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4-3. (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 Merchandise purchased in transit FAS 150,000 Correct inventory P8,770,000
4-4. (Tintin Company)
Physical inventory at December 31, 2016 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, 2016 P 216,000
4-5. (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
e. not included in inventory 26,000 g. Goods sold in transit FOB destination
not included in inventory 37,000 Correct inventory P 677,500
4-6. (Mega Company)
Cost of EI Cost of Goods Sold Gross Profit
FIFO 3,506 4,550 1,955
Weighted average 3,333 4,723 1,782 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
Less ending inventory 3,506.25 4,550.00 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 3,333.00 4,723.25 Gross profit:
Sales 6,505.00
Less cost of goods sold 4,723.25 1,781.75 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
4-7. (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
b. Cost of goods available for sale (25,800 + 21,565 + 44,840) P92,205 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
4-8. (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
4-9. (Mazda Corporation)
(a) FIFO 2014 2015 2016
Sales P12,000,000 P18,800,000 P29,400,000 Cost of goods sold 7,000,000 12,760,000 20,250,000 Gross profit P 5,000,000 P 6,040,000 P 9,150,000 Cost of goods sold:
2014 10,000 x 700 = 7,000,000 2015 3,000 x 700 = 2,100,000 13,000 x 820 = 10,660,000 12,760,000 2016 5,000 x 820 = 4,100,000 19,000 x 850 = 16,150,000 20,250,000 (b) Weighted average 2014 2015 2016 Sales P12,000,000 P18,800,000 P29,400,000 Cost of goods sold 7,000,000 12,845,760 20,211,360 Gross profit P 5,000,000 P 5,954,240, P 9,188,640 Cost of goods sold:
2014 10,000 x 700 7,000,000 2015 (3,000 x 700) + (18,000 x 820) x 16,000* 12,845,760
21,000
2016 (5,000 x 802.86) + (25,000 x 850) x 24,000* 20,211,360 30,000
*unit costs were rounded off to nearest centavo: 802.86 and 842.14, for 2015 and 2016, respectively.
4-10. (Sta. Lucia Company)
2014 2015 2016
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:
2016 2015
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 Selling expenses (450,000) (330,000) 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: 2016 2015
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
Cost P200,000 Net realizable value (204,000 – 10,000) 194,000
Loss P 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 latest purchases) P125 P98 Ending inventory at FIFO cost P362,500 P98,000 (b)
Product X Product Y Sales price (effective 2015) 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, 2016 (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 P 300,000 P135,000 P 435,000 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
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, 2016 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, 2016 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, 2016 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 (4,200,000/1.40) 3,000,000 Estimated cost of ending inventory P 600,000 Physical inventory on December 31, 2016 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, 2016 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, 2016 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 Cost of goods 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. (Herminia Company)
Inventory, January 1 P 200,000
Purchases P5,000,000
Purchase returns (80,000) 4,920,000
Estimated cost of goods sold (7,380,000 – 180,000) x 60%) 4,320,000 Estimated cost of ending inventory P 800,000 Goods in transit ( 100,000) Estimated cost of ending inventory P 700,000
4-21. (Old Rose Company)
Inventory, January 1, 2016 P1,000,000
Purchases 800,000
Freightin 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
4-22. (Blazing Red Company)
Inventory, January 1, 2016 P 575,400 Purchases:
Payments to suppliers P1,950,000 Accounts Payable, 8/28/16 491,400
Accounts Payable, 1/1/16 ( 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, 8/28/16 515,560 Accounts Receivable, 1/1/16 ( 522,360)
Sales P3,008,400
Cost percentage 70% 2,105,880 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 Estimated inventory fire loss P 293,860
4-23. (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 P2,755,000 Less estimated cost of ending inventory 750,000 Estimated cost of goods sold P2,005,000
(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 P2,755,000 Less estimated cost of ending inventory 725,000 Estimated cost of goods sold P2,030,000
4-24. (London Company) Average cost retail
Cost Retail Beginning Inventory P145,000 P160,000
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%
P428,920 P565,600 Sales, net of sales returns (434,800) Ending inventory at retail 130,800 Ending inventory at average cost retail (130,800 x 75.8%) P 99,146
4-25. (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, 2016 665,000 Inventory shortage at retail value P 30,000
4-26. (Uniwide Sales)
(a) (1) Average retail
Cost Retail Beginning Inventory P185,700 P202,000
Purchases 339,380 458,000
Purchase Allowance ( 11,000)
FreightIn 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
4-27. (Grand Central, Inc.)
(a)
Profit reported for 2016 P658,000 Adjustments:
Overstatement of beginning inventory 71,000 Understatement of ending inventory 96,000 Goods still in transit shipped to customers FOB destination
recorded as sales (40% x 60,000); related cost was excluded
in ending inventory (40% x 52,000), net (3,200) Purchases of 2015 recorded in 2016
100,000
Correct net income for 2016 P921,800 (b) Effect on 2015 profit
Understated 2015 ending inventory P 71,000 understated Understated 2015 purchases 100,000 overstated Net overstatement in 2015 profit P 29,000
4-28. (USTFU Company)
(a)
December 31, 2016
Loss on Purchase Commitments 50,000
Estimated Liability on Purchase Commitments 50,000 1,000 x (1,200 – 1,150)
February 28, 2017
Purchases 1,150,000
Estimated Liability on Purchase Commitments 50,000
(b)
December 31, 2016
Loss on Purchase Commitments 50,000
Estimated Liability on Purchase Commitments 50,000 February 28, 2017
Purchases 1,100,000
Estimated Liability on Purchase Commitments 50,000 Loss on Purchase Commitments 50,000
Accounts Payable 1,200,000 (c)
December 31, 2016
Loss on Purchase Commitments 50,000
Estimated Liability on Purchase Commitments 50,000 February 28, 2017
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 B MC6 A MC11 C MC16 A MC2 A MC7 A MC12 A MC17 D MC3 D MC8 D MC13 A MC18 D MC4 B MC9 A MC14 C MC19 C MC5 D MC10 A MC15 D MC20 D MC21 D Problems MC22 D Invoice price (90,000 x .80 x .90) P64,800 Freightcharge 5,000
Total cost of inventory P69,800
MC23 C Invoice price (150,000 x .85 x .90 x .95) P109,012.50
MC24 A Invoice price P109,012.50
Cash discount (109,012.50 x 2%) (2,180.25)
MC25 B Purchases of compatibles P3,280,000
Purchases of software package 900,000 Returns and allowances (80,000)
Net purchases P4,100,000
Total discounts available (4,100,000 x 3%) P123,000 Purchase discounts taken (27,000)
Discounts lost P 96,000
MC26 D Reported inventory, December 31 P1,500,000
Goods still in transit purchased FOB shipping point 50,000
Correct amount of inventory P1,550,000
MC27 B Reported amount of inventory P3,000,000
Goods sold in transit shipped FOB destination not included in
inventory (490,000 – 40,000 = 450,000; 450,000 ÷1.5) 300,000 Goods purchased in transit shipped FOB shipping point plus
freight cost (600,000 + 60,000) 660,000 Goods out on consignment
(300,000 ÷1.5 = 200,000; 200,000 + 30,000) 230,000
Correct inventory, December 31 P4,190,000
MC28 C Reported amount of inventory P5,000,000
Merchandise in the delivery department excluded in inventory 80,000 Imported goods not included, trust receipts already accepted 800,000 Goods in transit shipped FOB destination included in inventory (25,000)
Correct merchandise inventory P5,855,000
MC29 B Inventory taken by physical count P77,500
Goods purchased in transit FOB shipping point excluded 6,000
Correct amount of inventory P83,500
MC30 C Direct materials P550,000
Direct materials purchased in transit, FOB shipping point 90,000
Work in process 380,000
Finished goods 450,000
Goods on consignment (150,000 x 80%) 120,000
Total cost of inventory P1,590,000
MC31 C Mark up on merchandise on consignment
(104,000 ÷ 1.3 = 80,000; 80,000 x .30) P24,000 Goods held on consignment 56,000 Mark up on goods out on approval (32,500 – 25,000) 7,500
Reduction in inventory at December 31 P87,500
MC32 A Sales (3,000 x 35) + (2,000 x 36) + (1,000 x 37) P214,000
Cost of sales (4,000 x 25) + (2,000 x 26) 152,000
Gross profit on sales P 62,000
MC33 C 1/12 1,600 @ 8.00 12,800
1/22 4,800 @ 9.60 46,080
MC34 B Confidence: cost 22; NRV = 30 – 3 = 27
Positive attitude: cost 55; NRV = 80 – 28 = 52
Lower – P22 Lower – P52 MC35 C Product H 1,000 x 25 Product O 2,000 x 36 Product P 3,000 x 120 Product E 4,000 x 18 P 25,000 72,000 360,000 72,000
Total inventory value P529,000
MC36 C Beginning inventory P 600,000
Purchases (400,000 + 500,000 + 600,000) 1,600,000 Available for sale P2,200,000 Cost of goods sold (2,240,000 ÷ 1.4) 1,600,000
Cost of inventory before the fire P 500,000
MC37 C Inventory, beginning P180,000
Purchases (2,550,000 + 250,000 – 300,000) 2,500,000 Cost of goods sold (2.8M + 900,000 – 700,000 = 3.0M sales
3.0M / 1.25 (2,400,000)
Inventory, ending P280,000
Physical inventory 110,000
Amount of inventory shortage P170,000
MC38 B Total cost of goods sold for 2014 and 2015 (1.04M + 1.55M) P2,590,000
Total sales for 2014 and 2015 (1.7M + 2.0M) P3,700,000 Average cost rate (2,590,000/3,700,000) 70%
Inventory, January 1, 2016 P 520,000
Purchases 2,180,000
Total cost of goods available for sale P2,700,000 Estimated cost of goods sold (2,500,000 x 70%) 1,750,000 Estimated cost of ending inventory P950,000 Cost of merchandise out on consignment (150,000 x 70%) (105,000) Cost of goods undamaged (in transit FOB shipping point) (95,000)
Cost of inventory lost by fire P750,000
MC39 D Beginning inventory P105,650
Net purchases (378,245 – 10,295) 367,950 Estimated cost of goods sold (450,200 – 5,100) x 78%* (347,178) Estimated cost of ending inventory P126,422 Cost of undamaged inventory (69,738) Realizable value of damaged merchandise (5,000)
Estimated fire loss P 51,684
*Cost rate in 2015
Cost of goods sold (120,160 + 394,366 – 105,650 = 408,876
Net sales (530,180 – 5,980) = 524,200
= 78%
MC40 C Direct materials used (400,000 + 1,280,000 – 740,000) P940,000
Directlabor 960,000
Total manufacturing cost P2,380,000 Work in process, beginning 1,100,000 Total cost put into process P3,480,000
Cost of goods sold (4.0M x 75%) P3,000,000 Finished goods, end 1,310,000 Cost of goods available for sale P4,310,000
Finished goods, beginning (1,500,000) 2,810,000
Cost of work in process lost by fire P 670,000
MC 41 C Cost Retail
Inventory, January 1 P 617,000 P1,057,000
Purchases 1,281,000 2,158,000
Purchase returns (21,000) (35,000) Freight in 31,000 ___________ Available for sale P1,908,000 P3,180,000
Cost to retail ratio (1,908,000/3,180,000=60%)
Net sales (2,365,000 – 62,000) (2,303,000) Ending inventory, at retail P877,000 Physical count of inventory at retail 780,000 Inventory pilferage, at retail P 97,000
Cost of inventory pilferage (97,000 x 60%) P 58,200
MC42 D Cost Retail
Inventory, January 1 P47,075 P70,025
Purchases 213,327 306,375
Freightin 3,400
Net markups (18,900 – 7,800) 11,100
Markdowns _________ (10,640)
Available for sale P263,802 P376,860 Cost to retail ratio (263,802/376,860 = 70%)
Cost of goods sold (70% x 320,500) P224,350
MC43 A Available for sale at retail P376,860
Sales (320,500)
Ending inventory, at retail P56,360 Physical count of inventory 39,390 Inventory shortage, at retail P16,970
Estimated loss from inventory shortage (16,970 x 70%) P11,879
MC44 C Beginning inventory, at retail P60,000
Purchases 220,000
Netmarkups 20,000
Net markdowns (40,000)
Cost of goods available for sale, at retail P260,000
Sales revenue (180,000)
Ending inventory, at retail P80,000 Cost to retail ratio (143,000/260,000 = 55%) 55%
MC45 D Reported profit P600,000
Overstated ending inventory (10,000) Understated beginning inventory (4,000) Understated purchases (100,000)
