16
INVENTORY
Problem 16-1 (IAA)Aman Company provided the following data with respect to its inventory: Items counted in the bodega
Items included in the count specifically segregated per sale contract items in receiving department, returned by customer, in good condition Items ordered and in the receiving deparment, invoice not received
Items ordered, invoice received but goods not received. Freight is on account of 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 Aman Company because of damage Items included in count, damaged and unsalable
Items in the shipping department
What is the correct amount of inventory? a. 5,700,000
b. 6,000,000 c. 5,800,000 d. 5,150,000
Solution 16-1 Answer a Items counted in the bodega
Items included in the count specifically segregated per sale contract Items returned by customer
Items ordered and in receiving deparment Items shipped today, FOB destination Items for display
Items on counter for sale
Damaged and unsalable items included in count Items in the shipping department
Problem 16-2 (IAA)
Lunar Company included the following items under inventory: Materials
Advance for materials ordered Goods in process
Unexpired insurance on inventory
Advertising catalogs and shipping cartons Finished goods in factory
Finished goods in entity-owned retails store, including 50% profit on cost Finished goods in hands of consignees including 40% profit on sales Finished goods in transit to customer, 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 rate of P30,000 Goods held on consignment, at sales price, cost P150,000
What is the correct amount of inventory? a. 5,375,000 b. 5,500,000 c. 5,540,000 d. 5,250,000 Solution 16-2 Answer b Materials Goods in process
Finished goods in factory
Finished goods in entity-owned retails store (750,000/150%) Finished goods in hands of consignees (400,000*60%) Finished goods in transit
Finished goods out on approval Materials in transit (330,000 + 30,000) Correct inventory
Problem16-3 (IAA)
Finished goods in storeroom, at cost, including overhead ofP400,000 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 Machine lubricants
What is the correct amount of inventory? a. 4,000,000 b. 4,170,000 c. 4,270,000 d. 4,090,000 Solution 16-3 Answer b Finished goods
Finished goods held by salesmen Goods in process (720,000/80%) Materials
Factory supplies (110,000 + 60,000) Correct inventory
Problem 16-4 (IFRS)
Brilliant Company incurred the following costs during the current year: Cost of purchases based on vendors' invoices
Trade discounts on purchases already deducted from vendors' invoices Import duties
Freight and insurance on purchases Other handling costs relating to imports Salaries of accounting department
Brokerage commission paid to agents for arranging imports Sales commission paid to sales agents
What is the total cost of the purchases? a. 5,700,000 b. 6,100,000 c. 6,700,000 d. 6,500,000 Solution 16-4 Answer c 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
Problem 16-5 (IFRS)
Corolla Company incurrd the following costs:
Materials 700,000
Storage costs of finished goods 180,000
Delivery to customers 40,000
Irrecoverable purchase taxes 60,000
At what amount should the inventory be measured? a. 880,000 b. 760,000 c. 980,000 d. 940,000 Solution 16-5 Answer b Materials 700,000
Irrecoverable purchase taxes 60,000
Total cost of inventory 760,000
Problem 16-6 (IFRS)
Diirect 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
Solution 16-6 Answer d All costs are inventoriable.
Problem 16-7 (AICPA Adapted)
The following information applied to Fenn Company for the current year:
Merchandise purchase 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? a. 4,280,000 b. 4,030,000 c. 4,080,000 d. 4,130,000 Solution 16-7 Answer c Merchandise purchased 4,000,000 Freight In 100,000 Total 4,100,000 Purchase returns (20,000) Inventoriable cost 4,080,000
Problem 16-8 (AICPA Adapted)
On December 28, 2011, Kerr Company purchase goods costing P500,000. The terms where F.O.B. destination. Some of the costs incurred in connection with the sale and delivery of the goods where as follows:
Packaging for shipment 10,000
Shipping 15,000
Special handling charges 25,000
These goods were received on December 31, 2011. On December 31, 2011, what total cost for these goods should be included in the inventory? a. 545,000
b. 535,000 c. 520,000 d. 500,000
Solution 16-8 Answer d
When the shipping terms are FOB destination, the seller is responsible for costs incurred in transporting the goods to the buyer, such as packaging costs, shipping costs and special handling charges. The amount to be included in the buyer's inventory cost is the purchase price.
Problem 16-9 (AICPA Adapted)
On December 26, 2011, Branigan Company purchased goods costing P1,000,000. The terms were FOB Shipping point. The goods were received on December 28, 2011.
Costs incurred by Branigan Company in connection with the purchase and the delivery of the goods were as follows: Normal freight charge
Handling cost
Insurance on shipment
Abnormal freight charge for express shipping
What is the total cost that Branigan Company should charge to inventory? a. 1,050,000
b. 1,030,000 c. 1, 055,000 d. 1, 067,000
Purchase price 1,000,000
Normal freight charge 30,000
Handling cost 20,000
Insurance on shipment 5,000
Total cost of inventory 1,055,000
The abnormal freight charge should be charged to expense.
Problem 16-10 (AICPA Adapted)
Stone Company had the following consignment transaction during December 2011: Inventory shipped on consignment to Beta Company
Freight paid by Stone
Inventory received on consignment from Alpha Company Freight paid by Alpha
No sales of consigned goods where made in December 2011. What amount should be included as consigned inventory on December 31, 2011?
a. 1,200,000 b. 1,250,000 c. 1, 800,000 d. 1,890,000
Solution 16-10 Answer d
Inventory shipped on consignment to Beta Freight paid by Stone
Total cost of consigned inventory
Problem 16-11 (AICPA Adapted)
Clem Company provided the following for the current year:
Central warehouse Beginning inventory 1,100,000 Purchases 4,800,000 Freight in 100,000 Transportation to consignees Freight out 300,000 Ending inventory 1,450,000
What is the cost of sales for the current year? a. 4,550,000 b. 4,850,000 c. 5,070,000 d. 5,120,000 Solution 16-11 Answer d Beginning inventory 1,220,000 Purchases 5,400,000 Freight in (100,000 + 50,000) 150,000
Goods available for sale 6,770,000
Ending inventory (1,650,000)
Cost of sales 5,120,000
Problem 16-12 (CGAC)
Brooke Company uses a perpetual inventory system. At the end of 2010, the balance in the inventory account was P360,000 and P30,000 of those goods included in ending inventory were purchased FOB Shipping point and did not arrived until 2011. Purchases in 2011 were P3,000,000. The perpetual inventory records showed an ending inventory of P420,000 for 2011.
A physical count of the goods on hand at the end of 2011 showed an inventory of P380,000. Inventory shortages are included in cost of goods sold. What amount should be reported in the 2011 income statement for cost of good sold? a. 2, 940,000 b. 2,980,000 c. 3,000,000 d. 3,010,000 Solution 16-12 Answer b Inventory- December 31, 2010 360,000 Purchases-2011 3,000,000
Good available for sale 3,360,000
Inventory- December 31, 2011 (380,000)
Cost of good sold 2,980,000
Problem 16-13 (AICPA Adapted)
On December 1,2011, Alt department store received 505 sweaters on consignment from Todd. Todd's cost for the sweaters was P800 each, and they were priced to sell at P1,000. Alt's commision on consigned goods is 10%. On December 31, 2011, 5 sweaters remained. In its December 31, 2011 statement of financial position, what amount should
Alt report as payable for consigned goods? a. 490,000 b. 454,000 c. 450,000 d. 404,000 Solution 16-13 Answer c Sweaters sold (500 x P1,000) 500,000 Less: Commision (10% x 500,000) 50,000
Payable for consigned goods 450,000
Cash 500,000
Commision Income 50,000
Accounts Payable 450,000
Problem 16-14 (AICPA Adapted)
On October 1, 2011, Grimm Company consigned 40 freezer to Holden Company costing P14,000 each for sale at P20,000 each and paid P16,000 in transportation costs. On December 30, 2011, Holden reported the sale of 10 freezer and remitted P170,000. The remittance was net of the agreed 15% commision. What amount should Grim recognize as consignment sales revenue for 2011?
a. 154,000 b. 170,000 c. 196,000 d. 200,000 Solution 16-14 Answer d Freezer sold (10 x P20,000) 200,000
Problem 16-15 (PHILCPA Adapted)
An analysis of the ending inventory of Lilac Company on December 31, 2011 disclosed the inclusion of the following items: Merchandise in transit purchased on terms:
FOB Shipping point FOB Destination
Merchandise out on consignment at sales price (including markup of 30% on cost)
Merchandise sent to customer for approval (cost of goods, P30,000)
Merchandise held on consignment
What is the reduction of the inventory on December 31, 2011? a. 355,000
b. 190,000 c. 203,500 d. 222,000
Solution 16-15 Answer b
Merchandise in transit purchased FOB destination Markup on goods out on consignment (195,000-150,000) Markup on merchandise for approval
Merchandise held on consignment Total reduction
Problem 16-16 (AICPA Adapted)
Dean Sportswear regularly buys sweaters form Mill Company and is allowed trade discounts of 20% and 10% from the list price. Dean made a purchase on March 20, 2011, and received an invoice with a list price of P600,000, a freight charge of P15,000 and payment terms of 2/10, n/30. What is the cost of the purchase?
a. 432,000 b. 447,000 c. 438,360 d. 435,000 Solution 16-16 Answer b List price 600,000 Trade discount (20% x 600,000) (120,000) Balance 480,000 Trade discount (10% x 480,000) (48,000) Invoice price 432,000 Freight charge 15,000
Total cost of purchase 447,000
Purchases are normally recorded at gross. Thus, the cash discount is ignored.
Problem 16-17 (PHILCPA Adapted)
Hungary sold merchandise with a list price of P2,000,000 to a customer who was given a trade discounts of 20% and 15%. Credit terms were 2/10,n/30. The goods were shipped FOB destination, freight collect. Total freight charge paid by the customer returned damged goods originally billed at P60,000. What is the net realizable value of this account receivable on December 31, 2011? a. 1,280,000 b. 1,300,000 c. 1,170,000 d. 1,320,000 Solution 16-17 Answer a List price 2,000,000 Trade discount (20% x 2,000,000) (400,000) Balance 1,600,000 Trade discount (15% x 1,600,000) (240,000) Invoice price 1,360,000 Sales return (60,000)
Freight paid by customer (20,000)
Net realizable value of AR 1,280,000
There is no cash discount because the discount period of 10 days has already expired.
Problem 16-18 (AICPA Adapted)
On June 1, 2011, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on account. Pitt allowed trade discount of 30% and 20%. Credit terms were 2/10,n/30 and the sale was made FOB shipping point. Pitt prepaid P200,000 of delivery costs for Burr as an accommodation. On June 11, 2011, what amount was received by Pitt form Burr as
remittance in full? a. 2,744,000 b. 2,940,000 c. 2,944,000 d. 3,140,000 Solution 16-18 Answer c List price 5,000,000 Trade discounts: 30% x 5,000,000 (1,500,000) 3,500,000 20% x 3,500,000 (700,000) Invoice price 2,800,000 Cash discount (2% x 2,800,000) (56,000) Net amount 2,744,000
Add: Reimbursement of delivery cost 200,000
Total remittance from Burr 2,944,000
Problem 16-19 (IAA)
On August 1 of the current year, Stella Company recorded purchases of inventory of P800,000 and P1,000,000 under credit terms of 2/l15,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 amount in the determination of cost of goods available for sale?
Net method Gross method
a. 1,784,000 1,764,000 b. 1,764,000 1,800,000 c. 1,764,000 1,784,000 d. 1,800,000 1,764,000 Solution 16-19 Answer c Net method 1,800,000 Purchases (800,000 + 1,000,000) (16,000)
Purchase discount taken (2% x 800,000) (20,000)
Purchase discount not taken (2% x 1,000,000) 1,764,000
Net amount
Under the net method, the purchase discount is deducted from purchases regardless of whether taken or not taken. Gross method
Purchases 1,800,000
Purchase discount taken (16,000)
Net purchases 1,784,000
Under the gross method, the purchases are recorded at gross and only the purchase discount taken is deducted from purchases in determining cost of goods available for sale.
Problem 16-20 (AICPA Adapted)
Rabb Company records its purchases at gross amount but wishes to change to recording purchases net of purchase discounts. Discount available on purchases for the current year totaled P100,000. Of this amount, P10,000 is still available in the accounts payable balance. The balances in the accounts as of and for the year ended December 31,, before conversion are:
Purchases 5,000,000
Purchase discount taken 40,000
What is the balance of accounts payable on December 31 after the conversion? a. 1,490,000 b. 1,460,000 c. 1,440,000 d. 1,410,000 Solution 16-20 Answer a Accounts payable at gross
Discounts available in the accounts payable balance Accounts payable at net
Problem 16-21 (PHILCPA Adapted)
Duke Company specializes in the sale of IBM compatibles and software packages. It had the following transactions with one of its suppliers:
Purchases of IBM compatibles 1,700,000
Purchases of commercial software packages 1,200,000
Returns and allowances 50,000
Purchase discounts taken 17,000
Purchases were made throughout the year on terms 2/10,n/30. All returns and allowances took place within 5 days of purchase and prior to any payment on account.
How much is the discount lost? a. 57,000
b. 40,000 c. 17,000 d. 41,000
Solution 16-21 Answer b
Purchases of IBM compatibles 1,700,000
Purchases of commercial software packages 1,200,000
Total 2,900,000
Less: Returns and allowances (50,000)
Net purchases 2,850,000
Discounts available on purchases (2% x 2,850,000) 57,000
Discount lost 74,000
Problem 16-22 (AICPA Adapated)
Hero Company's inventory on December 31, 2011 was 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 30,2011. These goods had a cost of P125,000 and were picked up by the carrier on January 7, 2012.
● Goods shipped FOB shipping point on December 28, 2011, form a vendor to Hero were received on January 4, 2012. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2011? a. 5,875,000 b. 6,000,000 c. 6, 175,000 d. 6,300,000 Solution 16-22 Answer d Physical count
Goods shipped FOB shipping point on December 30, 2011 to Hero and received January 4, 2012
Inventory, December 31, 2011
The goods costing P125,000 are properly included in the December 31, 2011 physical count because they are shipped FOB shipping point only on January 7, 2012 (picked up by common carrier).
Problem 16-23 (AICPA Adapted)
The physical count conducted in the warehouse of Reverend Company on December 31, 2011 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.
It 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, 2011, but that the case was shipped and the
customer billed on January 4, 2012.
● 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 31,2011. The customer was billed on that date and the machine was excluded from inventory although it was shipped on January 2, 2012.
What is the correct amount of inventory that should be reported on December 31, 2011? a. 5,950,000 b. 5,750,000 c. 5,500,000 d. 5,700,000 Solution 16-23 Answer c Physical count
Inventory marked "hold for shipping instructions" Correct amount of inventory
Problem 16-24 (PHILCPA Adapted)
The inventory on hand on December 31, 2011 for Fair Company is valued at a cost of P950,000. The following items were not included in this inventory amount:
Item 1: Purchased goods in transit, shipped FOB destination, invoice price P30,000 which includes freight charge of P1,500.
Item 2: Goods held on consignment by Fair Company at a sales price of P28,000, including sales commission of 20% of the sales price.
Item 3: Goods sold to Grace Company, under terms FOB destination, invoiced for P18,500 which includes P1,000 freight charge to deliver the goods. Goods are in transit. The entity's selling
price is 140% of cost.
Item 4: Purchased goods in transit, terms FOB shipping point, invoice price P50,000, freight cost, P2,500. Item 5: Goods out on consignment to Manila Company, sales price P35,000, shipping cost of P2,000.
What is the adjusted cost of the inventory on December 31,2011? a. 1,042,000
b. 1,043,000 c. 1,040,000
d. 1,073,500
Solution 16-24 Answer a
Inventory per book 950,000
Item 3 (18,500 - 1,000/140%) 12,500
Item 4 (50,000 + 2,500) 52,500
Item 5 (35,000/140% = 25,000 + 2,000) 27,000
Adjusted inventory 1,042,000
Problem 16-25 (IAA)
Baritone Company counted its ending inventory on December 31, 2011. None of the following items were included when the total amount of the ending inventory was computed:
● P150,000 in goods located in the entity's warehouse that are on consignment from another entity.
● P200,000 in goods that were sold by the entity and shipped on December 30 and were in transit on December 31, 2011. The goods were received by the customer on January 2, 2012. Terms were FOB destination.
● P300,000 in goods that were purchased by the entity and shipped on December 30 and were in transit on December 31, 2011.
The goods were received by the entity on January 2, 2012. Terms were FOB shipping point.
● P400,000 in goods that were sold by the entity and shipped on December 30 and were in transit on December 31, 2011.
The goods were received by the customer on January 2, 2012. Terms were FOB shipping point.
The entity's reported inventory before any corrections was P2,000,000. What is the correct amount of inventory on December 31, 2011? a. 2,500,000 b. 2,350,000 c. 2,900,000 d. 2,750,000 Solution 16-25 Answer a Reported inventory 2,000,000
Goods sold in transit, FOB destination 200,000
Correct amount of inventory 2,500,000
Problem 16-26 (IAA)
Sterling Comapany reported its 2011 year-end inventory at P7,600,000 before the following adjustments:
● Goods valued at P1,000,000 are on consignment with a customer. These goods are not included in the year-end inventory.
● Goods costing P250,000 were received from a vendor on January 12,2012. The goods were shipped on December 31, 2011, terms FOB shipping point. ● Goods costing P850,000 were shipped on December 31, 2011, and were delivered to the customer on January 2, 2012. The terms of the invoice were FOB shipping point. The goods were included in ending inventory for 2011 even though the sale was recorded in 2011.
● A P350,0000 shipment of goods to a customer on December 31, 2011, terms FOB destination, was not included in the year-end inventory. The goods cost P260,000 and were delivered to customer on January 8, 2012. The sale was properly recorded in 2012.
● An invoice for goods costing P350,000 was received and recorded as a purchase on December 31, 2011. The related goods, shipped FOB destination, were received on January 2, 2012, and thus were not included in the physical inventory.
● Goods valued at P650,000 are on consignment from a vendor.These goods are not included in the year-end inventory.
● A P1,050,000 shipment of goods to a customer on December 30, 2011, terms FOB destination, was recorded as a sale in 2011. The goods, costing P840,000 and delivered to the customer on January 6, 2012, were not included in 2011 inventory.
What is the correct inventory on December 31, 2011? a. 9,100,000
b. 8,100,000 c. 9,950,000 d. 9,450,000
Solution 16-26 Answer a
Inventory before adjustment 7,600,000
Goods out on consignment 1,000,000
Goods purchased, FOB shippin point 250,000
Goods sold , FOB shipping point (850,000)
Goods sold, FOB destination 260,000
Goods sold, FOB destination 840,000
9,100,000
Problem 16-27 (IAA)
A physical count on December 31, 2011 revealed that Joy Company had inventory with a cost of P4,440,000. The Audit identified that the following items were excluded from this amount:
● Merchandise of P610,000 is held by Joy on consignment.
● Merchadise costing P380,000 was shipped by Joy FOB destination to a customer on December 31, 2011. The customer was expected to received the goods on January 5, 2012.
● Merchandise costing P460,000 was shipped by Joy FOB shipping point to a customer on December 29, 2011. The customer was expected to receive the goods on January 5, 2012. Merchandise costing P830,000 shipped by a vendor FOB destination on December 31, 2011 was received by Joy on January 5, 2012.
● Merchandise costing P510,000 purchased FOB shipping point was shipped by the supplier on December 31, 2011 and received by Joy on January 5, 2012.
What is the correct inventory on December 31, 2011? a. 5,300,000 b. 4,690,000 c. 3,800,000 d. 4,920,000 Solution 16-27 Answer a Physical count
Goods sold in transit, FOB destination
Goods purchased in transit, FOB shipping point Adjusted inventory
Problem 16-28 (AICPA Adapted)
Mia Company submitted an inventory list on December 31, 2011 which showed a total of P5,000,000.
● Excluded from the inventory was merchandise costing P80,000 because it was transferred to the delivery department for packaging on December 28, 2011and for shipping on January 2, 2012.
● The bill of lading and other import documents on a merchandise were delivered by the bank and the trust receipt accepted by the entity on December 26, 2011. Taxes and duties have been paid on this shipment but the broker did not deliver the merchandise until January 7, 2012. Delivered cost of the shipment totaled P800,000. This shipment was not included in the inventory on December 31, 2011.
● A review of the entity's purchased orders showed a commitment to buy P100,000 worth of merchandise from Myrose Company. This was not included in the inventory because of the goods were received on Januar 3, 1012.
● Supplier's invoice for P300,000 worth of merchandise dated December 28, 2011 was received through the mail on December 30, 2011 although the goods arrived only on January 4, 2012. Shipment terms are FOB shipping point. This items was included in the
December 31, 2011 inventory by the entity.
● Goods valued at P20,000 were received from Darlyn Company on December 28, 2011 for approval by Mia. The inventory team included this merhandise in the list but did not place any value on it. On January 4, 2012, thne entity informed the supplier by long distance telephone of the acceptance of the goods and the supplier's invoice was received on January 7, 2012.
● On December 27, 2011, an order for P25,000 worth of merchandise was placed. This was include in the year-end inventory although it was received only on January 5, 2012. The seller shipped the goods FOB destination.
a. 5,855,000 b. 5,055,000 c. 5,555,000 d. 5,830,000
Solution 16-29 Answer a Inventory per book
Inventory transferred in delivery department Shipment consumed by bill of lading Goods in transit, purchased FOB destination Correct inventory
Problem 16-29 (AICPA Adapted)
The physical count conducted in the warehouse of Leila Company on December 31, 2011 revealed total cost of P3,600,000. However, the following items was excluded from the count:
● Goods sold to a customer which are being held for the customer to call for the customer's convenience with a cost of P200,000.
● A packing case containing a product costing P80,000 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 instruction".
● 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 28, 2011 and received by Leila Company on January 10, 2012.
What is the correct inventory on December 31, 2011? a. 4,180,000
b. 4,230,000 c. 3,980,000 d. 4,030,000
Solution 16-29 Answer d Inventory per physical count
Inventory marked "hold for shipping instructions" Goods in process inventory
Goods shipped FOB seller or FOB shipping point Correct Inventory
Black Company's accounts payable on December 31, 2011, totaled P4,500,000 before any necessary year-end adjustments relating to the following transactions:
● On December 27, 2011, Black wrote and recorded checks to creditors totaling P2,000,000 causing an overdraft of P500,000 in Black's bank account on December 31, 2011. The checks were mailed on January 10, 2012.
● On December 28, 2011, Black purchased and received goods for P750,000, terms 2/10, n/30. Black records purchases and accounts payable at net amount. The invoice was recordedand paid January 3, 2012.
● Goods shipped F.O.B destination on December 20, 2011 from a vendor to Black were received January 2, 2012. The invoice cost was P325,000.
On December 31, 2011, what amount should Black report as account payable? a. 7,575,000
b. 7,250,000 c. 7,235,000 d. 7,553,000
Solution 16-30 Answer c Accounts payable per book Undelivered entity checks
Goods purchased and received on December 28, 2011. Purchase discount ( 2% × 750,000)
Total Accounts Payable
The undelivered checks should be adjusted as follows:
Cash 2,000,000
Accounts Payable 2,000,000
Problem16-31 (AICPA Adapted)
Kew Company 's accounts payable balance on December 31, 2011, was P2,200,000 before considering the following data:
● Goods shipped to Kew F.O.B. shipping point on December 22, 2011, were lost in transit. The invoice cost of P40,000 was not recorded by Kew. On January 7, 2012, Kew filed a P40,000 claim against the common carrier.
● On December 27, 2011, a vendor authorized Kew to return, for full credit, goods shipped and billed at P70,000 on December 3, 2011.
The returned goods were shipped by Kew on December 28, 2011. A P70,000 credit memo was received and recorded by Kew on January 5, 2012 ● On December 31, 2011, Kew has a P500,000 debit balance in its accounts payable to Ross, a supplier, resulting from a P500,000 advance payment for goods to be manufactured to Kew specifications.
a. 2,170,000 b. 2,680,000 c. 2,730,000 d. 2,670,000
Solution 16-31 Answer d Accounts payable per book
Goods shipped FOB shipping point on December 22, 2011 and lost in transit Purchase returns
Advance payment erroneously debited to accounts payable Adjusted accounts payable
Kew Company shall suffer the loss of the goods in transit because the goods are shipped FOB shipping point. Appropriately Kew Company must file a claim against hte common carrier.
Problem 16-32 (CGAC)
Bakun Company began operations late in 2010. For the first quarter ended March 31, 2011, Bakun made available the following information: Total merchandise purchased through March 15, 2011, recorded at net
Merchandise inventory on December 31, 2010, at selling price
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 n 2011. What amount of cash is required to eliminate the current balance in accounts payable?
a. 6,000,000 b. 5,900,000 c. 6,400,000 d. 5,750,000
Solution 16-32 Answer a
Gross purchases through March 15, 2011 (4,900,000/ 98%) Inventory - December 31, 2010, at cost (1,500,000/ 150%) Total gross amount to be paid
Problem 16-33 (IFRS)
Aiza Company sells merchandise for P800,000 to a customer on December 31, 2011. The terms of the sale agreement state that payment is due in one year's time. Aiza has an imputed rate of interest of 9%. What amount of sales revenue should Aiza recognize from the transaction?
a. 872,000 b. 733,600 c. 800,000 d. 0 Solution 16-33 Answer b Sales price
Multiply by PV of 1 at 9% for one period Present Value - actual sales revenue
Problem 16-34 (AICPA Adapted)
Lewis Company's usual sales terms are net 60 days, F.O.B. shipping point. Sales, net of returns and allowances, totaled P9,200,000 for the year ended December 31, 2011, before year-end adjustments.
● On December 27, 2011, Lewis authorized a cutromer to return, for full credit, goods shipped and billed at P200,000 on December 15, 2011. The returned goods were received by Lewis on January 4, 2012, and a P200,000 credit memo was issued and recorded on the same date. ● Goods with an invoice amount of P300,000 were billed and recorded on January 3, 2012. The goods were shipped on December 30, 2011. ● Goods with an invoice amount of P400,000 were billed and recorded on December 30, 2011. The goods were shipped on January 3, 2012. What is the correct amount of net sales for 2011?
a. 9,300,000 b. 9,100,000 c. 9,000,000 d. 8,900,000
Solution 16-34 Answer d Net sales per book Sales return
Goods shipped on December 30, 2011 but recorded January 3, 2012
Goods shipped on January 3, 2012 erroneously recorded on December 30, 2011 Adjusted net sales
Problem 16-35 (AICPA Adapted)
Fenn Company had sales of P5,000,000 during December 2011. Experience had 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,
its income statement for the month of December 2011? a. 4,500,000 b. 4,250,000 c. 3,900,000 d. 3,750,000 Solution 16-35 Answer a Gross Sales 5,000,000
Estimated sales returns (10% x 5,000,000) (500,000)
Net Sales 4,500,000
As a conservative approach, sales revenue should be reduced by the 10% estimated probable sales returns. However, the estimated exchanges of 15% will not result to reduction of sales.
Problem 16-36 (AICPA Adapted)
On October 1,2011, Acme Company sold 100,000 gallons of heating oil to Kam Company at P30 per gallon. Fifty thousand gallons were delivered on December 15, 2011, and the remaining P50,000 gallons were delivered on January 15, 2012. Payment terms were: 50% due on October 1,2011, 25% on the first delivery, and the remaining 25% due on the second delivery. What amount of revenue should Acme recognize them from the sale
during 2011? a. 3,000,000 b. 1,500,000 c. 2,250,000 d. 750,000 Solution 16-36 Answer b (50,000×30) 1,500,000 Problem 16-37 (IFRS)
On July 1,2011, Loveluck Company, a manufacturer of office furniture, supplied goods to Kaye Company for P1,200,000 on condition that this amount is paid in full on July 1, 2012. Kaye had earlier rejected an alternative offer from Loveluck whereby it could have bought the same goods by paying cash of P1,080,000 on July 1,2011.
What amoun should be respectively be recognized as sales revenue and interest income for the year ended June 30, 2012? a. 1,080,000 and 120,000
b. 1,200,000 and 120,000 c. 1,080,000 and 0 d. 1,200,000 and 0
Solution 16-37 Answer a
Sales price 1,200,000
Cash price - actual sales revenue 1,080,000
Implied interest income 120,000
Problem 16-38 (IFRS)
On July 1,2011, Kathleen Company handed over to a client a new computer system. The contract price for the supply of the system and after-sales support for 12 months was P800,000. Kathleen estimates the cost of the after-sales support at P120,000 and it normally marks up such cost by 50% when tendering for support contracts. What is the total revenue that should be recognized for 2011?
a. 620,000 b. 800,000 c. 710,000 d. 0 Solution 16-38 Answer c Contract price
Contract price of after-sales support (120,000 x 150%) Revenue from sale of computer system
Revenue from after-sales support (180,000 x 6/12) Total revenue
Problem 16-39 (PHILCPA Adapted)
Ilocos Company produced 80,000 kilos of tobacco during the 2011 season. Ilocos sells all of its tobacco to a certain customer which has agreed to purchase the entire production at the prevailing market price. Recent legislation assures that the market price will not fall below P100 per kilo during the next two years. The costs of selling and distributing the tobacco are immaterial and can be reasonably estimated. Ilocos reports its inventory to expected exit value. During 2011, Ilocos sold and delivered to the customer 60,000 kilos at the market price of P100. Ilocos sold the remaining 20,000 kilos during 2012 at the market price of P150. What amount of revenue should Ilocos recognize in 2011? a. 6,000,000 b. 3,000,000 c. 8,000,000 d. 9,000,000 Solution 16-39 Answer c Sales revenue in 2011 (80,000 x P100) 8,000,000
Revenue is recognized at the point of production for agricultural, mineral and forest product when a sale is assured under a forward contract.
The remainder of the sales in 2012 of P1,000,000 (20,000 x P50) is recognized as revenue in 2012 and not a correction of 2011 revenue.
Problem 16-40 (IFRS)
Beverly Company provides service contracts to customers for maintenance of their electrical system. On October 1, 2011, it agrees to a four-year contract with a major customer for P1,540,000. Costs over the period of the contract are reliably estimated at P513,330. What amount of revenue should be recognized for the year ended December 31, 2011? a. 385,000 b. 128,330 c. 96,250 d. 32,080 Solution 16-40 Answer c
Revenue from October 1 to December 31, 2011
(1,540,000/4 years = 385,000 x 3/12) 96,250
Problem 16-41 (AICPA Adapted)
Emco Company has the following transactions in 2011:
● Emco sells goods to a customer for P50,000 FOB shipping point on December 30, 2011.
● Emco sells three pieces of equipment on a contract over a three-year period. The sale price of each piece of equipment is P100,000. Delivery of each piece of equipment is on February 10 of each year. In 2011, the customer paid a P200,000 down payment, and will pay P50,000 per year in 2012 and 2013. Collectibility is reasonably assured.
● On June 1, 2011, Emco signs a contract for P200,000 for goods to be sold on account. Payment is to be made in two installments of P100,000 each on December 1, 2011 and December 1, 2012. The goods are delivered on October 1, 2011. Collection is reasonably assured and the goods may no be returned.
● Emco sells goods to a customer on July 1, 2011 for P500,000. If the customer does not sell the goods to retail customers by December 31, 2012, the goods can be returned to Emco. The customer sells the goods to retail customers on October 1, 2012.
What amount of sales revenue should be reported in the 2011 income statement? a. 350,000
b. 850,000 c. 450,000 d. 550,000
Solution16-41 Answer a Goods sold FOB shipping point
Delivery of one equipment on February 10, 2011 Goods sold on account on October 1, 2011 Total sales revenue
Problem 16-42 (AICPA Adapted)
Marie Company, a distributor of machinery, bought a machine from the manufacturer in November 2011 for P10,000. On December 30, 2011, Marie sold this machine to Zoe Company for P15,000 under the following terms: 2% discount if paid wihtin thirty days, 1% discount if paid after thirty days but within sixty days, or payable in full within ninety days if not paid within the discount periods. However, Zoe had the right to return this machine to Marie if it was unable to resell the machine before expiration of the ninety-day payment period, in which case Zoe's obligation to Marie would be canceled. In Marie's
net sales for the year ended December 31, 2011, what amount should be included for the sale of this machine? a. 15,000
b. 14,700 c. 14,850 d. 0
Solution 16-42 Answer d
Problem 16-43 (AICPA Adapted)
On January 1, 2011, Bell Company contracted with the City of Manila to provide custom built desks for the city schools. The contract made Bell the city's sole supplier and required Bell to supply no less than 4,000 desks and no more than 5,500 desks per year for two years. In turn, the City of Manila agreed to pay a fixed price of P550 per desk. During 2011, Bell produced 5,000 desks for the City of Manila. On December 31, 2011, 500 of these desks were
segregated from the regular inventory and were accepted and awaiting pickup by the City of Manila. The City of Manila paid Bell P2,250,000 during 2011. What amount should Bell recognize as contract revenue in 2011? a. 2,250,000
b. 2,475,000 c. 2,750,000 d. 3,025,000
Contract revenue (5,000 x 550) 2,750,000
Problem 16-44 (AICPA Adapted)
Delicate Company is a wholesale distributor of automotive replacement parts. Inintial amounts taken from accouting records on December 31, 2011 are as follows:
Inventory on December 31 based on physical count Accounts payable
Sales
A. Parts held on consignment from another entity to Delicate, the consignee, amounting to P165,000, were included in the physical count on December 31, 2011, and in accounts payable on December 31, 2011. B. P20,000 of parts which were purchased and paid for in December 2011, were sold in the last week of 2011 and appropriately recorded as sales of P28,000. The parts were included in the physical count on December 31, 2011 because the parts were on the loading dock waiting to be picked up by the customer. C. Parts in transit on December 31, 2011 to customers, shipped FOB shipping point on December 28, 2011, amounted to P34,000. The customers received the parts on January 6, 2012. Sales of P40,000 to the customers for the parts were recorded by Delicate on January 2, 2012.
D. Retailers were holding P210,000 at cost and P250,000 at retail, of goods on consignment from Delicate, at their stores on December 31, 2011.
E. Goods were in transit from a vendor to Delicate on December 31, 2011. The cost of goods was P25,000. The goods were shipped FOB shipping point on December 29, 2011.
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 Solution 16-44 Question 1 Answer a
Question 2 Answer d Question 3 Answer c
Inventory Accounts payable
Unadjusted 1,250,000 1,000,000 A (165,000) (165,000) B (20,000) -C - -D 210,000 -E 25,000 25,000 Adjusted 1,300,000 860,000
4,000,000 100,000 50,000 400,000 300,000 250,000 150,000 200,000 800,000 180,000 50,000 2,500,000 4,000,000 (100,000) 50,000 400,000 150,000 200,000 800,000 (50,000) 250,000 5,700,000
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 1,400,000 650,000 2,000,000 500,000 240,000 250,000 100,000 360,000 5,500,000
2,000,000 250,000 140,000 720,000 1,000,000 50,000 100,000 20,000 110,000 60,000 2,000,000 100,000 900,000 1,000,000 170,000 4,170,000 5,000,000 500,000 400,000 1,000,000 100,000 600,000 200,000 300,000 250,000
On December 28, 2011, Kerr Company purchase goods costing P500,000. The terms where F.O.B. destination.
These goods were received on December 31, 2011. On December 31, 2011, what total cost for these goods should be included in the inventory?
When the shipping terms are FOB destination, the seller is responsible for costs incurred in transporting the goods to the buyer, such as packaging costs, shipping costs and special handling charges. The amount to be included in the buyer's inventory
On December 26, 2011, Branigan Company purchased goods costing P1,000,000. The terms were FOB Shipping point.
Costs incurred by Branigan Company in connection with the purchase and the delivery of the goods were as follows:
30,000 20,000 5,000 12,000
1,800,000 90,000 1,200,000 50,000 1,800,000 90,000 1,890,000 Held by consignees 120,000 600,000 50,000 80,000 200,000
Brooke Company uses a perpetual inventory system. At the end of 2010, the balance in the inventory account was P360,000 and P30,000 of those goods included in ending inventory were purchased FOB Shipping point and did not arrived until 2011. Purchases in 2011 were P3,000,000. The perpetual inventory records showed an ending inventory
A physical count of the goods on hand at the end of 2011 showed an inventory of P380,000. Inventory shortages are included in cost of goods sold. What amount should be reported in the 2011 income statement for cost of good sold?
On December 1,2011, Alt department store received 505 sweaters on consignment from Todd. Todd's cost for the sweaters was P800 each, and they were priced to sell at P1,000. Alt's commision on consigned goods is 10%. On December 31, 2011, 5 sweaters remained. In its December 31, 2011 statement of financial position, what amount should
On October 1, 2011, Grimm Company consigned 40 freezer to Holden Company costing P14,000 each for sale at P20,000 each and paid P16,000 in transportation costs. On December 30, 2011, Holden reported the sale of 10 freezer and remitted P170,000. The remittance was net of the agreed 15% commision. What amount should Grim recognize as consignment
An analysis of the ending inventory of Lilac Company on December 31, 2011 disclosed the inclusion of the following items:
165,000 100,000 195,000 40,000
35,000 100,000 45,000 10,000 35,000 190,000
Dean Sportswear regularly buys sweaters form Mill Company and is allowed trade discounts of 20% and 10% from the list price. Dean made a purchase on March 20, 2011, and received an invoice with a list price of P600,000, a freight charge of
Hungary sold merchandise with a list price of P2,000,000 to a customer who was given a trade discounts of 20% and 15%. Credit terms were 2/10,n/30. The goods were shipped FOB destination, freight collect. Total freight charge paid by the customer returned damged goods originally billed at P60,000. What is the net realizable value of this account receivable
On June 1, 2011, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on account. Pitt allowed trade discount of 30% and 20%. Credit terms were 2/10,n/30 and the sale was made FOB shipping point. Pitt prepaid P200,000 of delivery costs for Burr as an accommodation. On June 11, 2011, what amount was received by Pitt form Burr as
On August 1 of the current year, Stella Company recorded purchases of inventory of P800,000 and P1,000,000 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 amount in the determination of cost of goods available for sale?
Under the net method, the purchase discount is deducted from purchases regardless of whether taken or not taken.
Under the gross method, the purchases are recorded at gross and only the purchase discount taken is deducted
Rabb Company records its purchases at gross amount but wishes to change to recording purchases net of purchase discounts. Discount available on purchases for the current year totaled P100,000. Of this amount, P10,000 is still available in the accounts payable balance. The balances in the accounts as of and for the year ended December 31,,
1,500,000 (10,000) 1,490,000
Duke Company specializes in the sale of IBM compatibles and software packages. It had the following transactions with
Hero Company's inventory on December 31, 2011 was P6,000,000 based on a physical count of goods priced at
● Included in the physical count were goods billed to a customer FOB shipping point on December 30,2011.
6,000,000 300,000 6,300,000 The goods costing P125,000 are properly included in the December 31, 2011 physical count because they are
merchandise with a total cost of P5,000,000. However, further investigation revealed that the following items
● A packing case containing a product costing P500,000 was standing in the shipping room when the physical
5,000,000 500,000 5,500,000
The inventory on hand on December 31, 2011 for Fair Company is valued at a cost of P950,000. The following
Purchased goods in transit, shipped FOB destination, invoice price P30,000 which includes
Goods held on consignment by Fair Company at a sales price of P28,000, including sales commission
Goods sold to Grace Company, under terms FOB destination, invoiced for P18,500 which includes
Purchased goods in transit, terms FOB shipping point, invoice price P50,000, freight cost, P2,500. Goods out on consignment to Manila Company, sales price P35,000, shipping cost of P2,000.
● P200,000 in goods that were sold by the entity and shipped on December 30 and were in transit on December 31, 2011.
● Goods valued at P1,000,000 are on consignment with a customer. These goods are not included in the year-end inventory.
● Goods costing P250,000 were received from a vendor on January 12,2012. The goods were shipped on December 31, 2011, terms FOB shipping point. ● Goods costing P850,000 were shipped on December 31, 2011, and were delivered to the customer on January 2, 2012. The terms of the invoice were FOB shipping point. The goods were included in ending inventory for 2011 even though the sale was recorded in 2011.
● A P350,0000 shipment of goods to a customer on December 31, 2011, terms FOB destination, was not included in the year-end inventory. The goods cost P260,000 ● An invoice for goods costing P350,000 was received and recorded as a purchase on December 31, 2011. The related goods, shipped FOB destination, were received ● Goods valued at P650,000 are on consignment from a vendor.These goods are not included in the year-end inventory.
● A P1,050,000 shipment of goods to a customer on December 30, 2011, terms FOB destination, was recorded as a sale in 2011. The goods, costing P840,000 and delivered
A physical count on December 31, 2011 revealed that Joy Company had inventory with a cost of P4,440,000. The Audit identified
● Merchandise costing P460,000 was shipped by Joy FOB shipping point to a customer on December 29, 2011. The customer was expected to receive the goods on January 5, 2012. Merchandise costing P830,000 shipped by a vendor FOB destination on December 31, 2011 was ● Merchandise costing P510,000 purchased FOB shipping point was shipped by the supplier on December 31, 2011 and received by Joy on
4,410,000 380,000 510,000 5,300,000
● Excluded from the inventory was merchandise costing P80,000 because it was transferred to the delivery department for
● The bill of lading and other import documents on a merchandise were delivered by the bank and the trust receipt accepted by the entity on December 26, 2011. Taxes and duties have been paid on this shipment but the broker did not deliver the merchandise until January 7, 2012. Delivered cost of the shipment totaled P800,000. This shipment was not included in the inventory on ● A review of the entity's purchased orders showed a commitment to buy P100,000 worth of merchandise from Myrose Company.
● Supplier's invoice for P300,000 worth of merchandise dated December 28, 2011 was received through the mail on December 30, 2011 although the goods arrived only on January 4, 2012. Shipment terms are FOB shipping point. This items was included in the
● Goods valued at P20,000 were received from Darlyn Company on December 28, 2011 for approval by Mia. The inventory team included this merhandise in the list but did not place any value on it. On January 4, 2012, thne entity informed the supplier by long distance telephone of the acceptance of the goods and the supplier's invoice was received on January 7, 2012.
5,000,000 80,000 800,000 (25,000) 5,855,000
The physical count conducted in the warehouse of Leila Company on December 31, 2011 revealed total cost of P3,600,000.
● Goods sold to a customer which are being held for the customer to call for the customer's convenience with a cost of
● A packing case containing a product costing P80,000 was standing in the shipping room when the physical inventory was taken.
● Goods costing P50,000 shipped by a vendor FOB seller on December 28, 2011 and received by Leila Company on January 10, 2012.
3,600,000 80,000 300,000 50,000 4,030,000
Black Company's accounts payable on December 31, 2011, totaled P4,500,000 before any necessary year-end adjustments relating to
● On December 27, 2011, Black wrote and recorded checks to creditors totaling P2,000,000 causing an overdraft of P500,000 in ● On December 28, 2011, Black purchased and received goods for P750,000, terms 2/10, n/30. Black records purchases and accounts ● Goods shipped F.O.B destination on December 20, 2011 from a vendor to Black were received January 2, 2012. The invoice cost
4,500,000 2,000,000 750,000
(15,000) 735,000 7,235,000
Kew Company 's accounts payable balance on December 31, 2011, was P2,200,000 before considering the following data:
● Goods shipped to Kew F.O.B. shipping point on December 22, 2011, were lost in transit. The invoice cost of P40,000 was not recorded by Kew.
● On December 27, 2011, a vendor authorized Kew to return, for full credit, goods shipped and billed at P70,000 on December 3, 2011.
The returned goods were shipped by Kew on December 28, 2011. A P70,000 credit memo was received and recorded by Kew on January 5, 2012 ● On December 31, 2011, Kew has a P500,000 debit balance in its accounts payable to Ross, a supplier, resulting from a P500,000 advance payment
2,200,000 40,000 (70,000) 500,000 2,670,000 Kew Company shall suffer the loss of the goods in transit because the goods are shipped FOB shipping point. Appropriately Kew
Bakun Company began operations late in 2010. For the first quarter ended March 31, 2011, Bakun made available the following information:
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 n 2011.
5,000,000 1,000,000 6,000,000
Aiza Company sells merchandise for P800,000 to a customer on December 31, 2011. The terms of the sale agreement state that payment is due in one year's time. Aiza has an imputed rate of interest of 9%. What amount of sales revenue should Aiza recognize from the transaction?
800,000 0.917 733,600
Lewis Company's usual sales terms are net 60 days, F.O.B. shipping point. Sales, net of returns and allowances, totaled P9,200,000 for the year
● On December 27, 2011, Lewis authorized a cutromer to return, for full credit, goods shipped and billed at P200,000 on December 15, 2011. The returned goods were received by Lewis on January 4, 2012, and a P200,000 credit memo was issued and recorded on the same date. ● Goods with an invoice amount of P300,000 were billed and recorded on January 3, 2012. The goods were shipped on December 30, 2011. ● Goods with an invoice amount of P400,000 were billed and recorded on December 30, 2011. The goods were shipped on January 3, 2012.
9,200,000 (200,000) 300,000 (400,000) 8,900,000
Fenn Company had sales of P5,000,000 during December 2011. Experience had 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,
On October 1,2011, Acme Company sold 100,000 gallons of heating oil to Kam Company at P30 per gallon. Fifty thousand gallons were delivered on December 15, 2011, and the remaining P50,000 gallons were delivered on January 15, 2012. Payment terms were: 50% due on October 1,2011, 25% on the first delivery, and the remaining 25% due on the second delivery. What amount of revenue should Acme recognize them from the sale
On July 1,2011, Loveluck Company, a manufacturer of office furniture, supplied goods to Kaye Company for P1,200,000 on condition that this amount is paid in full on July 1, 2012. Kaye had earlier rejected an alternative offer from Loveluck
On July 1,2011, Kathleen Company handed over to a client a new computer system. The contract price for the supply of the system and after-sales support for 12 months was P800,000. Kathleen estimates the cost of the after-sales support at P120,000 and it normally marks up such cost by 50% when tendering for support contracts. What is the total
800,000 (180,000) 620,000 90,000 710,000
Ilocos Company produced 80,000 kilos of tobacco during the 2011 season. Ilocos sells all of its tobacco to a certain customer which has agreed to purchase the entire production at the prevailing market price. Recent legislation assures that the market price will not fall below P100 per kilo during the next two years. The costs of selling and distributing the tobacco are immaterial and can be reasonably estimated. Ilocos reports its inventory to expected exit value. During 2011, Ilocos sold and delivered to the customer 60,000 kilos at the market price of P100. Ilocos sold the remaining 20,000 kilos during 2012 at the market price of P150. What amount of revenue should
Revenue is recognized at the point of production for agricultural, mineral and forest product when a sale is
The remainder of the sales in 2012 of P1,000,000 (20,000 x P50) is recognized as revenue in 2012 and not a
October 1, 2011, it agrees to a four-year contract with a major customer for P1,540,000. Costs over the period of the contract are reliably estimated at P513,330. What amount of revenue should be recognized for the year
● Emco sells three pieces of equipment on a contract over a three-year period. The sale price of each piece of equipment is P100,000. Delivery of each piece of equipment is on February 10 of each year. In 2011, the customer paid a P200,000 down payment, and will pay P50,000 per year in 2012 and 2013. Collectibility is ● On June 1, 2011, Emco signs a contract for P200,000 for goods to be sold on account. Payment is to be made in two installments of P100,000 each on December 1, 2011 and December 1, 2012. The goods are delivered ● Emco sells goods to a customer on July 1, 2011 for P500,000. If the customer does not sell the goods to retail customers by December 31, 2012, the goods can be returned to Emco. The customer sells the goods to retail
50,000 100,000 200,000 350,000
net sales for the year ended December 31, 2011, what amount should be included for the sale of this machine?
On January 1, 2011, Bell Company contracted with the City of Manila to provide custom built desks for the city schools. The contract made Bell the city's sole supplier and required Bell to supply no less than 4,000 desks and no more than 5,500 desks per year for two years. In turn, the City of Manila agreed to pay a fixed price of P550 per desk. During segregated from the regular inventory and were accepted and awaiting pickup by the City of Manila. The City of Manila paid Bell P2,250,000 during 2011. What amount should Bell recognize as contract revenue in 2011?
1,250,000 1,000,000 9,000,000
Net sales 9,000,000 -40,000 -9,040,000
17
BIOLOGICAL ASSETS
Problem 17-1 (IFRS)Forester Company on adoption of PAS 41 has reclassified certain assets as biological assets. The total value of the forest assets is P6,000,000 which comprises:
Freestanding trees 5,100,000
Land under trees 600,000
Roads in forests 300,000
6,000,000
In Forester Company's statement of financial portion, what total amount of the forest assets shall be classified as biological assets?
a. 5,100,000 b. 5,700,000 c. 5,400,000 d. 6,000,000
Solution 17-1 Answer a
Only the freestanding trees shall be classified as biological assets.
The land under trees and roads in forests shall be included in property, plant and equipment.
Problem 17-2 (IFRS)
Colombia Company is a producer of coffee. The entity is cosidering the valuation of its harvested coffee beans. Industry practice is to value the coffee beans at market value and uses as reference a local publication "Accounting for Successful Farms".
On December 31, 2011, the entity has harvested coffee beans costing P3,000,000 and with fair value less cost to sell of P3,500,000 at the point harvest.
Because of long aging ang maturation process after harvest, the harvested coffee beans were still on hand on December 31, 2012. On such date, the fair value less cost to sell is P3,900,000 and the net realizable value is P3,200,000.
What is the meaasurement of the coffee beans inventory on December 31, 2012? a. 3,000,000 b. 3,500,000 c. 3,200,000 d. 3,900,000 Solution 17-2 Answer c
Fair value measurement stops at the point of harvest and PAS 2 on inventory applies after such date.
Accordingly, the coffee beans inventory shall be measured at the lower of cost and net realizable value on December 31, 2012.
The fair value less cost to sell P3,500,000 at the point of harvest is the initial cost of coffee beans inventory for purposes of applying PAS 2.
The net realizable value of P3,200,000 is the measurement on December 31, 2012 because this is lower than the deemed cost of P3,500,00.
Problem 17-3 (IFRS)
Joan Company provided the following data:
Value of biological asset at acquisition cost on December 31, 2011 Fair valuation surplus on initial recognition at
fair value on December 31, 2011
Change in fair value to December 31, 2012 due to growth and price fluctuation
Decrease in fair value due to harvest
1. What is the carrying amont of the biological asset on December 31, 2012? a. 1,400,000
b. 1,310,000 c. 1,300,000 d. 1,490,000
2. What is the gain from change in fair value of biological asset that should be reported in the 2012 income statement:
a. 100,000 b. 800,000 c. 710,000 d. 10,000 Solution 17-3 Question 1 Answer b
Acquisiton cost - December 31, 2011 600,000
Increase in fair value on initial recognition 700,000
Change in fair value in 2012 100,000
Decrease in fair value due to harvest (90,000)
Carrying amount - December 31, 2012 1,310,000
Question 2 Answer d
Change in fair value in 2012 100,000
Decrease in fair value due to harvest (90,000)
Net gain 10,000
Problem 17-4 (IFRS)
Salve Company is engaged in raising dairy livestock. Information regarding its activities relating to the dairy livestock is as follows:
Carrying amount on January 1, 2011 Increase due to purchases
Gain arising from change in fair value less cost to sell attributable to price change
Gain arising from change in fair value less cost to sell attributable to physical change
Decrease due to sales Decrease due to harvest
What is the carrying amount of the biological asset on December 31, 2011? a. 6,950,000
b. 6,000,000 c. 8,000,000 d. 7,150,000
Solution 17-4 Answer a
Carrying amount - January 1, 2011 Increase due to purchases
Gain from change in fair value due to price change Gain from change in fair value due to physical change Decrease due to sales
Decrease due to harvest
Carrying amount - December 31, 2011
Problem 17-5 (IFRS)
Honey Company has a herd of 10 2-year old animals on January 1, 2011. Oe animal aged 2.5 years was purchased on July 1,2011 for P108, and one animal was born on July 1,2011. No animals were sold or disposed of during the year. the fair value less cost to sell per unit is as follows:
2 - year old animal on January 1 100
2.5 - year old animal on Jaly 1 108
New born animal on July 1 70
2 - year old animal on December 31 105
2.5 - year old animal on December 31 111
New born animal on December 31 72
3 - year old animal on December 31 120
0.5 - year old animal on December 31 80
1. What fair value of the biological assets on December 31, 2011? a.1,400
b. 1,320 c. 1,440 d. 1,360
2. What is the gain from change in fair value of biological assets that should be recognized in 2011? a. 222
b. 292 c. 300 d. 332
a. 292 b. 222 c. 327 d. 55 Solution 17-5 Question 1 Answer a
Fair value of 3 - old animals on December 31 ( 11×P120)
Fair value of 0.5-year old animals on December 31, the newborn (1 × P8 0)
Total fair value - December 31,2011 Question 2 Answer b
Fair value of 10 animals on January 1 ( 10 × P100 ) Acquisition cost of one animal on July 1
Total carrying amount of biological assets - December 31 Fair value on December 31, 2011
Carrying amount
Gain from change in fair value Question 3 Answer d
Gain from change in fair value due to price change: 50
3 2 55 TOTAL
Gain from change in fair value due to physical change: 10 3-year old animal acquired 1/1/2011
( 120 - 105 = 15 × 10 ) 150
1 3-year old animal acquired 7/1/2011
( 120 - 111 = 9 × 1 ) 9
1 0.5-year old born on 7/1/2011 ( 80 - 72 = 8 × 1 ) 8
1 newborn (70 × 1 ) 70
10 2-year old animals ( 105 － 100 = 5 × 10 ) 1 2.5-year old animal ( 111－108 = 3 × 1 ) 1 newborn on July 1 ( 72 － 70 = 2 × 1 )
TOTAL 237
Price change 55
Physical Change 237
Total gain from change in fair value 292
Problem 17-6 (IFRS)
Farmland Company produces milk on its farms. Thne entity produces 20% of the community's milk that consumed. Farmland Company own 5 farms and had a stock of 2,100 cows and 1,050 heifers.
The farms produce 800,000 kilograms of milk a year and the average inventory held is 15,000 kilograms of milk.
However, on December 31,2011 the entity is currently holding 50,000 kilograms of milk in powder. On December 31,2011, The biological assets are:
Purchased before January 1, 2011 ( 3 years old )
Puchased on January 1, 2011 ( 2 years old )
Purchased on July 1, 2011 ( 1.5 years old )
No animals were born or sold durin the current year. The unit fair value less cost to sell is as follows. January 1, 2011: 1-year old 3,000 2- year old 4,000 July 1, 2011: 1-year old 3,000 December 31, 2011: 1-year old 3,200 2-year old 4,500 1.5-year old 3,600 3-year old 5,000
The entity has had problems during the year. Contaminated milk was sold to customers. As a result, milk consumption has gone down.
The entiy's business is spread over different parts of the country. The only region affected by the contamination was Batangas. However, the cattle in this area were unaffected by the contamination and were healthy. The entity
feels that it cannot measure the fair value of the cows in the region because of the problems created by the contamination. There are 600 cows and 200 heifers in the Batangas farm and all these animals had been purchased on January 1, 2011.
1. What fair value of the biological assets on January 1, 2011? a. 9,300,000
9,600,000 8,400,000 7,200,000
2. What is the fair value of biological assets purchased on July 1, 2011? a. 2,250,000
b. 3,000,000 c. 3, 750,000 d. 3,375,000
3. What is the fair value of biological assets on December 31, 2011? a. 14, 550,000
b. 15, 750,000 c. 15,225,000 d. 11,850,000
5. What is the increase in fair value of biological assets due to physical change? a. 1,260,000 b. 1,740,000 c. 3,000,000 d. 1,440,000 Solution 17-6 Question 1 Answer a
Cows which are 2 years old on 1/1/2011 ( 2,100×4,000 ) Heifers purchased which are 1 year old on 1/1/2011 ( 300 × 3,000 )
Total fair value - January 1,2011 Question 2 Answer a
Heifers purchased which are 1 year old on July 1, 2011
( 750 × 3,000 ) 2,250,000
Cows which are 3 years old on 12/31/2011
( 2,100 × 5,000 ) 10,500,000
Heifers which are 2 years old on 12/31/2011
( 300 × 4,500 ) 1,350,000
Heifers which are 1.5 years old on 12/31/2011
( 750 × 3,600 ) 2,700,000
Total fair value- December 31, 2011 14,550,000
Question 4 Answer a
Fair value - December 31, 2011 14,550,000
Fair value - January 1, 2011 (9,300,000)
Fair value - July 1, 2011 (2,250,000)
Increase in fair value 3,000,000
Question 5 Answer b
Increase due to price change:
2,100 × ( 5,000 - 4,000 ) 1,050,000 300 × ( 3,200 - 3,000 ) 60,000
750 × ( 3,200 - 3,000 ) 150,000 1,260,000
Increase due to physical change: 2,100 × ( 5,000 - 4,500 )
300 × ( 4,500 - 3,200 ) 1,050,000 750 × ( 3,600 - 3,200 ) 390,000
300,000 1,740,000
Total increase in fair value 3,000,000
Problem 17-7 (IFRS)
DairyComapny provided the following balances for the year ended December 31,2011:
Cash 500,000
trade and other receivables 1,500,000
Inventories 100,000
Dairy livestok - immature 50,000
Dairy livestock - mature 400,000
Property, plant and equipment, net 1,400,000
Trade and othe payables 520,000
Share capital 1,000,000
Retained earnings - January 1 800,000
Fair value of milk produced 600,000
Gain from change in fair value 50,000
Inventories used 140,000
Staff costs 120,000
Depreciation expense 15,000
Other operating expenses 190,000
Income tax Expense 55,000
1. What is the net income for 2011? a. 650,000
b. 600,000 c. 130,000 d. 185,000
2. What is the fair value of biological assets on December 31, 2011? a. 550,000 b. 450,000 c. 500,000 d. 400,000 Solution 17-7 Question 1 Answer c
Fair value of the milk produced 600,000
Gain from change in fair value 50,000
Total income 650,000
Inventories used (140,000)
Staff costs (120,000)
Depreciation expense (15,000)
Other operating expenses (190,000)
Income before income tax 185,000
Income tax Expense (55,000)
Net income 130,000
Question 2 Answer b
Dairy livestock - mature 400,000
600,000 700,000 100,000 90,000
5,000,000 2,000,000 400,000 600,000 850,000 200,000
5,000,000 2,000,000 400,000 600,000 (850,000) (200,000) 6,950,000
Honey Company has a herd of 10 2-year old animals on January 1, 2011. Oe animal aged 2.5 years was purchased on July 1,2011 for P108, and one animal was born on July 1,2011. No animals were sold or disposed of during the year.
1,320 80 1,400 1,000 108 1,108 1,400 1,108 292
