ACP 323 – Week 8-9 Quiz on Inventory
Problem 1 – 10 pts
HENLY Retailing Corporation wholesales food products to independent grocery stores.
The company uses the perpetual inventory system and assigns cost to inventory on a
first-in, first-out basis. Transactions and other related information regarding two of the
items (Roasted peanuts and Chocolate Powder) carried by HENLY are given below for
June 2018, the last month of the company’s reporting period.
Unit of packaging
Inventory @
June 1, 2018
Purchases
Purchase terms
June sales
Returns and
allowances
Physical count at
June 30, 2018
Roasted Peanuts
Case containing
25 x 410 g cans
35,000 cases @
P19.60 per case
1. June 10: 20,000
cases @19.50
2. June 19: 47,000
cases @ P19.70
2/10, n/30, FOB
destination
73,000 cases
@P28.50
A customer returned
5,000 cases that had
been shipped in error.
The customer’s
account was credited
for P142,500.
32,600 cases on hand
Chocolate Powder
Box containing
12 x 4 kg bags
62,500 boxes @ P38.40 per
box
1. June 3: 15,000 boxes @
P38.45
2. June 15: 20,000 boxes @
P38.45
3. June 29: 24,000 boxes @
P39.00
n/30, FOB destination
95,000 boxes @ P40.00
As June 15 purchase was
unloaded, 1,000 boxes were
discovered damaged. A
credit of P38,450 was
received by HENLY.
1,500 boxes on hand
Explanation of
No explanation found
Boxes purchased on June
variance
assumed stolen
29 still in transit on June 30
Net realizable
P29.00 per case
P38.50 per box
value at June 30,
2018
Questions: Based on the above and the result of your audit, answer the following:
1.
2.
3.
4.
The inventory of roasted peanuts as of June 30, 2018 at cost, as adjusted is?
The inventory of chocolate powder as of June 30, 2018 at cost, as adjusted is?
The amount of inventory shortage as of June 30, 2018 is?
What amount of loss on decline in value of inventory should be recognized by
HENLY at the end of its reporting period?
5. The total inventory to be recognized in the balance sheet as of June 30, 2018 is?
Problem 2 – 10 pts
You were engaged by ALBERT Corporation for the audit of the company’s financial
statements for the year ended December 31, 2018. The company is engaged in the
wholesale business and makes all sales at 20% over cost.
The following were gathered from the client’s accounting records:
SALES
Date
PURCHASES
Ref.
Amount
Date
Ref.
Amount
Balance forwarded
400,000
P10, 400,000
Dec. 27
80,000
SI No. 2965
Balance forwarded
P5,
Dec. 27 RR No. 557
70,000
Dec. 28
SI No. 2966
300,000
Dec. 28 RR No. 558
130,000
Dec. 28
SI No. 2967
20,000
Dec. 29 RR No. 559
48,000
Dec. 31
SI No. 2969
92,000
Dec. 30 RR No. 561
140,000
Dec. 31
SI No. 2970
136,000
Dec. 31 RR No. 562
84,000
Dec. 31
SI No. 2971
32,000
Dec. 31 RR No. 563
128,000
Dec. 31
Closing entry
Dec. 31 Closing entry
(6,000,000)
P
Note: SI= sales invoice
Inventory
Accounts receivable
Accounts payable
(11,060,000)
-
P
-
RR=receiving report
P1, 200, 000
1,000,000
800,000
You observe the physical inventory of goods in the warehouse on December 31 and
were satisfied that it was properly taken.
When performing sales and purchase cut-off test, you found that at Dec 31, the last RR
which had been used was No. 563 and that no shipments had been made on any SI
whose number is larger than No. 2968. You also obtained the following additional
information:
(a) Included in the warehouse physical inventory at December 31 were goods which
had been purchased and received on RR no. 560 but for which the invoice was
not received until the following year. Cost was P36, 000.
(b) On the evening of December 31, there were two delivery trucks in the company
sliding:
 Delivery truck no. CER 489 was unloaded on January 2 the
following year and received on RR no. 563. The freight was paid by
the vendor
 Delivery truck no. RTS 543 was loaded and sealed on December
31 but leave the company premises on January 2. This order was
sold for P200, 000 per SI no. 2968.
(c) Temporarily stranded at December 31 at the railroad siding were two delivery
trucks enroute to Sha-Sha Corporation. Sha-Sha received the goods, which were
sold on SI no. 2966 terms FOB destination, the next day.
(d) Enroute to the client on December 31 was a truckload of goods, which was
received on RR no. 564. The goods were shipped FOB Destination, and freight
of P4, 000 was paid by the client. However, the freight was deducted from the
purchase price of P1, 600, 000.
Required:
Based on the above and the result of you audit, determine the following:
1. Sales for the year ended December 31, 2018
2. Purchases for the year ended December 31, 2018
3. Inventory as of December 31, 2018
4. Accounts receivable as of December 31, 2018
5. Accounts payable as of December 31, 2018
Problem 3 – 8pts
PIECK Company showed the following balances on December 31, 2015:
Accounts receivable
P2,000,000
Allowance for doubtful accounts
(60,000)
The following transactions transpired for PIECK Company during the year 2016:
1. On May 1, received a P300,000, six-month, 12% interest bearing note from MN, a
customer, in settlement of an account.
2. On June 30, factored P400,000 of its accounts receivable to a finance company. The
finance company charged a factoring fee of 5% of the accounts factored and withheld
20% of the amount factored.
3. On August 1, PIECK Company discounted the MN note at the bank at 15%.
4. On November 1, MN defaulted on the P300,000 note. PIECK Company paid the bank
the total amount due plus a P12,000 protest fee and other bank charges.
5. On December 31, PIECK Company assigned P600,000 of its accounts receivable to a
bank under a non-notification basis. The bank advanced 80% less a service fee of 5% of
the accounts assigned. PIECK Company signed a promissory note for the loan.
6. On December 31, PIECK collected from MN in full including interest on total amount due
at 12% since default date.
7. On December 31, it is estimated that 5% of the outstanding accounts receivable may
prove uncollectible.
Questions:
1.
2.
3.
4.
Amount of cash received on June 30 factoring
Amount of cash received on August 1 discounting
Amount paid on November 1 default on the P300,000 note:
Amount of cash received on December 31 assignment of accounts receivable
Problem 4 – 12 pts
You audit of Clarito Company for the year 2018 disclosed the following:
1. The December 31 inventory was determined by a physical count on January 2, 2019 and
based on such count, the inventory was recorded by:
Inventory
Cost of sales
1,400,000
1,400,000
2. The 2018 ledger shows a sales balance of P20,000,000.
3. The company sells a mark-up of 20% based on cost.
4. The company recognizes sales upon passage of title to the customers.
5. All customers are within a three-day delivery area.
The sales register for December, 2018 and January, 2019, showed the following details:
December Register
Invoice No.
FOB Terms
Date Shipped
300
Destination
12/30
P 50,000
301
Shipping point
12/30
62,500
302
Destination
12/23
47,500
303
Destination
12/24
82,500
304
Shipping point
01/02
56,000
305
Shipping point
12/29
90,000
January Register
Invoice No.
FOB Terms
Date Shipped
Amount
306
Destination
12/29
67,500
307
Shipping point
12/29
74,500
308
Destination
01/02
140,000
309
Shipping point
01/04
73,000
310
Shipping point
12/27
67,500
Amount
Required: Compute the following:
1.
2.
3.
4.
5.
The understatement or overstatement of Sales for the month of December.
The understatement or overstatement of Inventory for the month of December.
The adjusted balance of inventory at December 31, 2018.
The adjusted balance of sales at December 31, 2018.
How much sales for the month of December 2018 were erroneously recorded in January
2019?
6. How much sales for the month of January 2019 were erroneously recoded in December
2018?
Theory Questions – 10 pts
1. If the client’s internal control for recording sales returns and allowances is evaluated as
ineffective:
a. a larger sample is needed to verify cutoff.
b. sampling is not appropriate.
c. all sales returns must be traced to supporting documentation.
d. all sales returns must be confirmed with the customer.
2. Generally accepted accounting principles require that material sales returns and allowances
be:
a. recorded in the period when the merchandise is returned.
b. recorded in the period when the credit memo is issued.
c. matched with related sales.
d. recorded as a debit to the sales account.
3. Which of the following audit procedures would not likely detect a client’s decision to pledge
or factor accounts receivable?
a.
b.
c.
d.
A review of the minutes of the board of directors’ meetings.
Discussions with the client.
Confirmation of receivables.
Examination of correspondence files.
4. To strengthen the system of internal accounting control over the purchase of merchandise,
a company’s receiving department should
a. Accept merchandise only if a purchase order or approval granted by the purchasing
department is on hand.
b. Accept and count ail merchandise received from the usual company vendors.
c. Rely on shipping documents for the preparation of receiving reports.
d. Be responsible for the physical handling of merchandise but not for the preparation of
receiving reports.
5. Which of the following is the best procedure for identifying shortages of specific
items in an inventory of raw materials?
a. Estimates inventory quantities by using the gross profit method.
b. Compare inventory turnover rates with prevailing rates from previous years.
c. Review internal controls for the physical protection of inventories.
d. Compare the results of a physical inventory of raw materials with perpetual
inventory records.
6. In auditing the client’s accounts receivable account, the auditor rendered sales cutoff by
tracing entries several days before and after the balance sheet date from the client’s sales
journal to the supporting documents (sales invoice and delivery receipts). Tracing the Sales
Journal December entries to the supporting documents is in support to which accounts
receivable assertion?
a. Existence
b. Valuation
c. Completeness
d. Presentation and disclosure
7.
a.
b.
c.
d.
When do most companies record sales returns and allowances?
During the month in which the sale occurs.
During the accounting period in which the return occurs.
Whenever the customer contacts the company regarding the credit.
During the month after the sale occurs.
8. Analytical procedures are substantive tests and, if the results of the analytical procedures are
favorable, the auditor will:
a. reduce the extent of tests of details of balances.
b. reduce the extent of tests of controls.
c. reduce the tests of transactions.
d. reduce all of the other tests.
9. Communication addressed to the debtor requesting him or her to confirm whether the
balance as stated on the communication is correct or incorrect is a:
a. representation letter.
b. negative confirmation.
c. bank confirmation.
d. positive confirmation.
10. The appropriate evidence to be obtained from tests of details must be decided on a(n):
a. efficiency basis.
b. effectiveness basis.
c. audit objectives basis.
d. none of the above.