Chapter 03
Basic Concept of Inventory and Inventory Management
1) Presented below is Seduco Company’s December 31, 2021 balance sheet:
Goods out on consignment at another company’s store
Goods purchased in transit, Free Alongside, including delivery cost alongside the vessel of P2,000
but excluding the cost of shipment of P1,000
Goods purchased FOB shipping point that are in transit at December 31
Goods purchased FOB destination that are in transit at December 31
Goods sold and delivered on December 20. The goods were included in the inventory because the
sale was accompanied by a purchase agreement requiring Seduco to buy back the inventory
on February 2022
Goods sold FOB shipping point that are in transit December 31
Freight charges on goods purchased, FOB shipping point
Factory labor costs incurred on goods still unsold
Interest cost incurred for inventories that are routinely manufactured
Cost incurred to advertise goods held for resale
Materials on hand not yet placed into production
Office supplies
Raw materials which the company has started production, but which are not completely processed
Factory supplies
Goods held on consignment from another company
Costs identified with units completed but not yet sold
Goods sold FOB destination that are in transit at December 31
800,000
80,000
120,000
200,000
500,000
120,000
80,000
50,000
40,000
20,000
350,000
10,000
280,000
20,000
450,000
260,000
40,000
How much of these items would typically be reported as inventory in the financial statements?
A. 2,079,000
B. 2,580,000
C. 2,579,000
D. 3,079,000
2) A physical count on December 31, 2024 revealed that AAA Company had inventory with a cost of P4,400,000. The
following items were excluded from this amount:
• Merchandise of P600,000 is held on consignment by AAA.
•
Goods costing P400,000 was shipped by AAA “Ex-ship” to a customer on December 31, 2024. The customer
received the goods on January 3, 2025.
•
Merchandise costing P500,000 was shipped by AAA “Free alongside” to a customer on December 29, 2024.
The customer received the goods on January 6, 2025.
•
Goods costing P800,000 shipped by a vendor FOB destination on December 31, 2024 was received by AAA on
January 7, 2025.
•
Goods costing P700,000 was shipped by a supplier “CIF” on December 30, 2024 and received by AAA on
January 10, 2025.
What is the correct amount of inventory on December 31, 2024?
A. 4,900,000
B. 5,400,000
C. 5,500,000
D. 6,000,000
3) On December 3, Francis Company purchased inventory listed at P8,600 from Lyn Corporation. Terms of the
purchase were 3/10, n/20. Francis Company also purchased inventory from Duck Company on December 10 for a
list price of P7,500. Terms of the purchase were 3/10, n/30. On December 16, Francis paid both suppliers for these
purchases.
If Francis uses the net method of recording purchases, the journal entry to record the payment on December 16 will
include
A. A debit to Accounts payable of P15,875
B. A debit to Purchase Discounts Lost of P258
C. A credit to Purchase Discounts of P258
This study source was downloaded by 100000838840492 from CourseHero.com on 12-17-2021 19:25:50 GMT -06:00
D. A credit to Cash of P15,617
FAR by: John Bo S. Cayetano, CPA, MBA
https://www.coursehero.com/file/72303784/03-Basic-Concept-of-Inventorypdf/
Page 1 of 2
Numbers 4, 5, 6, 7, 8 and 9
Havana Brown Company reported the following net income figures without knowledge of inventory errors.
Year
2019
2020
2021
2022
2023
2024
Reported Net Income
500,000
520,000
540,000
560,000
580,000
600,000
Error in Ending Inventory
Overstated
50,000
Overstated
90,000
Understated
110,000
No error
Understated
20,000
Overstated
100,000
Based on the above and the result of your audit, compute the corrected profit for the following year:
4) 2019
A.
B.
C.
D.
550,000
450,000
360,000
500,000
5) 2020
A.
B.
C.
D.
480,000
570,000
560,000
430,000
6) 2021
A.
B.
C.
D.
740,000
650,000
630,000
560,000
7) 2022
A.
B.
C.
D.
670,000
650,000
470,000
450,000
8) 2023
A.
B.
C.
D.
600,000
580,000
560,000
500,000
9) 2024
A.
B.
C.
D.
580,000
520,000
500,000
480,000
This study source was downloaded by 100000838840492 from CourseHero.com on 12-17-2021 19:25:50 GMT -06:00
Cost Accounting by: John Bo S. Cayetano, CPA, MBA
https://www.coursehero.com/file/72303784/03-Basic-Concept-of-Inventorypdf/
Powered by TCPDF (www.tcpdf.org)
Page 2 of 2