CHAPTER 4 INVENTORIES
PROBLEMS 4-1.(Hamster Company)
Include Exclude
Goods displayed in the store √
Goods stocked in the warehouse, not covered by any
sales contract √
Goods purchased, in transit, shipped FOB seller √ Goods purchased, in transit, shipped FOB
destination
√ Freight cost on goods received, goods are still
unsold √
Goods held on consignment √
Goods out on consignment √
Goods out to customers on approval √
Goods in the hands of traveling salesmen √
Goods sold with a buyback arrangement for the full
selling price and other costs incurred by the buyer √ Unused factory supplies and indirect materials √ Goods which require additional processing √ Direct materials stocked in the warehouse √
Storage costs of goods completed √
Insurance premiums paid on stocked goods √
Goods completed, manufactured to customer’s specification, awaiting instruction for delivery by the customer
√
Freight paid on goods sold √
Unused supplies for administrative purposes √
Unused store supplies √
Goods sold with a right to return granted to buyers,
amount of return is reasonably predictable. √
4-2. (Crossings Company)
Invoice price (150,000 x 0.80 x 0.90) P 108,000
Freight charge 2,500
Total cost of merchandise purchases P 110,500
Reported units on April 30, 2013 10,200 Adjustments:
No. 1 item – Purchased FOB shipping point
still in transit not included in purchases 250 No. 3 item – Sold FOB destination still in transit not
included in inventory 500
Correct inventory quantity 10,950
4-4. (Orient Trading)
Reported inventory P9,500,000
Merchandise in transit purchased FOB destination (420,000)
Goods held on consignment (500,000)
Mark up on goods out on consignment
Sales price 600,000
Cost (600,000÷ 1.5) 400,000 (200,000)
Merchandise in transit to customers FOB destination
400,000 x (100% - 40%) 240,000
Correct inventory P8,620,000
4-5. (Tintin Company)
Physical inventory at December 31, 2013 P 172,000
Merchandise in transit shipped FOB shipping point 31,500 Merchandise sold FOB destination still in transit 12,500
Correct inventory at December 31, 2013 P 216,000
4-6. (Centerpoint, Inc.)
Reported inventory P 562,500
Adjustments:
a. Goods out on consignment 110,000
b. Goods purchased in transit FOB shipping point 27,000 c. Goods sold in transit FOB shipping point
included in inventory (85,000) d. Goods sold in transit FOB destination
not included in inventory 26,000 g. Goods sold in transit FOB destination
not included in inventory 37,000
Correct inventory P 677,500
4-7.
(Mega Company)
Cost of Ending
Inventory Cost of Goods Sold Gross Profit
FIFO 3,506 4,550 1,955
Weighted average 3,333 4,726 1,779
Moving average 3,370 4,686 1,819
FIFO
Cost of ending inventory:
275 x 11.75 3,231.25
25 x 11.00 275.00 3,506.25 Cost of goods sold:
Cost of goods available for sale 8,056.25
Gross profit:
Sales 6,505.00
Less cost of goods sold 4,550.00 1,955.00 Weighted average
Cost of ending inventory:
Cost of goods available for sale 8,056.25 Number of units available for sale ÷ 725 Weighted average cost per unit 11.11
Units in ending inventory x 300 3,333.00 Cost of goods sold:
Cost of goods available for sale 8,056.25
Less ending inventory 3,330.00 4,726.15 Gross profit:
Sales 6,505.00
Less cost of goods sold 4,726.25 1,778.75 Moving average
Cost of ending inventory:
Inventory, January 1 250 x 10.50 = 2,625.00 Purchase, March 7 200 x 11.00 = 2,200.00 Total 450 x 10.72 = 4,825.00 Sale, May 20 (120 x 10.72 = 1,286.40) Sale, June 30 ( 55 x 10.72 = 589.60) Balance 275 x 10.72 = 2,949.00 Purchase, July 15 275 x 11.75 = 3,231.25 Total 550 x 11.24 = 6,180.25 Sale, September 17 (250 x 11.24 = 2,810.00) Balance 300 x 11.24 = 3,370.25
Cost of goods sold:
Cost of goods available for sale 8,056.25
Less ending inventory 3,370.25 4,686.00 Gross profit:
Sales 6,505.00
Less cost of goods sold 4,686.00 1,819.00 4-8. (Landmark Enterprises)
a. Cost of ending inventory 1/1 2,400@ 10.75 25,800 1/5 1,900@ 11.35 21,565 4,300@ 11.02 47,365 1/8 2,200@ 11.02 24,244 2,100@ 11.01 23,121 1/24 3,800@ 11.80 44,840 5,900@ 11.52 67,961 1/30 3,600@ 11.52 41,472 2,300@ 11.52 26,489
Number of units available for sale (2,400 + 1,900 + 3,800) ÷ 8,100
Weighted average cost per unit P 11,38
Number of units in ending inventory x 2,300
Cost of ending inventory P26,174
4-9. (Rockwell Club, Inc.)
Amount Units
Cost of sales:
Sales (160,500 x 12) 1,926,000
Less gross profit 738,600 P1,187,400 160,500 Add ending inventory
42,000 x 7.40 310,800
3,000 x 7.20 21,600 332,400 45,000
Available for sale P1,519,800 205,500
Deduct purchases 1,150,050 154,500
Inventory, January 1 P 369,750 51,000
Average cost per unit (369,750 ÷ 51,000 units) P 7.25
4-10. (Sta. Lucia Company)
2011 2012 2013
Reported profit under average method P3,600,000 P5,000,000 P7,000,000 Difference in inventory using FIFO
Beginning inventory - ( 40,000) (120,000)
Ending inventory 40,000 120,000 650,000
Profit under FIFO basis P3,640,000 P5,080,000 P7,530,000
4-11. (City Company)
Cost (under FIFO basis) P26,000
Net realizable value (40,000 – 12,000) P28,000
Lower of cost and net realizable value P26,000
4-12. (Rustan’s Trading)
Product Cost NRV Lower Quantity Amount
A 102 105 102 4,000 P408,000 B 45 42 42 6,000 252,000 C 24 22 22 5,500 121,000 D 9 10 9 7,200 64,800 Total P845,800 4-13. Dechavez Company (a) Direct Method
The profit is computed as follows:
2013 2012
Sales P3,200,000 P2,900,000
Cost of goods sold (1,280,000) (1,020,000)
Gross profit P1,920,000 P1,880,000
General and administrative expenses (300,000) (310,000)
Profit P 1,170,000 P 1,240,000
Cost of goods sold:
Beginning inventory P 480,000 P 300,000
Purchases 1,400,000 1,200,000
Total cost of goods available for sale P1,880,000 P 1,500,000
Ending inventory 600,000 480,000
Cost of goods sold P1,280,000 P 1,020,000
(b) Allowance method
The profit is computed as follows:
2013 2012
Sales P3,200,000 P2,900,000
Cost of goods sold (1,240,000) (1,080,000)
Gross profit P1,960,000 P1,820,000
Selling expenses (450,000) (330,000
General and administrative expenses (300,000) (310,000)
Decline in NRV (40,000
Gain on adjustment of allowance __________- 60,000
Profit P 1,170,000 P 1,240,000
Cost of goods sold:
Beginning inventory P 500,000 P 380,000
Purchases 1,400,000 1,200,000
Total cost of goods available for sale P1,900,000 P 1,580,000
Ending inventory (660,000) 500,000
Cost of goods sold P1,240,000 P 1,080,000
4-14. (Purple Company)
Cost P200,000
Net realizable value (204,000 – 10,000) 194,000
Loss 6,000
4-15. (Powder Blue Company)
Inventory, January 1 P1,400,000
Purchases during the year 6,600,000
Cost of goods available for sale P8,000,000
Less Inventory, December 31 1,200,000
Cost of goods sold P6,800,000
4-16. (Philam Grocers Company)
(a) Cost of product X and product Y
Product X Product Y
January 1 inventory 2,500 units 1,500 units
Purchases 7,400 units 4,500 units
Sold (7,000 units) (5,000 units)
December 31 inventory 2,900 units 1,000 units
Unit cost (all coming from latest purchase price, as ending inventory is less than number in latest
Ending inventory at FIFO cost P362,500 P98,000 (b)
Product X Product Y Sales price (effective 2014) 90% x previous SP P135.00 P111.60
Estimated selling cost (13.50) (11.16)
Net realizable value P121.50 P100.44
Lower of cost and net realizable value, per unit P121.50 P98 Number of units in ending inventory 2,900 units 1,000 units Inventory value at lower of cost and NRV P352,350 P98,000 Total inventory value at December 31, 2013 352,350+98,000 = P450,350
(c) Cost of goods sold in the statement of comprehensive income
Product X Product Y Total
Inventory Jan. 1 P300,000 P135,000 P435,000
Purchases 916,600 432,500 1,349,100
Goods available for sale P1,216,600 P567,500 P1,784,100
Ending inventory at cost 362,500 98,000 460,500
Cost of goods sold P1,323,600
(d) Inventory at cost P460,500
Inventory at lower of cost and NRV 450,350
Required allowance P 10,150
Existing allowance 15,000
Gain on adjustment of allowance P 4,850
(e) Inventory 460,500
Income Summary 460,500
(or using the cost of goods sold method)
Inventory, December 31 460,500
Cost of goods sold 1,323,600
Purchases 1,349,100
Inventory, January 1 435,000
Allowance to Reduce Inventory to NRV 4,850
Gain on Adjustment of Allowance to Reduce Inventory to NRV 4,850
4-17. (DEC Company)
(a) Gross profit is 40% based on sales
Merchandise inventory, January 1, 2013 P 450,000
Purchases for the year 3,150,000
Cost of goods available for sale P3,600,000
Less estimated cost of goods sold (4,200,000 x 60%) 2,520,000
Estimated cost of ending inventory P 1,080,000
Physical inventory on December 31, 2013 500,000
Estimated cost of the missing inventory P 580,000
(b) Gross profit is 40% based on cost of sales
Merchandise inventory, January 1, 2013 P 450,000
Cost of goods available for sale P3,600,000 Less estimated cost of goods sold (4,200,000/1.40) 3,000,000
Estimated cost of ending inventory P 600,000
Physical inventory on December 31, 2013 500,000
Estimated cost of the missing inventory P 100,000
4-18.
Estimated cost of goods sold (705,000 – 18,000)/ 1.20 P572,500
Add Inventory at July 20, 2013 205,000
Cost of goods available for sale P777,500
Less net purchases for the period (650,000 – 12,000 + 6,000) 644,000
Estimated cost of June 30, 2013 inventory P133,500
4-19. (Manel’s Company)
Merchandise inventory, January 1 P2,000,000
Purchases (1,000,000 + 40,000 – 60,000) 980,000
Available for sale P2,980,000
Estimated cost of goods sold (3,200,000 x 70%) 2,240,000
Estimated ending inventory P 740,000
Less goods undamaged located in showroom (200,000 + 80,000) 280,000 Estimated cost of merchandise destroyed by the flood P 460,000 4-20. (Old Rose Company)
Inventory, January 1, 2013 P1,000,000
Purchases 800,000
Freight in 20,000
Cost of goods available for sale P1,820,000
Estimated cost of goods sold (2,200,000 – 50,000) x 70% 1,505,000
Estimated cost of ending inventory P 315,000
Inventory per actual count 160,000
Shortage in inventory P 155,000
4-21. (Blazing Red Company)
Inventory, January 1, 2012 P 575,400
Purchases:
Payments to suppliers P1,950,000
Accounts Payable, 8/28/12 491,400
Accounts Payable, 1/1/12 ( 352,560) 2,088,840
Cost of goods available for sale P2,664,240
Estimated cost of goods sold:
Collections from customers P3,015,200
Accounts Receivable, 8/28/12 515,560
Accounts Receivable, 1/1/12 ( 522,360)
Sales P3,008,400
Cost percentage 70% 2,105,880
Estimated cost of ending inventory P 558,360
Estimated cost of ending inventory P 558,360
Less undamaged goods:
Goods out on consignment P 195,000
Goods in transit 69,500 264,500
4-22. (Chic Department Store) a. FIFO cost basis
Cost Retail
Inventory, June 1 P 355,000 P 750,000
Purchases 2,400,000 4,000,000
Available for sale P2,755,000 P4,750,000
Sales 3,500,000
Inventory, June 30 at retail P1,250,000
Cost percentage (2,400,000/4,000,000) 60%
Estimated cost of inventory P 750,000
Cost of goods available for sale P2,800,000
Less estimated cost of ending inventory 750,000
Estimated cost of goods sold P2,050,000
b. Average cost basis
Inventory, June 30 at retail P1,250,000
Cost percentage (2,755,000/4,750,000) 58%
Estimated cost of inventory P 725,000
Cost of goods available for sale P2,800,000 Less estimated cost of ending inventory 725,000
Estimated cost of goods sold P2,075,000
4-23. (London Company Average cost retail
Cost Retail Beginning Inventory 145,000 160,000 Purchases 283,920 420,800 Additional markups 25,200 Markup cancellations (9,200) Markdown (38,100) Markdown cancellations 6,900
Total available for sale
Cost to retail ratio (428,920/565,600=75.8% 428,920 565,600
Sales , net of sales returns (434,800)
Ending inventory at retail 130,800
Ending inventory at average cost retail (130,800 x 75.8%) 99,146 4-24. (Alemars Drygoods, Inc.)
Retail Beginning Inventory P1,050,000 Purchases 735,000 Markups (1,600 x 50) 80,000 Markup cancellations (300 x 50) ( 15,000) Markdowns (105,000) Total P1,745,000 Sales Revenue (1,050,000)
Ending Inventory, at retail P 695,000
Physical inventory on January 31, 2012 665,000
4-25. (Uniwide Sales)
(a) (1) Average retail
Cost Retail Beginning Inventory P185,700 P202,000 Purchases 339,380 458,000 Purchase Allowance ( 11,000) Freight In 7,300 Departmental Transfers In 2,000 3,000 Additional Markups 12,000 Markup Cancellations ( 2,500) Markdowns (6,000 – 4,500) _________ (1,500) Total P523,380 P671,000 Sales (374,000) Inventory Shortage (7,000)
Ending Inventory, at retail P290,000
Cost to retail ratio (523,380/671,000) 78%
Ending Inventory, at estimated average cost P226,200
(2) FIFO retail (exclude the beginning inventory in computing the cost ratio) 337,680/469,000 = 72%
Ending inventory at FIFO cost 72% x P290,000 = P208,800
(b) Cost of goods sold
Average FIFO
Goods available for sale P523,380 P523,380
Ending inventory (226,200) (208,800)
Cost of goods sold P297,180 P314,580
4-26. (Grand Central, Inc.)
Profit reported for 2013 P658,000
Adjustments:
Overstatement of beginning inventory 71,000
Understatement of ending inventory 96,000
Cash advance for future manufacture and delivery of goods
credited to sales revenue (60,000)
Correct net income for 2013 P765,000
4-27. (USTFU Company) (a)
Dec. 31, 2013
Loss on Purchase Commitments 50,000
Estimated Liability on Purchase Commitments 50,000 1,000 x (1,200 – 1,150)
Feb. 28, 2014
Purchases 1,150,000
Estimated Liability on Purchase Commitments 50,000
(b)
Dec. 31, 2013
Loss on Purchase Commitments 50,000
Estimated Liability on Purchase Commitments 50,000 1,000 x (1,200 – 1,150)
Feb. 28, 2014
Purchases 1,200,000
Estimated Liability on Purchase Commitments 50,000
Accounts Payable 1,200,000
Recovery of Loss on Purchase Commitments 50,000 MULTIPLE CHOICE QUESTIONS
Theory MC1 D MC6 A MC11 C MC16 A MC2 A MC7 A MC12 A MC17 D MC3 D MC8 D MC13 A MC18 D MC4 D MC9 A MC14 C MC19 C MC5 D MC10 A MC15 D MC20 D MC21 D Problems MC22 D 90,000 x .80 x ..90 = 64,800; 64,800 + 5,000 = 69,800 MC23 C 150,000 x .85 x .90 x .95 = 109,012.50 MC24 A 109,012.50 x .98 = 106,832.25 MC25 B 3,280,000 + 900,000– 80,000 = 4,100,000 x 3% =123,000; 123,000–27,000=96,000 MC26 D 1,500,000 + 50,000 = 1,550,000 MC27 B (b) 450,000 ÷ 1.5 = 300,000; (d) 600,000 + 60,000 = 660,000 (e) 300,000 ÷ 1.5 = 200,000 + 30,000 = 230,000 3,000,000 + 300,000 + 660,000 + 230,000) = 4,190,000 MC28 C 5,000,000 + 80,000 + 800,000 – 25,000 = 5,855,000 MC29 B 77,500 + 6,000 = 83,500 MC30 C 550,000 + 90,000 + 380,000 + 450,000 + (150,000 x .80) = 1,590,000 MC31 C 104,000 ÷ 1.3 = 80,000; 80,000 x .30 = 24,000 24,000 + 56,000 + (32,500 – 25,000) = 87,500 MC32 A (3,000 x 35) + (2,000 x 36) + (1,000 x 37) = 214,000 Sales (4,000 x 25) + (2,000 x 26) = 152,000 CGS; 214,000 – 152,000 = 62,000 MC33 C (1,600 x 8) + (4,800 x 9.60) = 58,880; 58,880 ÷ 6,400 = 9.20
MC34 B Confidence: cost 22; NRV = 30 – 3 = 27; lower is 22 Positive attitude: cost 55; NRV = 80 – 28 = 52; lower is 52 MC35 C (1,000 x 25)+(2,000 x 36)+(3,000 x 120) +(4,000 x 18) =529,000 MC36 C 600,000 + 1,500,000 – (2,240,000 ÷ 1.4) = 500,000 MC37 C 2,550,000 + 250,000 – 300,000 = 2,500,000 Purchases 2,800,000 + 900,000 – 700,000 = 3,000,000 Sales 3,000,000 ÷ 1.25 = 2,400,000 CGS 180,000 + 2,500,000 – 2,400,000 = 280,000; 280,000 – 110,000 =170,000 short MC38 B CGS-2011 = 1,040,000; CGS-2012 =1,550,000; total CGS (2011 and 2012) = 2.59M 2011 and 2012 sales = 1,700,000 + 2,000,000 = 3,700,000; 2.59/3.7 = 70% 520,000 + 2,180,000 – (2,500,000 x 70%) = 950,000 950,000 – (70% x 150,000) – 95,000 = 750,000 MC39 D 408,8976 ÷ 524,200 = 78%; 450,200 – 5,100 = 445,100; 445,100 x 78% = 347,178 105,650 + (378,245 – 10,295) = 473,600; 473,600 - 347,178 =126,422
126,422 – 69,738 – 5,000 = 51,684
MC40 C 400,000 + 1,280,000 –740,000 = 940,000 Direct materials used 940,000 + 960,000 + (50%x 906,000) = 2,380,000 Total mfg. Cost 4,000,000 x 75% = 3,000,000 Cost of goods sold
3,000,000 + 1,310,000 – 1,500,000 = 2,810,000 Cost of goods avail for sale 2,380,000 + 1,100,000 – 2,810,000 = 670,000
MC41 C 617,000 + 1,281,000 – 21,000 + 31,000 = 1,908,000 Avail for sale at cost 1,057,000 + 2,158,000 – 35,000 = 3,180,000 Avail for sale at retail 1,908,000 ÷ 3,180,000 = 60% Cost to retail ratio
3,180,000 – 2,365,000 + 62,000 = 877,000; 877,000 – 780,000 = 97,000 97,000 x 60% = 58,200
MC42 D 47,075 + 213,327 + 3,400 = 263,802 Avail for sale at cost
70,025 + 306,375 = 18,900 – 7,800 – 10,640 = 376,860 Avail for sale at retail 263,802 ÷ 376,860 = 70%; 320,500 x 70% = 224,350
MC43 A 376,860 – 320,500 = 56,360; 56,360 – 39,390 = 16,970; 16,970 x 70% = 11,879 MC44 C 23,000 + 120,000 = 143,000; 60,000 + 220,000 + 20,000 – 40,000 = 260,000
260,000 – 180,000 = 80,000; 143,000/260,000 = 55%; 55,000 P 80,000 =44,000 MC45 D 600,000 – 10,000 – 4,000 – 100,000 = 486,000
