lOMoARcPSD|19320915
Chp10,15Summer Company is a wholesaler of car seat
covers. At the beginning of the current year The entity's
inventory
consisted of 90 car seat covers priced at P1, 000
Management Accounting (Xavier University - Ateneo de Cagayan)
each. During the current year,
Studocu is not sponsored or endorsed by any college or university
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Problem 10-1
Amiable Company provided the following data at year end:
Items counted in the bodega
Items included in the count specifically segregated
per sales contract
Items in receiving department, returned by customer,
in good condition
Items ordered and in the receiving department,
invoice not received
Items ordered; invoice received but goods not received.
Freight is paid by the seller
Items shipped today, invoice mailed, FOB shipping point
Items shipped today, invoice mailed, FOB destination
Items currently being used for window display
Items on counter for sale
Items in receiving department, refused by us because of damage
Items included in count, damaged and unsalable
Items in the shipping department
4,000,000
100,000
50,000
400,000
300,000
250,000
150,000
200,000
800,000
180,000
50,000
250,000
Required:
Compute the correct amount of inventory.
Answer:
Items counted in the bodega
Items included in the count specifically segregated
Items in returned by customer
Items ordered and in the receiving department,
Items shipped today, invoice mailed, FOB destination
Items for window display
Items on counter for sale
Items in receiving department, refused by us because of damage
Items included in count, damaged and unsalable
Items in the shipping department
Total correct amount of inventory
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4,000,000
(100,000)
50,000
400,000
150,000
200,000
800,000
180,000
( 50,000)
250,000
P5,700,000
lOMoARcPSD|19320915
Problem 10-2
Natal Company provided the following information:
Materials
Advances for materials ordered
Goods in process
Unexpired insurance on inventories
Advertising catalogs and shipping cartons
Finished goods in factory
Finished goods in company-owned retail store,
including 50% profit on cost
Finished goods in hands of consignee including 40% profit on sales
Finished goods in transit to customers, shipped FOB destination, at cost
Finished goods out on approval, at cost
Unsalable finished goods, at cost
Office supplies
Materials in transit shipped FOB shipping point,
excluding freight of P 30,000
Goods held on consignment, at sales price, cost P 150,000
1,400,000
200,000
650,000
60,000
150,000
2,000,000
750,000
400,000
250,000
100,000
50,000
40,000
330,000
200,000
Required:
Compute the correct amount of inventory.
Answer:
Materials
Goods in process
Finished goods in factory
Finished goods in company-owned retail store,
including 50% profit on cost(750,000/150%)
Finished goods in hands of consignee(400,000x60%)
Finished goods in transit
Finished goods out on approval
Materials in transit (330,000+30,000)
Total inventory
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1,400,000
650,000
2,000,000
500,000
240,000
250,000
100,000
330,000
5,500,000
lOMoARcPSD|19320915
Problem 10-3
Luminous Company provided the following information at the current year-end:
Finished goods in the storeroom, at cost
including the overhead of P400,000
Finished goods in transit, including freight charge of P20,000,
FOB shipping point
Finished goods held by salesmen, at selling price, at cost, P100,000
Goods in process, at cost of materials and direct labor
Materials
Materials in transit, FOB destination
Defective materials returned to suppliers for replacement
Shipping supplies
Gasoline and oil for testing finished goods
Machine lubricants
2,000,000
250,000
140,000
720,000
1,000,000
50,000
100,000
20,000
110,000
60,000
Required:
Compute for the cost of inventory at year-end.
Answer:
Finished goods in the storeroom,
Finished goods held by salesmen,
Goods in process
Materials
Factory supplies:
Gasoline and oil for testing finished goods
Machine lubricants
Total inventory
2,000,000
100,000
900,000
1,000,000
110,000
60,000
4,170,000
Goods in process, including overhead
Overhead
Goods in process, excluding overhead
100%
20%
80%
Total cost of goods in process(720,000/80%)
900,000
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Problem 10-4
Summer Company is a wholesaler of car seat covers. At the beginning of the current year
The entity's inventory consisted of 90 car seat covers priced at P1, 000 each. During the current
year, the following events occurred:
1. Purchased 800 car seat covers on account at P1,000 each
2. Returned 50 defective car seat covers to supplier and received credit
3. Paid 600 of the car seat covers purchased
4. Sold 790 car seat covers at P2, 000 each
5. Received 20 car seat covers returned by a customer and gave credit. The goods were in
excellent condition.
6. Received cash for 680 of the car seat covers sold
7. Physical count at year end revealed 60 units on hand
Required:
a. Prepare journal entries, including adjustments to record the above transactions
assuming the company uses periodic system and perpetual system
b. Determine the cost of sales under each inventory system
Answer:
a.
Periodic System
Purchases
800,000
Accounts Payable
800,000
To record purchase of car seat covers on account, P 800, 000 (800 x 1 000)
Accounts Payable
50,000
Purchased Returns
50,000
To record returned of defective car seat covers to supplier, P 50 000 (50 x 1 000)
Accounts Payable
600,000
Cash
600,000
Payment of 600 car seat covers purchased, P600, 000 (600 x 1 000)
Accounts Receivable
1,580,000
Sales
1,580,000
To record the sale of car seat covers, P1, 580,000 (790 x 2 000)
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Sales Returns and Allowances
40,000
Accounts Receivable
40,000
To record returned of car seat covers by customer, P40, 000 (20 x 2 000)
Cash
1,360,000
Accounts Receivable
1,360,000
To record the received cash of 680 car seat covers, P 1, 360, 000 (680 x 2 000)
Inventory
60, 000
Income Summary
To record the adjustment at ending inventory (60 x 1 000)
60,000
Perpetual System
Merchandise Inventory
800,000
Accounts Payable
800, 000
To record the purchase of car seat covers on account, P 800, 000 (800 x 1 000)
Accounts Payable
50,000
Merchandise Inventory
50,000
To record the return of defective car seat covers to supplier, P50,000(50 x 1 000)
Accounts Payable
600,000
Cash
600,000
To record payment of 600 car seat covers purchased, P600, 000 (600 x 1 000)
Accounts Receivable
1,580,000
Sales
1,580,000
To record the sale of car seat covers, P1, 580,000 (790 x 2 000)
Sales Return
40,000
Accounts Receivable
40,000
To record returned of car seat covers by customer, P40, 000 (20 x 2 000)
Cash
1,360,000
Accounts Receivable
1,360,000
To record received cash of 680car seat covers, P 1, 360, 000 (680 x 2 000)
Inventory Shortage
Merchandise Inventory
To record adjustment at ending inventory
10, 000
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10, 000
lOMoARcPSD|19320915
Merchandise Inventory per book
Physical Count
Shortage
b.
Periodic System
70, 000
60, 000
10, 000
Cost of Sales
Beginning Inventory
Add: Purchases
Less: Purchase Returns and Allowances
Total goods available for sale
Less: Ending Inventory
Cost of goods sale
90, 000
800, 000
(50, 000)
840, 000
(60, 000)
780, 000
Perpetual System
Cost of Sales
Inventory Shortage
Adjusted Cost of Sales
770, 000
10, 000
780, 000
Problem 10-5
Winter Company received quotations from two entities for an item of merchandise as follows:
From Company A: List price P500, 000, less 20-10-10,
FOB Shipping point, 2/10, n/30
From Company B: List price P500, 000, less 35%,
FOB shipping point, 2/10, n/30
Required:
For each quotation, compute the invoice amount and the amount to be paid by the buyer within
the discount period.
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Answer:
Company A
List Price
Less: First Trade Discount ( 500 000 x 0.20)
Second Trade Discount ( 400 000 x 0.10)
Third Trade Discount ( 360 000 x 0.10)
Invoice Price
Less: Cash Discount (324 000 x 0.02)
Payment within discount period
Company B
List Price
Less: Trade Discount (500 000 x 0.35)
Invoice Price
Less: Cash Discount (325 000 x 0.02)
Payment within discount period
500,000
(100,000)
400,000
(40,000)
360,000
36,000
324,000
(6,840)
317,520
500,000
(175,000)
325,000
(6,500)
318,500
Problem 10-6
Autumn Company provided the following transactions for the current year, the first year of
operations:
1. Purchase of merchandise at an invoice price of P4, 750,000 excluding freight. Terms
are 2/10, n/30
2. Freight paid, P250, 000. The freight is allocated to each purchase.
3. Cash payment on purchases, P3, 717,000 of which P1, 617,000 was paid within the
2% discount period
4. It is expected that all discounts on unpaid accounts payable will be lost
5. On December 31, one fifth of the merchandise remained on hand.
Required:
a. Prepare journal entries to record the transaction using gross method and net method
b. Compute inventory and cost of sales under each method
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Answer:
a.
GROSS METHOD
Purchases
4, 750, 000
Accounts Payable
To record purchase of merchandise on account.
Freight in
Cash
To record the freight paid.
250, 000
4, 750, 000
250, 000
Accounts Payable
1, 650, 000
Cash
1, 617, 000
Purchase Discount
33, 000
To record the payment of purchase and the cash discount within the discount
period
Accounts Payable
Cash
To record the payment of purchase
2, 100, 000
2, 100, 000
No Entry
Inventory
Income Summary
To record the remaining inventory
1, 000, 000
1, 000, 000
NET METHOD
Purchases
4, 655, 000
Accounts Payable
To record purchase of merchandise on account.
Freight in
Cash
To record the freight paid.
250, 000
4, 655, 000
250, 000
Accounts Payable
1, 617, 000
Cash
1, 617, 000
To record the payment of purchase within discount period
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Accounts Payable
Purchase Discount Lost
Cash
To record the payment of purchase
Purchase Discount Lost
Accounts Payable
To record the lost purchase discount
Inventory
Income Summary
To record the remaining inventory
b.
2, 058, 000
42, 000
20, 000
981, 000
COST OF SALES
GROSS METHOD
Purchases
Freight in
Total
Less: Purchase Discounts
Goods Available for Sale
Less: Inventory
Cost of Sales
4,750,000
250,000
5,000,000
(33,000)
4,967,000
(1,000,000)
3,967,000
NET METHOD
Purchases
Freight in
Goods Available for Sale
Less: Inventory
Cost of Sales
4,655,000
250,000
4,905,000
981,000
3,924,000
Ending Inventory
Gross Method
(5, 000, 000 / 5) = 1, 000, 000
Net Method
(4, 905, 000 / 5) = 981, 000
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2, 100, 000
20, 000
981, 000
lOMoARcPSD|19320915
Problem 10-7
Fall Company began operations in the current year. The entity used a perpetual inventory
system.
1. During the year, Fall Company purchased merchandise having a gross invoice cost of
P1,000,000. All purchases were made under the terms 2/10,n/30; FOB destinations
2. Fall Company paid freight charge of P50,000
3. During the year, Fall Company paid for 80% of the merchandise within the discount
period
4. The remaining 20% was paid beyond the discount period
5. Fall Company sold 70% of the merchandise it acquired for cash of P1,200,000. The
other 30% remained in inventory at year-end
Required:
Prepare journal entries to record the transaction using gross method and net method.
Problem 10-8
Myriad Company revealed the following purchase transaction occurred during the last few days
of the fiscal year, which ends December 31, and in the first few days after that date.
1. An invoice for P 50,000, FOB shipping point, was received and recorded on December
27. The shipment was received in satisfactory condition on January 2. The merchandise
was not included in the inventory.
2. An invoice for P 75,000, FOB Destination, was received and recorded on December 28.
The shipment was received in satisfactory condition on January 3. The merchandise was
not included in the inventory
3. An invoice for P 30,000, FOB shipping point, was received and recorded on January 4.
The invoice shows that the goods had been shipped on December 28 and the receiving
report indicates that the goods had been received on January 4. The merchandise was
excluded from inventory
4. An invoice for P 90,000, FOB shipping point, was received on December 15. The
receiving report indicates that the goods were received on December 18 but across the
face of the report is the notation “merchandise not of the same quality as ordered –
returned for credit, December 19”. The merchandise was included in the inventory.
5. An invoice for P 140,000, FOB Destination, was received and recorded on January 4.
The receiving report indicates that the goods were received on December 29. The
merchandise was included in inventory.
Required:
Prepare the adjustments on December 31. Books are still open.
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Answer:
Inventory, 12/31
Income Summary
50,000
50,000
Analysis:
Myriad Company is the buyer.
FOB Shipping point – owner is Myriad Co.
At December 31 – Purchases/AP (+) correct
At December 31 – Excluded in EI (AJE
Accounts Payable
Purchases
75,000
75,000
Analysis:
Myriad Company is the buyer.
FOB Destination – not yet owned (in transit)
At December 31 – Purchases/AP (+) (AJE)
At December 31 – Excluded in EI correct
Purchases
Accounts Payable
Inventory, 12/31
Income Summary
30,000
30,000
30,000
30,000
Analysis:
Myriad Company is the buyer.
FOB Shipping point – owner is Myriad Co.
At December 31 – Purchases/AP (x) (AJE)
At December 31 – Excluded in EI (x) (AJE)
Income Summary
Inventory, 12/31
90,000
90,000
Analysis:
Myriad Company is the buyer.
Received on December 18, marked for return At December 31 –
Purchases/AP (+) (AJE)
At December 31 – Included in EI (AJE)
Purchases
Accounts Payable
140,000
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140,000
lOMoARcPSD|19320915
Analysis:
Myriad Company is the buyer.
Received on December 29, marked for return
FOB Destination – owner is Myriad Co.
At December 31 – Purchases/AP (x) (AJE)
At December 31 – Included in EI (correct)
Problem 10-9
Corolla Company incurred the following costs:
Materials
Storage costs
Delivery to customers
Irrecoverable Taxes
700,000
180,000
40,000
60,000
At what amount should the inventory be measured?
a.
b.
c.
d.
880,000
760,000
980,000
940,000
Solution:
Materials
Irrecoverable Taxes
Total cost of Inventory
700,000
60,000
760,000
Problem 10-10
At year-end. Kerr Company purchased goods costing P500,000 FOB destination. These goods
were received at year-end. The costs incurred in connection with the sale and delivery of the
goods were:
Packaging for shipment
Shipping
Special handling charges
10,000
15,000
25,000
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What total cost should be included in inventory?
a. 545,000
b. 535,000
c. 520,000
d. 500,000
Problem 10-11
Seafood Trading Co. commenced operations during the year as a large importer and exporter of
seafood. The imports were all from one country overseas. The export sales were conducted as
drop shipments and were merely transshipped at Seattle. The entity reported the following data:
Purchases during the year
Shipping costs from overseas
Shipping costs to export customers
Inventory at year end
12,000,000
1.500,000
1,000,000
3,000,000
What amount of shipping costs should be included in year-end inventory valuation?
a.
b.
c.
d.
250,000
625,000
375,000
0
Solution
The shipping costs from overseas are inventory costs. Three quarters of the inventory
was sold while one quarter remains; thus three quarters of the shipping costs from
overseas have already been included in Cost of Goods Sold while one quarter,
$375,000, remains in ending inventory ((1/4) X 1.5 million = 375,000). The shipping
costs to export customers are selling costs and are not included in inventory.
Problem 10-12
Stone Company had the following consignment transactions during the current year:
Inventory shipped on consignment to a consignee
Freight paid by Stone Company
Inventory received on consignment from a consignor
Freight by consignor
600,000
50,000
800,000
50,000
No sales of consigned goods were made during the current year.
What amount should be reported as consigned inventory at year-end?
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lOMoARcPSD|19320915
a.
b.
c.
d.
700,000
650,000
850,000
600,000
Problem 10-13
On October 1, 2021, Grimm Company consigned 40 freezers to Holden Company costing
P14,000 each for sales at P20,000 each and paid P16,000 in transportation costs. On
December 30,2021, Holden Company reported the sale of 10 freezers and remitted P170,000.
The remittance was net of the agreed 15% commission.
What amount should be reported as consignment sales revenue for 2021?
a.
b.
c.
d.
154,000
170,000
196,000
200,000
Problem 10-14
Gray Company regularly buys sweaters and is allowed a trade discount of 20% and 10%.
The entity made a purchase during the year and received an invoice with a list price of
P900,000, a freight charge of P50,000, and payment terms of net 30 days.
What amount should be reported as the cost of the purchase?
a.
b.
c.
d.
648,000
630,000
698,000
680,000
Problem 10-15
Brilliant Company has incurred the following costs during the current year:
Cost of purchases based on
vendor’s invoices
Trade discounts on purchases already
deducted from vendor’s invoices
Import duties
Freight and insurance on purchases
5,000,000
500,000
400,000
1,000,000
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Other handling costs relating to imports
Salaries of accounting dept.
Brokerage commission paid to agents for arranging imports
Sales commission paid to sales agent
After sales warranty costs
100,000
600,000
200,000
300,000
250,000
What amount should be recorded as the total cost of purchases?
a.
b.
c.
d.
5,700,000
6,100,000
6,700,000
6,500,000
Solution
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.
Problem 10-16
Clem Company provided the following inventory information for the current year:
Beginning inventory
Purchases
Freight in
Transportation to consignees
Freight out
Ending inventory
Central warehouse
1,100,000
4,800,000
100,000
300,000
1,450,000
Held by consignees
120,000
600,000
50,000
80,000
200,000
What amount should be reported as the cost of goods sold for the current year?
a.
b.
c.
d.
4,550,000
4,850,000
5,070,000
5,120,000
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lOMoARcPSD|19320915
Problem 10-17
Rabb Co. records its purchases at gross amounts but wishes to change to recording purchases
net of purchase discounts. Discounts available on purchases for the current year amount to
P20,000. Of this amount, P2,000 is still available in the accounts payable balance.
The balances at year-end before conversion are:
Purchases
Purchases discounts taken
Purchase discounts taken
1,000,000
8,000
300,000
1. What amount should be reported as accounts payable at year-end after the conversion?
a.
b.
c.
d.
298,000
292,000
288,000
282,000
2. Which is not included in the entry to record the conversion from gross method to net
method?
a.
b.
c.
d.
Debit purchases P20,000
Debit purchases discounts P8,000
Debit purchases discount lost P10,000
Debit accounts payable P2,000
Problem 10-18
Wine Company recorded purchases at a net amount. On December 10, the entity purchased
merchandise on account, P4,000,000, terms 2/10, n/30. The entity returned P300,000 of
the December 10 purchase and received credit on account. The account had not been paid
on December 31.
At what amount should accounts payable be adjusted on December 31?
a.
b.
c.
d.
74,000
86,000
80,000
0
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lOMoARcPSD|19320915
Problem 10-19
Hero Company reported inventory on December 31, 2020 at P6,000,000 based on a physical
count of goods priced at cost, and before any necessary year-end adjustment relating to the
following:
● Included in the physical count were goods billed to a customer FOB shipping point on
December 31, 2021.
● These goods had a cost of P125,000 and were picked up by the carrier on January 10,
2022.
● Goods shipped to FOB shipping point on December 28, 2021 from a vendor to Hero
Company were received on January 4, 2022. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2020?
a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000
Problem 10-20
Empty Company reported inventory on December 31, 2021 at P2,500,000 based on
physical count priced at cost and before any necessary adjustment for the following:
●
●
●
Merchandise costing P100,000 shipped FOB shipping point from a vendor on December
30, 2021 was received and recorded on January 5, 2022.
Goods in the shipping area were excluded from inventory although shipment was not
made until January 5, 2022.
The goods billed to the customer FOB shipping point on December 30, 2021 had a cost
of P400,000
What amount should be reported as inventory on December 31, 2021?
a.
b.
c.
d.
2,500,000
2,600,000
2,900,000
3,000,000
Problem 10-21
Kew Company reported accounts payable on December 31, 2020 at P2,200,000 before
considering the following data:
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●
●
●
●
●
Goods shipped to Kew FOB shipping point on December 22, 2021 were lost in transit.
The invoice cost of P40,000 was not recorded by Kew.
On January 7, 2022, Kew filed a P40,000 claim against the common carrier.
On December 27, 2021, a vendor authorized Kew to return for full credit goods shipped
and billed at P70,000 on December 15, 2021.
The returned goods were shipped by Kew on December 28, 2021. A P70,000 credit
memo was received by Kew on January 5, 2022.
On December 31, 2021, Kew had 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, 2021?
a.
b.
c.
d.
2,170,000
2,680,000
2,730,000
2,670,000
Problem 10-22
Black Company reported accounts payable on December 31, 2021 at P4,500,000 before any
necessary year-end adjustments relating to the following transactions:
●
●
●
On December 27, 2021, Black Company wrote and recorded checks to creditors totaling
P2,000,000 causing an overdraft of P500,000 in Black Company’s bank account on
December 31, 2021. The checks were mailed out on January 10, 2022.
On December 28, 2021, Black Company purchased and received goods for P750,000
terms 2/10, n/30.
Black Company records purchases and accounts payable at net amount. The invoice
was recorded and paid January 5, 2022.
Goods shipped FOB destination, 5/10, n/30 on December 20, 2021 from a vendor to
Black Company were received January 15, 2021. The invoice cost was P325,000.
On December 31, 2020, what amount should be reported as accounts payable?
a. 7,575,000
b. 7,250,000
c. 7,235,000
d. 7,553,000
Problem 10-23
A physical count on December 31, 2021 revealed that Joyous Company had inventory with a
cost of P4,410,000.
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The following items were excluded from the amount:
●
●
●
●
●
Merchandise of P610,000 is held by Joyous on consignment
Merchandise costing P380,000 was shipped by Joyous FOB destination to a customer
on December 31, 2021.
The customer was expected to receive the goods on January 5, 2021.
Merchandise costing P460,000 was shipped by Joyous FOB shipping point to a
customer on December 29, 2021.
The customer was expected to receive the goods on January 10, 2022.
Merchandise costing P830,000 shipped by vendor FOB destination on December 31,
2021 was received by Joyous on January 15, 2022.
Merchandise costing P510,000 purchased from FOB shipping point was shipped by the
supplier on December 31, 2021 and received by Joyous on January 5, 2022.
What amount of inventory should be reported on December 31, 2020?
a. 5,300,000
b. 4,690,000
c. 3,800,000
d. 4,920,000
Problem 10-24
Megan Company counted the ending inventory on December 31, 2021 and reported the
amount of P2,000,000 before any corrections.
None of the following items were included when the total amount of the ending inventory was
computed:
Goods located in the entity’s warehouse are on consignment from another entity
150,000
Goods sold by the entity is shipped FOB destination were in transit on December 31,
2021 and received by the customer on January 2, 2022
200,000
Goods purchased by the entity and shipped FOB shipping point were in
transit on December 31, 2021 and received by the entity on January 2, 2022
300,000
Goods sold by the entity and shipped FOB shipping point were in transit on
December 31, 2021 and received by the customer on January 2, 2022
400,000
What amount of inventory should be reported on December 31, 2020?
a. 2,500,000
b. 2,350,000
c. 2,900,000
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d. 2,750,000
Problem 10-25
Reverend Company conducted a physical count on December 31, 2021 which revealed
merchandise with a total cost of P5,000,000.
However, further investigation revealed that the following items were excluded from the count.
● Goods sold to a customer which are being held for the customer to call at the customer’s
convenience with a cost of P200,000.
● A packing case containing a product costing P500,000 was standing in the shipping
room when the physical inventory was taken.
The product was not included in the inventory because it was marked “hold for shipping
instructions”.
●
●
●
The investigation revealed that the customer’s order was dated December 28, 2021, but
that the case was shipped and the other customer billed on January 5, 2022.
A special machine costing P250,000 fabricated to order for a customer was finished and
specifically segregated at the back part of the shipping room on December 31, 2021.
The customer was billed on that date and the machine was excluded from inventory
although it was shipped on January 5, 2022.
Goods in process costing P300,000 held by an outside processor for further processing.
Goods costing P50,000 shipped by a vendor FOB seller on December 31, 2021 and
received by the entity on January 10, 2022.
What is the correct amount of inventory that should be reported on December 31, 2020?
a. 5,500,000
b. 5,550,000
c. 5,850,000
d. 5,800,000
Problem 10-26
Sundown Company is preparing the 2021 year-end financial statements. Prior to any
adjustments, inventory is valued at P7,600,000.
●
●
Goods costing P250,000 were received from a vendor on January 5, 2022. The related
invoice was received and recorded on January 12, 2022.
The goods were shipped December 31, 2021 FOB shipping point.
Goods costing P850,000 were shipped on December 31, 2021 to a customer FOB
shipping point.
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●
●
●
The goods were included in ending inventory for 2021 even though the sale was
recorded in 2021.
A P350,000 shipment of goods to a customer on December 31, 2021 FOB destination
was not included in the year-end inventory.
The goods cost P260,000 and were delivered to the customer on January 15, 2022. The
sale was properly recorded in 2022.
An invoice for goods costing P350,000 was received and recorded as purchase on
December 31, 2021.
The related goods shipped FAS were in transit on December 31, 2021 and received on
January 5, 2022 and were not included in the physical inventory.
A P1,050,000 shipment of goods to a customer on December 30, 2021 FOB destination
was recorded as a sale in 2021.
The goods costing P840,000 and delivered to the customer on January 5, 2022 were not
included in 2021 ending inventory.
What is the correct inventory on December 31, 2021?
a.
b.
c.
d.
9,300,000
7,610,000
8,100,000
8,450,000
Problem 10-27
White Company’s usual sales terms are 60 days, FOB shipping point. Sales, net of returns
and allowances, totaled P5,000,000 for the year ended December 31, 2021, before year-end
adjustment.
●
●
●
●
On December 27, 2021, White Company authorized a customer to return, for full credit,
goods shipped and billed at P50,000 on December 15, 2021.
The returned goods were received by White Company on January 5, 2022, and a
P50,000 credit memo was issued on the same date.
Goods with an invoice amount of P300,000 were billed to a customer on January 10,
2022. The goods were shipped on December 31, 2021.
Goods with an invoice amount of P200,000 were billed and recorded on December 30,
2021. The goods were shipped on January 5, 2022.
On January 5, 2022, a customer notified White Company that goods billed at P500,000
and shipped on December 31, 2021 were lost in transit.
What amount of net sales should be reported for the current year?
a. 5,050,000
b. 5,550,000
c. 4,550,000
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d. 4,450,000
Problem 10-28
Purple Company had sales of P4,000,000 during December of the current year. Experience has
shown that merchandise equaling 7% of sales will be returned within 30 days and an additional
3% will be returned within 90 days. Returned merchandise is readily resalable.
In addition, merchandise equaling 15% of sales will be exchanged for merchandise of equal or
greater value.
What amount should be reported for net sales for the month of December?
a. 3,600,000
b. 3,400,000
c. 3,120,000
d. 3,000,000
Problem 10-29
Yellow Company, a distributor of machinery, bought a machine from the manufacturer in
November 2021 for P500,000.
On December 30, 2021, the entity sold this machine for P750,000 under the following terms: 2%
discount if paid within 30 days, 1% discount if paid after 30 days, or payable in full within ninety
days if not paid within the discount periods.
However, the customer had the right to return this machine to Yellow Company if it was unable
to resell the machine before the expiration of the ninety-day payment period, in which case the
the customer's obligation to Yellow Company would be canceled.
In the net sales for the year ended December 31, 2021, what amount should be included for the
sale of machines?
a. 750,000
b. 735,000
c. 742,500
d. 0
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Problem 10-30
On October 1, 2021, Indomitable Company sold 100,000 gallons of heating oil at P30 per
gallon. Fifty thousand gallons were delivered on December 15, 2021, and the remaining 50,000
gallons were delivered on January 15, 2022.
Payment terms were: 50% due on October 1, 2021, 25% on the first delivery, and the remaining
25% due on the second delivery.
What amount of sales revenue should be recognized during 2021?
a. 3,000,000
b. 1,500,000
c. 2,250,000
d. 1,000,000
Problem 10-31
Fancy Company is a wholesale distributor of automotive replacement parts. The entity revealed
the following initial amounts on December 31, 2021:
Inventory at December 31 based on physical count
Accounts payable
Sales
1,250,000
1,000,000
9,000,000
Additional information
A. Parts held on consignment from another entity to Fancy Company, the consignee,
amounting to P165,000, were included in the physical count on December 31, 2021, and
in accounts payable on December 31, 2021.
B. P20,000 of parts which were purchased and paid for on December 2021, were sold in the
last week of 2021 and appropriately recorded as sales of P28,000.
The parts were included in the physical count on December 31, 2021 because the parts
were on the loading dock waiting to be picked up by the customers.
C. Parts in transit on December 31, 2021 to customers, shipped FOB shipping point, on
December 28, 2021, amounted to P34,000.
The customers received the parts on January 6, 2022. Sales of P40,000 to the customers
for the parts were recorded by Fancy Company on January 2, 2022.
D. Retailers were holding P210,000 at cost and P250,000 at retail, of goods on consignment
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from Fancy Company, at their stores on December 31, 2021.
E. Goods were in transit from a vendor to Fancy Company on December 31, 2021. The ciat
of goods was P25,000.
The goods were shipped to the FOB shipping point on December 29, 2021.
1. What is the correct amount of inventory?
a. 1,300,000
b. 1,320,000
c. 1,334,000
d. 1,090,000
2. What is the correct amount of accounts payable?
a. 835,000
b. 960,000
c. 975,000
d. 860,000
3. What is the correct amount of sales?
a. 9,250,000
b. 9,290,000
c. 9,040,000
d. 9,000,000
Problem 10-32
Quarry Company, a manufacturer of small tools, provided the following information for the year
ended December 31, 2021.
Inventory at December 31 based on physical count
Accounts payable at December 31
Net sales
1,750,000
1.200,000
8,500,000
Additional information
A. Included in the physical count were tools billed to a customer FOB shipping point on
December 31, 2021. These tools had a cost of P28,000 and were billed at P35,000
The shipment was in the loading dock waiting to be picked up by the common carrier.
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B. Goods were in transit from a vendor to Quarry Company on December 31, 2021.
The invoice cost was P50,000, and the goods were shipped FOB shipping point on
December 29, 2021.
C. Work in process inventory costing P20,000 was sent to an outside processor for plating
on December 30, 2021.
D. Tools returned by customers and held pending inspection in the returned goods area on
December 31, 2021 were not included in the physical count.
On January 5, 2022, the tools costing P26,000 were inspected and returned to inventory.
Credit memos totaling P40,000 were issued to the customers on the same date.
E. Tools shipped to a customer FOB destination on December 26, 2021, were in transit on
December 31, 2021, and had a cost of P25,000.
Upon notification of receipt by the customer on January 5, 2022, Quarry Company issued
the sales invoice for P42,000.
F. Goods, with an invoice cost of P30,000, received from a vendor at 5:00 P.M. on
December 31, 2021 were recorded on a receiving report dated January 2, 2022.
The goods were not included in the physical count but the invoice was included in
accounts payable on December 31, 2021.
G. Goods received from a vendor on December 26, 2021 were included in the physical
count.
However, the related P60,000 vendor invoice was not included in accounts payable on
December 31, 2021 because the accounts payable copy of the receiving report was lost.
H. On January 10, 2022, a monthly freight bill in the amount of P20,000 was received. The
bill specifically related to merchandise purchased in December 31, 2021, one-half of
which was still in the inventory on December 31, 2021.
The freight charge was not included in either the inventory or in accounts payable on
December 31, 2021.
1 What is the correct amount of inventory?
a. 1,883,000
b. 1,911,000
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c. 1,885,000
d. 1,925,000
2 What is the correct amount of accounts payable?
a. 1,330,000
b. 1,280,000
c. 1,250,000
d. 1,270,000
3 What is the correct amount of net sales?
a. 8,460,000
b. 8,500,000
c. 8,465,000
d. 8,425,000
Problem 10-33
1. Which of the following should not be taken into account when determining the cost of
inventory?
a.
b.
c.
d.
Storage cost of part-finished goods
Trade discounts
Recoverable purchase taxes
Import duties on shipping of inventory inward
2. The cost of inventory does not include
a. Salaries of factory staff
b. Storage cost necessary in the production process before a further production
stage
c. Abnormal amount of wasted materials
d. Irrecoverable purchase taxes
3. Which of the following costs of conversion cannot be included in the cost of inventory?
a.
b.
c.
d.
Cost of direct labor
Factory rent and utilities
Salaries of sales staff
Factory overhead based on normal capacity
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4. Which of the following should be taken into account when determining the cost of
inventory?
a.
b.
c.
d.
Storage cost of part-finished goods
Abnormal freight in
Recoverable purchase tax
Interest on inventory loan
5. Costs incurred in bringing the inventory to the present location and condition include
a. Cost of designing product for specific customers
b. Abnormal amount of wasted material
c. Storage cost not necessary in the production process before a further production
stage
d. Distribution cost
6. Inventories encompasses all of the following, except
a.
b.
c.
d.
Merchandise purchased by a retailer
Land and other property not held for sale
Finished goods produced
Materials and supplies for use in production
7. A property developer must classify properties that it holds for sale in the ordinary course
of business as
a.
b.
c.
d.
Inventory
Property, plan and equipment
Financial asset
Investment property
8. Factory supplies to be consumed in the production process are reported as
a.
b.
c.
d.
Inventory
Property, plant and equipment
Investment property
Prepaid expenses
9. Which of the following should not be reported as inventory?
a.
b.
c.
d.
Land acquired for resale by a real estate firm
Shares and bonds held for resale by a brokerage firm
Partially completed goods held by a manufacturing entity
Machinery acquired by a manufacturing entity
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10. When determining the cost of an inventory, which of the following should not be
included?
a.
b.
c.
d.
Interest on loan obtained to purchase the inventory
Commission paid when inventory is purchased
Labor cost of the inventory when manufactured
Depreciation of plant equipment used in manufacturing
Problem 10-34
1. Why is inventory included in the computation of net income?
a.
b.
c.
d.
To determine cost of goods sold
To determine sales revenue
To determine merchandise returns
Inventory does not affect net income
2. Which is a characteristic of a perpetual inventory system?
a.
b.
c.
d.
Inventory purchases are debited to a purchases account
Inventory records are not kept for every item
Cost of goods sold is recorded with each sale
Cost of goods sold is determined as the amount of purchases less the change in
inventory
3. Which is incorrect about the perpetual inventory method?
a. Purchases are recorded as debit to the inventory account
b. The entry to record a sale includes a debit to cost of goods sold and a credit to
inventory
c. After a physical inventory count, inventory is credited for any missing inventory
d. Purchase returns are recorded by debiting accounts payable and crediting
purchase return and allowances
4. An entry debiting inventory and crediting cost of goods sold would be made when
a.
b.
c.
d.
Merchandise is sold under periodic inventory
Merchandise is sold under perpetual inventory
Merchandise is returned under perpetual inventory
Merchandise is returned under periodic inventory
5. In a periodic system, the beginning inventory is
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a.
b.
c.
d.
Net purchases minus cost of goods sold
Net purchases minus ending inventory
Goods available for sale minus net purchases
Goods available for sale minus cost of goods sold
Problem 10-35
1. Theoretically, cash discounts permitted should be
a.
b.
c.
d.
Added to other income, whether taken or not
Added to other income, only if taken
Deducted from inventory, whether taken or not
Deducted from inventory, only if taken
2. Which of the following generally would not be separately accounted for in the
computation of cost of goods sold?
a.
b.
c.
d.
Trade discounts applicable to purchases
Cash discounts taken
Purchase returns and allowances
Cost of transportation for merchandise purchases
3. The use purchase discount account implies that the recorded cost of a purchased
inventory is
a.
b.
c.
d.
Invoice price
Invoice price plus any purchase discount lost
Invoice price less the purchase discount taken
Invoice price less the purchase discount allowable whether taken or not
4. The use of a discount lost account implies that cost of a purchased inventory is
a.
b.
c.
d.
Invoice price
List price
Invoice price less the purchase discount taken
Invoice price less the purchase discount allowable whether or not taken
5. The valuation of inventory on a prime cost basis
a.
b.
c.
d.
Would achieve the same results as direct costing
Would exclude all overhead from inventory cost
Is always achieved when standard costing is adopted
Is always achieved when the FIFO is adopted
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