Cedrick P. Dela Rosa Easy Problems
Corolla Company incurred the following costs: Materials Storage costs Delivery to customers Irrecoverable Taxes
700,000 180,000 40,000 60,000
Materials 700,000 Irrecoverable Taxes 60,000 Total cost of Inventory 760,000
What amount should the inventory be measured?
(Problem 26-5 , Practical Accounting 1, Valix 2016) - Cedrick P. Dela Rosa
Bentirosa Company incurred the following costs in relation to a certain product: Direct Materials and Labor Variable production overhead Factory administrative costs Selling and Distribution costs
180,000 25,000 15,000 20,000
DM and DL VR production overhead Factory admin. Costs Correct Amount
180,000 25,000 15,000 220,000
What is the correct measurement of the product?
(Problem 26-6 , Practical Accounting 1, Valix 2016) - Cedrick Dela Rosa
Fenn Company provided the following information for the current year: Merchandise purchased for resale Freight In Freight Out Purchase Return Interest on inventory loan
4,000,000 100,000 50,000 20,000 200,000
What is the inventoriable cost of the purchase? (Problem 26-7 , Practical Accounting 1, Valix 2016) - Cedrick Dela Rosa
Merchandise purchased for resale Freight In Purchase Return Inventoriable Costs
4,000,000 100,000 (20,000) 4,080,000
Moderate
Ronna Company uses the perpetual inventory system. The entity reported the following inventory transactions for the month of August: Units Unit Cost Total Cost
Jan. 1 Jan. 6 Feb. 5 Mar. 5 Mar. 8 Apr. 10 Apr. 30
Beg Balance Purchase Sale Purchase Purchase Return Sale Sales Return
8,000 3,000 10,000 11,000 800 7,000 300
70.00 70.50
560,000 211,500
March 5 purchases (4500 x 73.50)
330,750 73.50 73.50
808,500 58,800
If the FIFO cost flow method is used, what is the cost of the inventory on April 30?
(Problem 29-3, Practical Accounting 1, Valix 2016) - Cedrick P. Dela Rosa
Mamamiya Company uses the weighted average inventory system. The entity reported the following inventory transactions for the mo nth of August: Units Unit Cost 8,000 70.00 Jan. 1 Beg Balance 3,000 70.50 Jan. 6 Purchase 10,000 Jan. 15 Sale 11,000 73.50 Jan. 18 Purchase 800 73.50 Jan. 22 Purchase Return 7,000 Jan. 25 Sale 300 Jan. 30 Sales Return
TGAS 8000 x 70 = 560,000 3000 x 70.50= 211500 10200 x 73.50 = 749700 21200 x 71.75 = 1521200 4500 x 71.75 = 322,875
What is the cost of the inventory on Jan 30?
(Problem 29-7, Practical Accounting 1, Valix 2016) - Cedrick P. Dela Rosa
Hero Company reported inventory on December 31, 2016 at P6,000,000 based on a physical count of goods priced at cost and before any necessary year-end adjustments relating to the following: Included in the physical count were goods billed to a customer FOB shipping point on December 30, 2016. These goods had a cost of P125,000 and were picked up by the carrier on January 7,2017. Goods shipped FOB shipping point on December 28, 2016, from a vendor to Hero were received and recorded on January 4, 2017. The invoice cost was P300,000.
Physical count 6,000,000 Goods shipped FOB sp to Hero 300,000
What amount should be reported as inventory on December 31, 2016?
6,300,000
(Problem 27-1 , Practical Accounting 1, Valix 2016) - Cedrick Dela Rosa
Difficult
Harutin mo ako Company provided the following data: Items included in the bodega 4,000,000 Items included in the specifically segregated per sale on contract 100,000 Items in receiving department, returned by customer, in good condition 50,000 Items ordered and in the receiving department 400,000 Items ordered, invoice received but goods not received. Freight is on account on seller 300,000 Items shipped today, invoice mailed, FOB shipping point 250,000 Items shipped today, invoice mailed, FOB destination 150,000 Items currently being used for window display 200,000 Items on counter for sale 800,000 Items in receiving department, refused because of damage 50,000 Items in the shipping Department 250,000 What is the correct amount of inventory?
(Problem 26-1, Practical Accounting 1, Valix, 2016) – Cedrick Cedrick Dela Rosa
Sana Ako Nalang Company has incurred the following costs during the current year:
Items included in the bodega 4,000,000 Items included in the specifically segregated (100,000) Items in receiving department, returned by customer, in good condition 50,000 Items ordered and in the receiving department 400,000 Items shipped today, invoice mailed, FOB destination 150,000 Items currently being used for window display 200,000 Items on counter for sale 800,000 Damage and unsalable items included in count (50,000) Items in the shipping Department 250,000
Answer: 5,700,000
Cost of purchases based On vendors’ invoices 5,000,000 Trade discounts on purchases already deducted from vendors’ invoices 500,000 Import duties 400,000 Freight & insurance on purchases 1,000,000 Other handling costs relating to imports 100,000 Salaries of accounting department 600,000 Brokerage commission paid to agents for arranging imports 200,000 Sales commission paid to sales agents 300,000 After-sales warranty costs 250,000
Cost of purchases 5,000,000 Import duties 400,000 Freight and insurance 1,000,000 Other handling costs 100,000 Brokerage commission 200,000 Total cost of purchases 6,700,000
What is the total cost of purchases?
(Problem 26-4, Practical Accounting 1, Valix 2016) – Cedrick Cedrick P. Dela Rosa
Umasa Company provided the following information at the end of current year. Finished goods in storeroom, at cost, including overhead of P400,000 or 20% Finished goods in transit, including freight charge of
P20,000, FOB shipping point
Finished goods held by salesmen, at selling price, cost, P100,000 Goods in process, at cost of materials and direct labor Materials Materials in transit, FOB destination Defective materials returned to suppliers Shipping supplies Gasoline and oil for testing finished goods
Finished goods
2,000,000
FG held by salesmen at cost
100,000
Goods in process
900,000
Materials
1,000,000
Factory supplies: Gasoline and oil Machine lubricants Correct inventory
110,000 60,000 4,170,000
Machine lubricants What is the correct amount of inventory?
(Problem 26-3, Practical Accounting 1, Valix 20 16) – Cedrick Cedrick
Dela Rosa
Dianna P. Pastrana Audit of Inventory
Problem
Solution
Easy: Answer: 4,170,000
1. Ram Company provided the following information at the end of current year.
Finished goods Finished goods in storeroom, at cost, including overhead of P400,000 or 20%
2,000,000 250,000
Goods in process, at cost of materials and direct labor Materials Materials in transit, FOB destination Defective materials returned to suppliers Shipping supplies Gasoline and oil for testing finished goods Machine lubricants
100,000
Goods in process
900,000
1,000,000 Factory supplies:
Finished goods held by salesmen, at selling price, cost, P100,000
FG held by salesmen at cost Materials
Finished goods in transit, including freight charge of P20,000, FOB shipping point
2,000,000
140,000
Gasoline and oil
720,000
Machine lubricants
1,000,000
Correct inventory
110,000 60,000 4,170,000
50,000 100,000 20,000 110,000
Goods in process, incl. OH Overhead Goods in process, excl. OH
100% 20% 80%
60,000 Total cost of GIP (720,000/80%) 900,000
What is the correct amount of inventory? (Practical Accounting by Valix, Problem 26-3, page 307) 2. Corolla Company incurred the following costs: Materials Storage costs of finished goods
Answer: 760,000 700,000 180,000
Delivery to customers
40,000
Irrecoverable purchase taxes
60,000
Materials Irrecoverable Historical cost Total cost of inventory
700,000 60,000 760,000
At what amount should the inventory be measured? (Practical Accounting by Valix, Problem 26-5, page 309) 3. Bakun Company began operations late in 2015. For the first quarter ended March 31, 2016, the entity provided the following information:
Answer: 6,000,000 Purchase (4,900,000/98%)
Total merchandise purchased through March 15, 2016 recorded at net
Inv., beg. (1,500,000/150%) 4,900,000
5,000,000 1,000,000
Merchandise inventory on January 1, 2016, at selling price
Total gross amt. to be paid
6,000,000
1,500,000
All merchandise was acquired on credit and no payments have been made on accounts payable since the inception of the entity. All merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10, n/30. No sales were made in 2016. What amount of cash is required to e liminate the current balance in accounts payable? (Practical Accounting by Valix, Problem 27-11, page 327)
Moderate 1. Leila Company conducted a physical count on December 31, 2016 which revealed a total cost of P3,600,000. However, the following items were excluded from the count: Goods sold to a customer are being held for the customer to call for at the customer’s convenience
200,000
A packing case containing a product standing in the shipping room when the physical count was taken was not included in the inventory because it was marked “hold for shipping instructions”
80,000
Good in process held by an outside processor for further processing
300,000
Good shipped by a vendor FOB seller o n Dec. 28, 2016 and received by Leila Company on January 10, 2017
Answer: 4,030,000 Inv. Per physical count Inv. “hold for shipping inst.” Goods in process inventory Goods shipped FOB seller Correct inventory
3,600,000 80,000 300,000 50,000 4,030,000
50,000
What is the correct inventory on December 31,2016? (Practical Accounting by Valix, Problem 27-5, page 322) 2. Kew Co. reported accounts payable on December 31, 2016 at P2,200,000 before considering the following data:
Goods shipped to Kew FOB shipping point on December 22, 2016, were lost in transit. The invoice cost of P 40,000 was not recorded by Kew. On January 7,2017, Kew filed a P40,000 claim against the
Answer: 2,670,000 A/P per book Goods shipped FOB SP on Dec. 22,2016 and lost Purchase returns
2,200,000 40,000 (70,000)
common carrier.
Advance payment error entry Adjusted A/P
500,000 2,670,000
On December 27,2016, a vendor authorized Kew to return, for full credit, goods shipped and billed at P70,000 on December 3,2016. The returned goods were shipped by Kew on December 28,2016. A P70,000 credit memo was received and recorded by Kew on January 5,2017. On December 31,2016, Kew has 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, 2016? (Practical Accounting by Valix, Problem 27-7, page 324) 3. On October 31,2016, Pamela C ompany reported that a flood caused severe damage to the entire inventory. Based on recent history, the entity has a gross profit of 25% of sales. The following information is available from the records for ten months ended October 31, 2016: Inventory, January 1 Purchases Purchase returns Sales Sales returns Sales allowances
520,000 4,120,000 60,000 5,600,000 400,000 100,000
Answer: 3,900,000 Sales Sales returns Net sales
5,600,000 (400,000) 5,200,000
Cost ratio (100%-25%) COGS (75%*5,200,000)
75%
3,900,000
A physical inventory disclosed usable goods which can be sold for P70,000. What is the estimated cost of goods sold for the ten months ended October 31, 2016? (Practical Accounting by Valix, Problem 32-4, page 378)
Difficult Answer: 2,500,000 1. Baritone Company counted and reported the ending inventory on December 31, 2016 at P2,000,000. None of the following items were included when t he total amount of the ending inventory was computed:
Reported Inventory Goods sold in Transit, FOB D Purchased in Transit, FOB SP Correct amount of Inventory
2,000,000 200,000 300,000 2,500,000
Goods located in the entity’s warehouse that are on consignment from another entity
150,000
Goods sold by the entity and shipped on December 30 FOB destination were in transit on December 31,2016 and received by the customer on January 2,2017
200,000
Goods purchased by the entity and shipped on December 30 FOB shipping point in transit on December 31, 2016 and received by the entity on January 2, 2017
300,000
Goods sold by the entity and shipped on Decem ber 30 FOB shipping point were in transit on De cember 31, 2016 and received by customer on January 2, 2017
400,000
What is the correct amount of inventory on December 31, 2016? (Practical Accounting by Valix, Problem 27-3, page 320)
2. Joy Co. conducted a physical count on December 31, 2016 which revealed inventory with a cost of P4,41 0,000. The following items were excluded from the physical count: Merchandise held by Joy on consignment
610,000
Merchandise shipped by Joy FOB destination to a customer on December 31, 2016 and was received by the customer on January 5, 2017
380,000
Merchandise shipped by Joy FOB shipping point to a customer on December 31, 2016 and was received by the customer on January 5, 2017
460,000
Merchandise shipped by a vendor FOB destination on December 31, 2016 was received by the entity on January 5, 2017
830,000
Merchandise purchased FOB shipping point was shipped by the supplier on December 31, 2016 and received by Joy on January 5, 2017
510,000
Answer: 5,300,000 Physical count Goods sold in transit, FOB D. Goods purchased, FOB SP Adjusted inventory
4,410,000 380,000 510,000 5,300,000
What is the correct amount of inventory on December 31, 2016? (Practical Accounting by Valix, Problem 27-4, page 321) 3.Emco Co had the following transactions in 2016:
Emco sold goods to a customer for P50,000, FOB shipping point on December 30,2016. Emco sold three pieces of equipment on a contract over a threeyear period. The sale price of e ach piece of equipment is P100,000. Delivery of each piece of equipment is on February 10 of each year In 2016, the customer paid a P200,000 down payment, and will pay P50,000 per year in 2017 and 2018. Collectability is reasonably assured.
On June 1, 2016, Emco signed a contract for P200,000 for goods to be sold on account. Payment is to be m ade in two installments of P100,000 each on December 1, 2016 and December 1,2017. The goods are delivered on October 1 , 2016. Collection is reasonably assured and the goods may not be returned.
Emco sold goods to a customer on July 1, 2016 for P500,000. If the customer does not sell the goods to retail customers by December 31,2017, the goods can be returned to Emco. The customer sold the goods to re tail customers on October 1, 2017.
What amount of sales revenue should be reported in the income statement for 2016? (Practical Accounting by Valix, Problem 28-10, page 333)
Answer: 350,000 Goods sold FOB SP Delivery of 1 equip. 02/10/16 Goods sold on account Total sales revenue
50,000 100,000 200,000 350,000
Harriet Ramos (AUDITING IN INVENTORIES)
PROBLEMS
SOLUTIONS
Easy
Easy
1. Corolla Company incurred the following costs: Materials
700,000
Storage costs of finished goods
180,000
Delivery to customers
40,000
Irrecoverable purchase taxes
60,000
Materials Irrecoverable purchase taxes Total cost of inventory
At what amount should the inventory be measured? a.
880,000
b. 760,000 c.
980,000
d. 940,000 All costs are inventoriable.
(Practical Financial Accounting, V1, pg. 309) 240,000 2. Eagle Company incurred the following costs in relation to a certain product: Direct materials and labor
180,000
Variable production overhead
25,000
Factory administrative costs
15,000
Fixed production costs
20,000
What is the correct measurement of the product? a.
205,000
b. 225,000 c.
195,000
d. 240,000
(Practical Financial Accounting, V1, pg. 309)
700,000 60,000 760,000
3. Fen Company provided the following information
Merchandise purchased
for the current year:
Freight in
100,000
Purchase returns
( 20,000 )
Merchandise purchased for resale
4,000,000 Inventor able cost
Freight in
4,000,000
4,080,000
100,000
Freight out
50,000
Purchase returns
20,000
Interest on inventory loan
200,000
What is the inventoriable cost of the purchase? a.
4,280,000
b. 4,030,000 c.
4,080,000
d. 4,130,000
(Practical Financial Accounting, V1, pg. 310) Moderate Moderate 1. On December 28, 2016, Kerr Company purchased goods costing P500,000 FOB Destination. These
Answer: 500,000
goods were received on December 31, 2016. The
When goods are purchased FOB De stination,
costs incurred in connection with the sale and
the seller is responsible for cost incurred in
delivery of goods were:
transporting the goods to the buyer.
Packaging for shipment
10,000
Shipping
15,000
Special handling charges
25,000
On December 31, 2016, what total cost should be included in inventory? a.
545,000
b. 535,000 c.
520,000
d. 500,000
(Practical Financial Accounting, V1, pg. 310)
2. Venice Company included the following in
Markup on goods on consignment
inventory at year end:
(1,400,000 x 40%)
560,000
Goods held on consignment
900,000
Merchandise out on consignment at sales price, including 40% markup om sales
Total reduction
1,460,000
1,400,000
Goods purchased in transit, shipped FOB Shipping point
1,200,000
Goods held on consignment by Venice
900,000
At what amount should the inventory be reduced? a.
1,460,000
b. 3,500,000 c.
2,300,000
d. 1,740,000
(Practical Financial Accounting, V1, pg. 310) Historical cost
1,200,000
3. Harris Company provided the following
Net realizable value
1,150,000
information for an inventory at year end:
(1,300,000-150,000)
Historical cost
LCNRV
Estimated selling price Estimated completion and selling cost Replacement cost What amount should be reported as inventory at year end? a.
1,100,000
b. 1,150,000 c.
1,200,000
d. 1,300,000
(Practical Financial Accounting, V1, pg. 358)
1,150,000
Difficult
Difficult
1. Joy Company conducted a physical count on December 31, 2016 which revealed inventory with a cost of P4, 410,000. The following items were excluded from physical count:
Merchandise held by Joy on consignment
610,000
Merchandise shipped by Joy FOB Destination to a customer on December 31, 2016 and was received by the customer on January 5, 2017
380,000
Merchandised shipped by Joy FOB shipping point to a customer On December 31, 2016 and was Received by the customer on January 5, 2017
460,000
Merchandise shipped by the vendor FOB destination on December 31, 2016 was received by Joy on January 5, 2017
830,000
Merchandise purchased FOB shipping point by the supplier on December 31, 2016 and received by Joy on Jan 5, 2017
510,000
What is the correct amount of inventory on December 31, 2016? a.
5,300,000
b. 4,690,000 c.
3,800,000
d. 4,920,000
(Practical Financial Accounting, V1, pg. 321)
Physical count
4,410,000
Goods sold in transit, FOB DP
380,000
Goods purchased in transit, FOB SP
510,000
Adjusted inventory
5,300,000
2. Leila Company conducted a physical count on
Inventory per physical count
December 31, 2016 which revealed total cost of
Inventory marked “hold for shipping
P3,600,000.
Instructions”
Goods in process inventory However the following items were e xcluded from
3,600,000 80,000
300,000
Goods shipped FOB seller
50,000
the count; Correct inventory
Goods sold to a customer are being held for the customer to
The term FOB seller is the same as FOB
call for at the customer’s
shipping point
convenience
200,000
A packing case containing a product standing room when the physical count was taken was not included in the invent tory because it was marked “hold for shipping instructions”
80,000
Goods in process held by an outside processor for further processing
300,000
Goods shipped by a vendor FOB seller on December 28, 2016 and received by Leila Company on Jan 10, 2017
50,000
What is the correct inventory on December 31, 2016? a.
4,180,000
b. 4,230,000 c.
4,030,000
3,980,000
d. 4,030,000
(Practical Financial Accounting, V1, pg. 322)
3. Brilliant Company has incurred the following
Cost of purchases
costs during the current year:
Import duties Freight and insurance
Cost of purchases based on
5,000,000
vendor’s invoices
invoices
500,000
Import duties
400,000
Freight and insurance on purchases
1,000,000
Salaries of accounting dept.
600,000
Brokerage commission paid
200,000
to agents for arranging imports Sales commission paid to sales agent
300,000
After sales warranty costs
250,000
What is the total cost of purchases? a.
5,700,000
b. 6,100,000 c.
Other handling cost
100,000
Brokerage commission
200,000
Total cost of purchases
6,700,000
The salaries of accounting department, sales not inventor able but should be expensed immediately.
Other handling costs relating 100,000
1,000,000
commission and after sales warranty costs are
to imports
400,000
Trade discounts on purchases already deducted from vendor’s
5,000,000
6,700,000
d. 6,500,000
(Practical Financial Accounting, V1, pg. 308)
Simon, Chenah Mae V. Easy PROBLEM 1 Hero Company reported inventory on December 31, 2016 at P6,000,000 based on a physical count of goods priced at cost and before any necessary year-end adjustments relating to the following: Included in the physical count were goods billed to a customer FOB shipping point on December 30, 2016. These goods had a cost of P125,000 and were picked up by the carrier on January 7,2017. Goods shipped FOB shipping point on December 28, 2016, from a vendor to Hero were received and recorded on January 4, 2017. The invoice cost was P300,000. What amount should be reported as inventory on December 31, 2016? -Practical 1 Valix Page 318
Solution to problem 1 Physical count Goods shipped FOB sp to Hero
PROBLEM 2 Chris company provided the following information for the current year: Merchandise purchased for resale P4,000,000 Freight in 100,000 Freight out 50,000 Purchase returns 20,000 Interest on inventory loan 200,000 What is the inventoriable cost of the purchase? -Practical 1 Valix Page 310
Solution to problem 2
6,000,000 300,000 6,300,000
Merchandise purchased P4,000,000 Freight in 100,000 Purchase returns (200,000) 4,080,000
PROBLEM 3 On December 28, 2016, Kerr Company purchased goods costing P500,000 FOB destination. These goods were received on December 31, 2016. The costs incurred in connection with the sale and delivery of the goods were:
Solution to problem 3 P500,000
Packaging for shipments Shipping Special handling
10,000 15,000 25,000
On December 31, 2016, what total cost should be included in inventory? -Practical 1 Valix Page 310
Moderate PROBLEM 1 Venice Company included the following in inventory at year-end: - Merchandise out on consignment at sale price, including 40% markup on sales P1,400,000. - Goods purchased in transit, shipped FOB shipping point P1,200,000. - Goods held on consignment by Venice P900,000. At what amount should the inventory be reduced?
Solution to problem 1
Markup on goods on Consignment Goods held on consignment
560,000 900,000 1,460,000
-Practical 1 Valix Page 314 PROBLEM 2 Lin Company sells merchandise at a gross profit of 30%. On June 30, 2016, all of the inventory was destroyed by fire. The following figures pertain to the operations for the six months ended June 30, 2016:
Net sales Beginning inventory Net purchases
8,000,000 2,000,000 5,200,000
What is the estimated cost of the destroyed inventory? -Practical 1 Valix Page 374 PROBLEM 3 Mae Company reported during the current
Solution to problem 2 Beginning inventory Net purchases CGAS COGS (8M x 70%) Ending Inv. Destroyed by fire
2,000,000 5,200,000 7,200,000 (5,600,000) 1,600,000
year: Beginning inventory Net purchases Net sales
500,000 2,500,000 3,200,000
A physical count at year-end resulted in an inventory of P575,000. The gross profit on sales had remained constant at 25%.
Solution to problem 3 Beg. Inv. Net purchases CGAS COGS (3.2M x 75%) Ending inventory Physical inventory Missing Inventory
500,000 2,500,000 3,000,000 (2,400,000) 600,000 575,000 25,000
The entity suspected that some inventory may have been taken by a new employee. What is the estimated cost of missing inventory at year-end? -Practical 1 Valix Page 375 Hard Calasiao, Inc., owner of a trading company, engaged your services as auditor. There is a discrepancy between the company’s income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true your investigations revealed the following:
Solution to # 1
A/R, 12/31/10 Accounts written off Collections A/R, 1/1/10 Sales in 2010
1. Physical inventory, taken December 31, 2010 under your observation Solution to #2 showed that cost was P265,000 and net realizable value, P244,000. The A/P, 12/31/10 inventory on January 1, 2010 showed Payments cost of P390,000 and net realizable A/P, 1/1/10 value of P375,000. It is the Purchases in 2010 corporation’s practice to value inventory at “lower of cost or NRV.” Solution # 3 Any loss between cost and NRV is included in “Other expenses.” Inventory, 1/1/10 (at cost) 2. The average gross profit rate was 40% Add purchases of net sales. CGAS 3. The accounts receivable as of January Less Cost of sales 1, 2010 were P135,000. During 2010, (3,250,000 x 60%) accounts receivable written off during Estimated inv., 12/31/10 the year amounted to P10,000. at cost Accounts receivable as of December Inv., 12/31/10 per physical
375,000 10,000 3,000,000 (135,000) 3,250,000
300,000 2,000,000 (375,000) 1,925,000
390,000 1,925,000 2,315,000 (1,950,000) 365,000
31, 2010 were P375,000/ 4. Outstanding purchase invoices amounted to P300,000 at the end of 2010. At the beginning of 2010 they were P375,000. 5. Receipts from customers during 2010 amounted to P3,000,000. 6. Disbursements to merchandise creditors amounted to P2,000,000. Based on the above and the result of your audit, determine the following: 1. The total sales in 2010 2. The total purchases in 2010 3. The amount of inventory shortage as of December 31, 2010
-Reviewer in Auditing problems by Ocampo Page 180
count at cost Inventory shortage
(265,000) 100,000
OSTULANO, ELGENEROSE B. EASY: Problem 1 In connection with your audit of the Lake Company, you reviewed its inventory as of December 31, 2006 and found the following items: (a) A packing case containing a product costing P100,000 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions.” The customer’s order was dated December 18, but the case was shipped and the costumer billed on January 10, 2007. (b) Merchandise costing P600,000 was received on December 28, 2006, and the invoice was recorded. The invoice was in the hands of the purchasing agent; it was marked “On consignment”. (c) Merchandise received on January 6, 2007, costing P700,000 was entered in purchase register on January 7. The invoice showed shipment was made FOB shipping point on December 31, 2006. Because it was not on hand during the inventory count, it was not included. (d) A special machine costing P200,000, fabricated to order for a particular customer, was finished in the shipping room on December 30. The customer was billed for P300,000 on that date and the machine was excluded from inventory although it was shipped January 4, 2007. (e) Merchandise costing P200,000 was received on January 6, 2007, and the related purchase invoice was recorded January 5. The invoice showed the shipment was made on December 29, 2006, FOB destination. (f) Merchandise costing P150,000 was sold on an installment basis on December 15. The customer took possession of the goods on that date. The merchandise was included in inventory because Alcala still holds legal title. Historical experience suggests that full payment on installment sale is received approximately 99% of the time. (g) Goods costing P500,000 were sold and delivered on December 20. The goods were included in the inventory because the sale was accompanied by a purchase agreement requiring
Solution: Unshipped goods Purchased merchandise shipped FOB shipping point Goods used as collateral for a loan Total
P
100,000 700,000 500,000
P 1,300,000
Alcala to buy back the inventory in February 2007. Question:
Based on the above and the result of your audit, how much of these items should be included in the inventory balance at December 31, 2006? a. P1,300,000 b. P 800,000
c. P1,650,000 d. P1,050,000
Problem 2 Presented below is a list of items that may or may not reported as inventory in a company’s December 31 balance sheet: (a) Goods out on consignment at another company’s store P 800,000 (b) Goods sold on installment basis 100,000 (c) Goods purchased f.o.b. shipping point that are in transit at December 31 120,000 (d) Goods purchased f.o.b. destination that are in transit at December 31 200,000 (e) Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory 300,000 (f) Goods sold where large returns are predictable 280,000 (g) Goods sold f.o.b. shipping point that are in transit December 31 120,000 (h) Freight charges on goods purchased 80,000 (i) Factory labor costs incurred on goods still unsold 50,000 (j) Interest cost incurred for inventories that are routinely manufactured 40,000
(a) Goods out on consignment at another company’s store P 800,000 (c) Goods purchased f.o.b. shipping point that are in transit at December 31 120,000 (e) Goods sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the inventory 300,000 (h) Freight charges on goods purchased 80,000 (i) Factory labor costs incurred on goods still unsold 50,000 (l) Materials on hand not yet placed into production 350,000 (n) Raw materials on which a the company has started production, but which are not completely processed 280,000 Factory supplies (o) 20,000 (q) Costs identified with units completed but not yet sold 260,000 (r) Goods sold f.o.b. destination that are in transit at December 31 40,000 Total P 2,300,000
(k) Costs incurred to advertise goods held for resale 20,000 (l) Materials on hand not yet placed into production 350,000 Office supplies (m) 10,000 (n) Raw materials on which a the company has started production, but which are not completely processed 280,000 Factory supplies (o) 20,000 (p) Goods held on consignment from another company 450,000 (q) Costs identified with units completed but not yet sold 260,000 (r) Goods sold f.o.b. destination that are in transit at December 31 40,000 (s) Temporary investment in stocks and bonds that will be resold in the near future 500,000 Question:
How much of these items would typically be reported as inventory in the financial statements? a. P2,300,000 b. P2,000,000
c. P2,260,000 d. P2,220,000
Problem 3 Ocean Company provided the following data with respect to its inventory: P (a) Items counted in the bodega 4,000,000 (b) Items included in the count specifically segregated per sale contract 100,000 (c) Items in receiving department, returned by customer in good condition 50,000 (d) Items ordered and in the receiving
Solution: P (a) Items counted in the bodega 4,000,000 (b) Items included in the count specifically segregated per sale contract ( 100,000) (c) Items in receiving department, returned by customer in good condition 50,000 (d) Items ordered and in the receiving department, invoice not received 400,000
department, invoice not received 400,000 (e) Items ordered, invoice received but goods not received. Freight is on the account of seller 300,000 (f) Items shipped today, invoice mailed, FOB shipping point 250,000 (g) Items shipped today, invoice mailed, FOB destination 150,000 (h) Items currently being used for window Display 200,000 Items on counter for sale (i) 800,000 (j) Items in receiving department, refused by Ocean Company because of damage 180,000 (k) Items included in count, damaged and unsalable 50,000 in the shipping department (l) Items 250,000
(g) Items shipped today, invoice mailed, FOB destination 150,000 (h) Items currently being used for window Display 200,000 Items on counter for sale (i) 800,000 (k) Items included in count, damaged and unsalable ( 50,000) in the shipping department (l) Items 250,000 Total P 5,700,000
Question:
What is the correct amount of inventory? a. P5,700,000 b. P6,000,000
c. P5,800,000 d. P5,150,000
MODERATE: Problem 1 On August 1 of the current year, River Company recorded purchases of inventory of P800,000 and P1,000,000 under credit terms of 2/15, net 30. The payment due on the P800,000 purchase was remitted on August 16. The payment due on the P1,000,000 purchase was remitted on August 31. Under the net method and the gross method, these purchases should be included at what respective amounts in the determination of cost of goods available for sale? Net Method a. P 1,784,000
Gross Method P 1,764,000
Solution: Net Method: Purchases (800,000 + 1,000,000) 1,800,000 Purchase discount taken (2% x 800,000) ( 16,000) Purchases (800,000 + 1,000,000) ( 20,000) Net amount 1,764,000 Gross Method: Purchases 1,800,000
b. P 1,764,000 c. P 1,764,000 d. P 1,800,000
P 1,800,000 P 1,784,000 P 1,764,000
Problem 2 You obtained the following information connection with your audit of Sea Corporation: Cost Retail Beginning inventory P1,987,200 P2,760,000 Sales 7,812,000 Purchases 4,688,640 6,512,000 Freight in 94,560 Mark ups 720,000 Mark up cancellations 120,000 Markdown 240,000 Markdown cancellations 40,000
Purchase discount taken 16,000) Net 1,764,000
(
purchases
Solution: in
Cost Retail Beginning inventory P1,987,200 P2,760,000 Purchases 4,688,640 6,512,000 Freight in 94,560 Net mark up (P720,000 P120,000) 720,000 Net mark down (P240,000 - P40,000) 120,000 Goods available for sale P6,770,400 P9,672,000
Cost Ratio (P6,770,400/P9,672,000) = 70%
Sea Corp. uses the retail inventory method in estimating the values of its inventories and costs. The cost ratio to be used considering the provisions of PAS 2 is ___. a. 68.58% b. 69.20%
c. 70.00% d. 75.78%
Problem 3 A physical count on December 31, 2017 revealed that Gulf Company had inventory with a cost of P4,410,000. The audit identified that the following items were excluded from this amount: (a) Merchandise of P610,000 is held by Gulf on consignment. (b) Merchandise costing P380,000 was shipped by Gulf FOB destination to a customer on December 31, 2017. The customer was expected to receive the goods on January 5, 2018. (c) Merchandise costing P460,000 was shipped by
Solution: Physical count 4,410,000 Golds sold in transit, FOB destination 380,000 Goods purchased in transit, FOB shipping point 510,000 Adjusted inventory 5,300,000
Gulf FOB shipping point to a customer on December 29, 2017. The customer was expected to receive the goods on January 5, 2018. (d) Merchandise costing P830,000 shipped by a vendor FOB destination on December 31, 2017 was received by Gulf on January 5, 2018. (e) Merchandise costing P510,000 purchased FOB shipping point was shipped by the supplier on December 31, 2017 and received by Gulf on January 5, 2018. Question:
What is the correct amount of inventory on December 31, 2017? a. P5,300,000 b. P4,690,000 a. P3,800,000 b. P4,920,000
DIFFICULT: Problem: The Bay Co. values its inventory at the lower of FIFO cost or net realizable value (NRV). The inventory accounts at December 31, 2017, had the following balances: Raw materials 650,000 Work 000 Finished
P in
process 1,200, goods 1,640,
000 The following are some of the transactions that affected the inventory of the Bay Company during 2018. Jan. 8
Bay Co. purchased raw materials with a list price of P200,000 and was given a trade discount of 20% and 10%; terms 2/15, n/30. Bay values inventory at the net invoice price. Feb. 14 Bay Co. repossessed an inventory item from a customer who was overdue in making payment. The unpaid balance on the sale is
Solutions: Question No. 1 Estimated selling P24,000 Less refinishing 6,800 Net realizable 17,200 Less normal 3,200 Valuation of repossessed P14,000 Question No. 2 Estimated selling price P6,400 Less normal profit (6,400 1,600 Valuation of trade-in P4,800 Question No. 3 Accounts receivable P51,200 Trade-in 4,800
price costs value profit
inventory
(NRV) x
25%)
inventory
(P59,200 – P8,000) inventory
P15,200. The repossessed merchandise is to be refinished and placed on sale. It is expected that the item can be sold for P24,000 after estimated refinishing costs of P6,800. The normal profit for this item is considered to be P3,200. Mar. 1 Refinishing costs of P6,400 were incurred on the repossessed item. Apr. 3 The repossessed item was resold for P24,000 on account, 20% down. Aug. 30 A sale on account was made of finished goods that have a list price of P59,200 and a cost P38,400. A reduction of P8,000 off the list price was granted as a trade-in allowance. The trade-in item is to be priced to sell at P6,400 as is. The normal profit on this type of inventory is 25% of the sales price. Questions:
Based on the above and the result of your audit, answer the following: (Assume the client is using perpetual inventory system) 1. The repossessed inventory on Feb. 14 is most likely to be valued at _____. 2. The trade-in inventory on Aug. 30 is most likely to be valued at _____. 3. How much will be recorded as Sales on Aug. 30?
References: Practical Accounting One by Valix Cebu CPAR Center, Inc.
Sales P56,000
Jimerezel Loyde A. Lara
PROBLEMS
SOLUTIONS
A. EASY
A. EASY
1)Candy Company incurred the following costs: Materials 700,000 Storage costs 180,000 Delivery to customers 40,000 Irrecoverable purchase taxes 60,000 At what amount should the inventory be measured? (Problem 26-5, Practical Accounting Volume 1 by Conrado T. Valix) 2) Unique Company incurred the following costs in relation to a certain product: Direct materials and labor Variable production overhead Factory administrative costs Fixed production costs
1) Materials Irrecoverable purchase Taxes Total cost of inventory
700,000 60,000 760,000
2) Direct materials and labor Variable production overhead Factory administrative costs Fixed production costs Product measurement
180,000 25,000 15,000 20,000 240,000
180,000 25,000 15,000 20,000
What is the correct measurement of the product? (Problem 26-6, Practical Accounting Volume 1 by Conrado T. Valix) 3) Ferb Company provided the following information for the current year: Merchandise purchased For resale 4,000,000 Freight in 100,000 Freight out 50,000 Purchase returns 20,000 Interest on inventory loan 200,000 What is the inventoriable cost of the purchase? (Problem 26-7, Practical Accounting
3) Merchandise purchased Freight in Purchase returns Inventoriable cost
4,000,000 100,000 (20,000) 4,080,000
Volume 1 by Conrado T. Valix)
B. MODERATE B. MODERATE
1) ABC Company has incurred the following costs during the current year: Cost of purchases based On vendor s’ invoices 5,000,000 Trade discounts on purchases already deducted from vendors’ invoices 500,000 Import duties 400,000 Freight & insurance on purchases 1,000,000 Other handling costs relating to imports 100,000 Salaries of accounting department 600,000 Brokerage commission paid to agents for arranging imports 200,000 Sales commission paid to sales agents 300,000 After-sales warranty costs 250,000
1) Cost of purchases 5,000,000 Import duties 400,000 Freight and insurance 1,000,000 Other handling costs 100,000 Brokerage commission 200,000 Total cost of purchases 6,700,000
What is the total cost of purchases? (Problem 26-4, Practical Accounting Volume 1 by Conrado T. Valix)
2) Chill Company commenced operations during the year as large importer and exporter of seafood. The imports were all from one country overseas. The entity reported the following data: Purchases during year 12,000,000 Shipping costs from Overseas 1,500,000 Shipping costs to export Customers 1,000,000
2) Percent of inventory at year end (3,000,000/12,000 purchases) Inventoriable shipping costs from overseas (25% x 1500,000)
.25
375,000
Inventory at year end
3,000,000
What amount of shipping cost be included in the year-end inventory valuation? (Problem 26-14, Practical Accounting Volume 1 by Conrado T. Valix)
3) Blonde Company shipped inventory on consignment to Heart Company with original cost to 500,000. Heart paid 12,000 for advertising that was reimbursable from Blonde. At the end of the year 40% of the inventory was sold for 320,000. The agreement stated that a commission of 10% will be provided to Heart for all sales.
3) Consignment sales 320,000 Cost of goods sold (40% x 500,000) (200,000) Advertising (12,000) Commission (10% x 320,000) (32,000) Net income from consignment 76,000
What should amount be reported as net income from the consignment? (Problem 26-13, Practical Accounting Volume 1 by Conrado T. Valix)
C. Difficult
1) Daya Company reported inventory on Dec. 31, 2016 at 6,000,000 based on a physical count of goods priced at cost and before any necessary year-end adjustments relating to the following:
Included in the physical count were goods billed to a customer FOB shipping point on Dec. 30, 2016. These goods had a cost of 125,000 and were picked up by the carrier on Jan 7, 2017 Goods shipped FOB shipping point on Dec. 28, 2016 from a vendor to Daya were received and recorded on Jan. 4, 2017. The invoice cost was 300,000.
C. Difficult
1) Physical count 6,000,000 Goods shipped FOB shipping point on Dec. 30, 2016 to Daya and received Jan. 4, 2017 300,000 Inventory, Dec. 31, 2016 6,300,000
What amount should be reported as inventory on Dec. 31, 2016? (Problem 27-1, Practical Accounting Volume 1 by Conrado T. Valix)
2) Soprano Company counted and reported the ending inventory on Dec. 31,2016 at 2,000,000 None of the following items were included when the total amount of the ending inventory was computed: Goods located in the entity’s warehouse that are on consignment from another entity
150,000
Goods sold by the entity and shipped on Dec. 30 FOB destination were in transit on Dec 31 2016 and received by the customer on Jan 2 2017 200,000 Goods purchased by the entity and shipped on Dec 30 FOB shipping point were in transit on Dec 31 2016 and received by the entity on Jan 2 2017 300,000 Goods sold by the entity and shipped on Dec 30 FOB shipping point were in transit on Dec 31 2016 and received by customer on Jan 2 2017 400,000 What is the correct amount of inventory on Dec 31 2016? (Problem 27-3, Practical Accounting Volume 1 by Conrado T. Valix) 3) Saya lang Company conducted a
2) Reported inventory 2,000,000 Goods sold in transit FOB destination 200,000 Goods purchased in transit, FOB shipping point 300,000 Correct amount of Inventory 2,500,000
physical cout on Dec 31 2016 which revealed inventory with a cost of 4,410,000. The following items were excluded from the physical count: Merchandise held by Saya lang on consignment 610,000 Merchandise shipped by Saya lang FOB destination to a customer on Dec 31 2016 and was received by the customer on Jan 5 2017 380,000 Merchandise shipped by Saya lang FOB shipping point to a customer on Dec 31 2016 and was received by the customer on Jan 5 2017 460,000 Merchandise shipped by a vendor FOB destination on Dec. 31 2016 was received by Saya lang on Jan 5 2017 830,000 Merchandise purchased FOB shipping Point was shipped by the supplier On Dec 31 2016 and received by Joy on Jan 5 2017 510,000 What is the correct amount of inventory on December 31, 2016? (Problem 27-4, Practical Accounting Volume 1 by Conrado T. Valix)
3) Physical count 4,410,000 Goods sold in transit, FOB destination 380,000 Goods purchased in transit FOB shipping point 510,000 Adjusted inventory 5,300,000
Renz A. Repollo
PROBLEMS
SOLUTION
EASY 1. Stone Company had the following transactions during December 2016: Inventory shipped in consignment to Beta Company 1,800,000 Freight prepaid by stone 90,000 Inventory received on consignment from Alpha company 1,200,000 Freight paid by Alpha 50,000
Inventory shipped in consignment to Beta Company Freight prepaid by stone
What amount should be included in inventory on December 31, 2016? (Problem 26-9, Practical Accounting 1, Valix, 2016)
1,800,000 90,000 1,890,000
Renz A. Repollo 2. On December 28, 2016, Kerr Company purchased goods costing 500,000 FOB Destination. These goods were received on December 31, 2016. The costs incurred in connection with the sale and delivery of goods were: Packaging for shipment Shipping Special handling charges
10,000 15,000 25,000
Purchased cost
500,000
On December 31, 2016, what total cost should be included in inventory? (Problem 26-8, Practical Accounting 1, Valix, 2016) Renz A. Repollo 3. Fenn Company provided the following information for the current year: Merchandise purchased for resale 4,000,000 Freight in 100,000 Freight out 50,000 Purchase returns 20,000 Interest on inventory loan 200,000 What is the inventoriable cost of the purchase? (Problem 26-7, Practical Accounting 1, Valix, 2016)
Merchandise purchased Freight in Purchase returns Inventoriable cost
4,000,000 100,000 (20,000) 4,080,000
Renz A. Repollo MODERATE 1. Aman Company provided the following data: Items included in the bodega 4,000,000 Items included in the specifically segregated per sale on contract 100,000 Items in receiving department, returned by customer, in good condition 50,000 Items ordered and in the receiving department 400,000 Items ordered, invoice received but goods not received. Freight is on account on seller 300,000 Items shipped today, invoice mailed, FOB shipping point 250,000 Items shipped today, invoice mailed, FOB destination 150,000 Items currently being used for window display 200,000 Items on counter for sale 800,000 Items in receiving department, refused because of damage 50,000 Items in the shipping Department 250,000
Items included in the bodega 4,000,000 Items included in the specifically segregated (100,000) Items in receiving department, returned by customer, in good condition 50,000 Items ordered and in the receiving department 400,000 Items shipped today, invoice mailed, FOB destination 150,000 Items currently being used for window display 200,000 Items on counter for sale 800,000 Damage and unsalable items included in count (50,000) Items in the shipping Department 250,000 5,700,000
What is the correct amount of inventory? (Problem 26-1, Practical Accounting 1, Valix, 2016) Renz A. Repollo 2. Lunar Company included the following items under inventory: Materials 1,400,000 Advances for materials ordered 200,000 Goods in process 650,000 Unexpired insurance on inventory 60,000 advertising catalogs and shipping cartons 150,000 Finished goods in factory 2,000,000 Finished goods in entity-owned retail store, including 50% profit cost 750,000
Materials 1,400,000 Goods in process 650,000 Finished goods in factory 2,000,000 Finished goods in entity-owned retail store (750k/150%) 500,000 Finished goods in hand of consignees (400k x 60%) 240,000 Finished goods in transit to customers, shipped FOB destination at cost 250,000 Finished goods out on approval , at cost 100,000 Materials in transit (330k + 30k) 360,000 Correct inventory 5,500,000
Finished goods in hand of consignees including 40% profit on sales 400,000 Finished goods in transit to customers, shipped FOB destination at cost 250,000 Finished goods out on approval , at cost 100,000 Unsalable finished goods, at cost 50,000 Office supplies 40,000 Materials in transit, shipped FOB shipping point, excluding freight of 30,000 330,000 Goods held on consignment, at sales price, cost 100,000 200,000 What is the correct inventory? (Problem 26-2, Practical Accounting 1, Valix, 2016) Renz A. Repollo 3. Brilliant Company has incurred the following costs during the current year: Cost of purchases based on vendor’s invoices 5,000,000 Trade discounts on purchases already deducted from vendor’s invoices 500,000 Import duties 400,000 Freight and insurance on purchases 1,000,000 Other handling costs relating to imports 100,000 Salaries of accounting department 600,000 Brokerage commission paid to agents for arranging imports 200,000 Sales commission paid to sales agent 300,000 After-sales warranty costs 250,000 What is the total cost of purchases? (Problem 26-4, Practical Accounting 1, Valix, 2016) Renz A. Repollo DIFFICULT 1. Hero Company reported inventory on
Cost of purchases based on vendor’s invoices 5,000,000 Import duties 400,000 Freight and insurance on purchases 1,000,000 Other handling costs relating to imports 100,000 Brokerage commission paid to agents for arranging imports 200,000 Total cost of purchase 6,700,000
December 31, 2016 at 6,000,000 based on physical count of goods priced at cost and before any necessary year-end adjustments relating to the following: Included in the physical count were goods billed to a customer FOB shipping point on December 30, 2016. These goods had a cost of 125,000 and were picked up by the carrier on January 7, 2017. Goods shipped FOB shipping point on December 28, 2016 form vendor to Hero were received and recorded on January 4, 2017. The invoice cost was 300,000. What amount should be reported as inventory on December 31, 2016? (Problem 27-1, Practical Accounting 1, Valix, 2016)
Physical count Goods shipped FOB shipping point Inventory, Dec. 31, 2016
6,000,000 300,000 6,300,000
Renz A. Repollo 2. Reverend Company conducted a physical count on December 31, 2016 which revealed merchandise with total cost of 5,000,000. However, further investigation revealed that the following items were excluded from the count:
Goods sold to a customer, which are being for the customer to call at the customer’s convenience with a cost of 200,000. A packaging case containing a product costing 500,000 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “hold for shipping instructions”.
Physical count Inventory marked “hold for shipping instructions” Correct amt. of inv.
5,000,000 500,000 5,500,000
The investigations revealed that the customer’s order was dated December 28, 2016, but that the case was shipped and the customer billed on January 4, 2017. A special machine costing 250,000, fabricated to order for a customer, was finished and specifically segregated at the back part of shipping room on December 31, 2016. The customer was billed on that date and the machine was excluded from inventory although it was not shipped on January 2, 2017.
What is the correct amount of inventory that should be reported on December 31, 2016? (Problem 27-2, Practical Accounting 1, Valix, 2016) Renz A. Repollo 3. Leila Company conducted a physical count on December 31, 2016 which revealed total cost of 3,600,000. However, the following items were excluded from the count:
Goods sold to a customer are being held for the customer to call for at the customer’s convenience. 200,0000 A packaging case containing a product standing in the shipping room when the physical count was taken was not included in the inventory because it was marked “hold for shipping instructions” 80,000 Goods in process held by an outside processor for further processing 300,000 Good shipped bt a vendor FOB seller on December 28, 2016 and received by Leila Company
Physical count 3,600,000 Inventory marked “hold for shipping instructions” 80,000 Goods in process inventory 300,000 Goods shipped FOB seller 50,000 Correct amt. of inventory 4,030,000
on January 10, 2017. What is the correct inventory on December 31, 2016? (Problem 27-5, Practical Accounting 1, Valix, 2016) Renz A. Repollo
GAGATAM, CHRISTIANETH N. BSA-IV AUDITING PROBLEM (INVENTORY) EASY: VALIX PROBLEM 26-5 (IFRS)
SOLUTIONS:
1.Corolla Co. incurred the following costs:
Q: At what amount should the inventory be measured?
Materials
700,000
Materials
700,000
Storage costs of finished goods 180,000
Irrecoverable purchase taxes
60,000
Delivery to customers
40,000
Total cost of inventory
760,000
Irrecoverable purchase taxes
60,000
2.Eagle Co. incurred the following costs in relation
Q: What is the correct measurement of the
to a certain product:
product?
Direct materials and labor
180,000
Ans. All costs are inventoriable. 240,000
Variable production overhead
25,000
Factory administrative costs
15,000
Fixed production costs
20,000
3.Fenn Co. provided the following information for
Q: What is the inventoriable cost of the
the current year:
purchase?
Merchandise purchased for resale
4,000,000
Merchandise purchased
4,000,000
Freight in
100,000
Freight in
100,000
Freight out
50,000
Purchase returns
(20,000)
Purchase returns
20,000
Ans. Inventoriable cost
4,080,000
Interest on inventory loan
200,000
MODERATE: VALIX
