 to
Keillor Company were received on January 4, 2021.
b) The physical count included P 29,0000 of goods billed to Sakic Corporation, FOB shipping point on December
31, 2020. The carrier picked up these goods on January 3, 2021.
What amount should Keillor report as inventory on its statement of financial position?
3.
Zimmerman Corp. had 1,500 units of Part MQ on hand on May 1, 2021, costing P 21 each. Purchases of Part MQ
during May were as follows:
May
A.
B.
4.
9
17
26
Units
2,000
3,500
1,000
P
Unit Cost
22
23
24
A physical count on May 31, 2020, shows 2,000 units of part MQ on hand. Using the FIFO method, what is
the cost of part MQ inventory at May 31, 2020?
Using the average cost method, what is the inventory cost?
Donovan, Inc., a retail store chain, had the following information in the general ledger for the year 2021:
Merchandise purchased for resale
Interest in notes payable to vendors
Purchase returns
Freight-in
Freight-out
Cash discounts on purchases
P
909,400
8,700
16,500
22,000
17,100
6,800
What is Donovan’s inventoriable costs for 2020?
Instructions:
Answer each of the preceding questions about inventories and explain your answers. Write your answer on the
ANSWER SHEET on next page.
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Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
ANSWER SHEET
No.
1
Answer
2
3A
3B
4
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Explanation
Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
PROBLEM 2.3-2
Inventory Adjustments
Dimitri Company, a manufacturer of small tools, provided the following information from its accounting records for the
year ended December 31, 2020:
Inventory at December 31, 2020 (based in physical count of goods in
Dimitri’s plant, at cost, on December 31, 2020
Accounts Payable at December 31, 2020
Net Sales (Sales less sales returns)
P
1,520,000
1,200,000
8,150,000
Additional information:
1. Included in the physical count were tools billed to a customer FOB shipping point on December 31, 2020. These
tools had a cost of P 31,000 and were billed at P 40,000 The shipment was on Dimitri’s loading dock waiting to be
picked up by the common carrier.
2. Goods were in transit from a vendor to Dimitri on December 31, 2020. The invoice cost was P 76,000, and the
goods were shipped FOB shipping point on December 29, 2020.
3. Work in process inventory costing P 30,000 was sent to an outside processor for plating on December 30, 2020.
4. Tools returned by customers and held pending inspection in the returned goods area in December 31, 2020, were
not included in the physical count. On January 8, 2021, the tools costing P 32,000 were inspected and returned to
inventory. Credit memos totaling P 47,000 were issued to the customers on the same date.
5. Tools shipped to a customer FOB Destination on December 26, 2020, were in transit at December 31, 2020, and
had a cost of P 26,000. Upon notification of receipt by the customer on January 2,2021, Dimitri issued a sales
invoice for P 42,000.
6. Goods, with an invoice cost of P 27,000, received from a vendor at 5:00 PM on December 31, 2020, were recorded
on a receiving report dated January 2, 2021. The goods were not included in the physical count, but the invoice
was included in accounts payable at December 31, 2020.
7. Good received from a vendor on December 26, 2020, were included in the physical count. However, the related P
56,000 vendor invoice was not included in accounts payable at December 31, 2020, because the accounts payable
copy of the receiving report was lost.
8. On January 3, 2021, a monthly freight bill in the amount of P 8,000 was received. The bill specifically related to
merchandise purchased in December 2020, one-half of which was still in the inventory at December 31, 2020. The
freight charges were not included in either the inventory or in accounts payable at December 31, 2020.
Instructions:
Using the format shown below, prepare a schedule of adjustments as of December 31, 2020, to the initial amounts per
Dimitri’s accounting records. Show separately the effect, if any, of each of the eight transactions on the December 31,
2020 amount. If the transactions would have no effect on the initial amount shown, enter NONE.
Inventory
Initial amounts
Adjustments – increase (decrease)
1
2
3
4
5
6
7
8
Total Adjustments
Adjusted amounts
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Accounts
Payable
Net Sales
Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
PROBLEM 2.3-3
LCNRV
Quartz Company uses the periodic system in accounting for inventory and uses the FIFO method of cost allocation.
The company made the following data available to you:
Cost
LCNRV
P
12/31/2019
1,000,000
960,000
12/31/2020
P 1,040,000
980,000
P
12/31/2021
1,200,000
1,150,000
Instructions:
1. Prepare the necessary journal entries at the end of each year using the direct method and allowance method win
writing down inventory.
2. Assuming Quartz Company is using the perpetual inventory system, prepare the necessary journal entries at the
end of each year using the direct method and allowance method win writing down inventory.
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Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
PROBLEM 2.3-4
Retail Inventory Method
Faruk Corporation uses the retail inventory method to estimate ending inventory for its monthly financial statements.
The following data pertain to a single department for the month of October 2020.
Inventory, October 1, 2020
At cost
At retail
Purchases (exclusive of freight and returns)
At cost
At retail
Freight-in
Purchase returns
At cost
At retail
Markups
Markup cancellations
Markdowns (net)
Normal spoilage and breakage
Sales
P
104,000
156,000
544,000
846,000
33,200
11,200
16,000
18,000
4,000
7,200
20,000
780,000
Instructions:
1. Using the conventional retail approach, prepare a schedule computing estimated LCNRV inventory for October 31,
2020.
2. A department store using the conventional retail inventory methods estimates the cost of its ending inventory at P
120,000. An accurate physical count reveals only P94,000 of inventory at LCNRV. List factors that may have
caused the difference between the computed inventory and the physical count.
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