Midterm Assignment 1 – Inventories and Inventory Estimation
Date of Submission: September 11, 2023
Show your computation in good form and write a summary of your Final Answers
Problem 1
Indicate in each of the spaces provided the effect of the described errors on the various elements of a company's
financial statements. Use the following codes: O = amount is overstated; U = amount is understated; NE = no
effect. Assume a periodic inventory system.
Accounts
Receivable
EXAMPLE:
Excluded goods in
rented warehouse
from inventory count NE
U
Inventory
NE
Accounts
Payable
NE
Cost of
Sales Goods Sold
O
________________________________________________________________________________________
1.
Goods in transit shipped "f.o.b. destination" by supplier were recorded as a purchase but were excluded
from ending inventory.
2.
Goods held on consignment were included in inventory count and recorded as a purchase.
3.
Goods in transit shipped "f.o.b. shipping point" were not recorded as a sale and were included in ending
inventory.
4.
Goods were shipped and appropriately excluded from ending inventory but sale was not recorded.
Problem 2
Franco Company sells one product which it purchases from various suppliers. Franco’s trial balance at December
31, 2023 included the following items:
Sales (33,000 units)
Sales discounts
Purchases
Purchase discounts
Freight-in
Freight-out
P
528,000
7,500
368,900
18,000
4,800
11,000
Franco Company’s inventory purchases during 2023 were as follows:
Units
Cost/Unit
Total Cost
Beginning inventory, Jan. 1
8,000
P 8.20
P 65,600
Purchases, quarter ended,
Mar. 31
12,000
8.25
99,000
June 30
15,000
7.90
118,500
Sept. 30
13,000
7.50
97,500
Dec.31
7,000
7.70
53,900
55,000
P 434,500
Additional Information:
Franco’s accounting policy is to report inventory in its financial statements at the lower of cost or net realizable
value. Franco had determined that at December 31, 2023, the replacement cost of its inventory was P8.20 per
unit and the net realizable value was P7.75 per unit. Franco’s normal profit margin is P1.05 per unit. The company
uses the direct method of reporting losses from market decline of inventory.
Compute for (1) total cost of sales and the (2) value of ending inventory for the year 2023? Assuming the
inventory valuation method used is a) FIFO and b) Weighted Average
Problem 3
The inventory on hand at December 31, 2023 for Brandon Company is valued at a cost of P947,800. The following
items were not included in this inventory amount:
a)
b)
c)
d)
e)
Purchased goods in transit, shipped FOB destination. Invoice price- P32,000, which includes freight
charges of P1,600.
Goods held on consignment by Diablo at a sales price of P28,000, including sales commission of 20% of
the sales price.
Goods sold to Barbarian Company, under terms FOB destination, invoiced for P24,400 which includes
P1,000 freight charges to deliver the goods. The goods are in transit.
Purchased goods in transit, terms FOB shipping point. Invoice price- P48,000. Freight costs, P3,000.
Goods out on consignment to Necromancer Company, sales price, P36,400. Shipping cost of P2,000.
Mark-up on cost for all sales is 30%.
(3)
What is the correct cost of inventory to be reported in Brandon’s financial statements?
Problem 4
If on December 1, the company had a beginning inventory of 9,000 units @ P10, and subsequently made the
following purchases and sales:
Date
Purchases
Unit Sold
December 3
13,000 @ P10.20
3–8
15,000
10
23,000 @ P9.75
10 – 15
19,000
17
10,000 @ P10.30
17 – 20
12,000
21
12,000 @ P10.15
23
18,000 @ P9.75
23 – 28
27,500
At the end of the year, it is estimated that the inventory can be sold at P11.50/unit after incurring cost to sell of
P3.25/unit.
Compute for the (1) Cost of goods sold (2) Cost of Ending Inventory and (3) Loss on inventory writedown, if any,
assuming the inventory valuation method used is (a) FIFO periodic, (b) Weighted Average, and (c) Moving
Average
Problem 5
The Grand Corporation is on a calendar year basis. On July 1, 2023 the company’s warehouse was struck by
fire. On July 2, your service was hired by the company to reconstruct their record and the following information
was made available:
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
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Sales as of June 30, 2023 was P19,500,000.00
Inventory count was consist of salable goods costing P550,000.00, goods with a selling price of
P25,000.00 and a net realizable value of P20,000.00, and goods priced at P75,000.00 with a net
realizable value of P15,000.
Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, excluded from the
count, and further testing revealed that the purchases had been recorded.
Goods costing P50,000.00 in the receiving area not affected by fire, included in the count, and recorded
as a purchase. However, upon inspection the goods were found to be defective and would be
immediately returned.
Goods costing P250,000.00 and billed on June 29 at P325,000.00, had been segregated in the shipping
department not affected by the fire for shipment to a customer. The goods had been excluded from
inventory as a signed purchase order had been received from the customer. Terms, FOB destination.
Goods costing P70,000.00 was out on consignment with Joke Only. Since the monthly statement from
Joke Only listed those goods as on hand, the items had been excluded from the final inventory and
invoiced on June 30 at P91,000.00.
The sale of P156,000.00 worth of goods had been shipped FOB shipping point on June 30. However,
this inventory was found to be included in the final inventory count. The sale was properly recorded on
June 30, 2023.
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Goods costing P100,000.00 and marked to sell at P130,000.00 had been shipped at June 30, 2023,
and were not included in the inventory. A review of the customer’s purchase order set forth terms as
FOB destination. The sale had not been recorded.
An invoice from the supplier, terms FOB shipping point but the goods had not yet arrived. However,
these goods costing P170,000.00 had been included in the inventory count, but no entry had been
made for their purchase.
Goods costing P200,000.00 had been recorded as purchase but not included in the count. Terms of
sale is FOB shipping point according to the supplier’s invoice which had arrived at June 30, 2023.
Further inspection of the client’s records revealed the following: Inventory January 1, 2023 balance
P1,100,000.00, Accounts Payable June 30, 2023, balance P2,690,000.00, Net Purchase as of June
30, 2023, P18,500,000.00.
The company consistently charged the customer with the same markup.
Required:
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Compute for the correct balances of the following:
1. Sales
2. Accounts Payable
3. Net Purchases
4. Inventory
Compute for the amount loss from fire.
Problem 6.
Lingayen Mart uses the average retail inventory method. The following information is available for the
current year.
Cost
Retail
Beginning Inventory
1,100,000
2,200,000
Purchases
15,800,000
26,300,000
Freight in
400,000
Purchase returns
600,000
1,000,000
Purchase allowances
300,000
Departmental Transfer in
400,000
800,000
Net Mark up
600,000
Net Mark down
900,000
Sales
24,700,000
Sales Returns
350,000
Sales Discount
200,000
Employee Discount
600,000
Loss from breakage
50,000
1) Cost ratio using average retail inventory _____.
2) The estimated ending inventory at retail is _____.
3) The estimated ending inventory at cost is _____.
4) The estimated cost of goods sold is _____.
5) If the inventory at retail based on physical count at December 31, is P1,700,000, the estimated
inventory shortage is _____.