PROBLEM 1
In annual audit on December 31, 013, the following transactions of Novelty Company are discovered.
1. Merchandise was received on January 8, 2014, and the related purchase invoice recorded on January 5, 2014. The invoice showed the shipment was made on December 29, 2013, FOB destination.
2. Merchandise was received on December 28, 2013, and the invoice was not recorded. It was located in the hands of the purchasing agent and was marked on consignment.
3. A packing case containing merchandise 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”. An investigation revealed that the customer’s order was dated December 18, 2013, but the case was shipped and the customer billed on January 10, 2014.
4. Merchandise received on January 6, 2014 was recorded as a purchase on January 7, 2014. The invoice showed shipment was made FOB supplier’s warehouse on December 31, 2013. Since it was not on hand on December 31, 2013, it was not included in inventory.
5. A special article, fabricated to order for a customer, was finished and in the shipping room on December 31, 2013. The customer was billed on that date and the article was excluded from inventory although it wasshipped on January 4, 2014.
Required:
State whether the merchandise should be included in the inventory on December 31, 2013 and state the reason for each item.
Answer:
1. EXCLUDE – The term of the shipment is FOB destination. 2. EXCLUDE – The goods are held only for consignment.
3. INCLUDE – There is no perfected sale yet as of December 31, 2008.
4. INCLUDE – The term FOB supplier’s warehouse is synonymous with FOB shipping point.
5. EXCLUDE – There is already a constructive delivery since the article was specificallymade according to the customer’s specifications and the article is already completed on December 31, 2008.
Summer Company is a wholesaler of car seatcovers. At the beginning of the current year, the entity’s inventory consisted of 90 car seatcovers priced at P1,000 each. During the current year, the following events occurred:
1. Purchased 800 car seatcovers on account at P1,000 each.
2. Returned 50 defective car seatcovers to supplier and received credit. 3. Paid of the car seatcovers purchased.
4. Sold 790 car seatcovers at P2,000 each.
5. Received 2 0car seat covers returned by a customer and gave redit. The goods were in excellent condition.
6. Received cash for 680 of the car seat covers sold. 7. Physical count at year-end revealed 60 units on hand. Required:
a. Prepare journal entries, including adjustments to record the above transactions assuming the company uses periodic system and perpetual system.
b. Determine the cost of sales under each inventory system.
Requirement a
Periodic System Perpetual System 1. Purchases 800,000 1. Merchandise inventory 800,000 Accounts payable 800,000 Accounts payable
800,000
2. Accounts payable 50,000 2. Accounts payable 50,000 Purchase returns 50,000 Merchandise inventory 50,000
3. Accounts payable 600,000 3. Accounts payable 600,000
Cash 600,000 Cash 600,000 4. Accounts receivable 1,580,000 4. Accounts receivable 1,580,000
Sales 1,580,000 Sales 1,580,000
5. Sales return 40,000 Cost of sales 790,000 Accounts receivable 40,000 Merchandise inventory
790,000
6. Cash 1,360,000 5. Sales return 40,000
Accounts receivable 1,360,000 Accounts receivable 40,000
7. Inventory-Dec. 31 60,000 Merchandise inventory 20,000 Income summary 60,000 Cost of sales
20,000
6. Cash 1,360,000
Accounts receivable 1,360,000 7. Inventory shortage 10,000
Merchandise inventory 10,000 Merchandise inventory per book 70,000
Physical count 60,000
Shortage 10,000
Requirement b
Periodic System Perpetual System
Inventory – January 90,000 Cost of sales recorded
Purchases 800,000 (790,000 – 20,000) 770,000
Purchase returns ( 50,000) 750,000 Inventory shortage 10,000
Goods available for sale 840,000 Adjusted cost of sales
780,000
Less: Inventory – December 31 60,000
Cost of sales 780,000
PROBLEM 3
Daydream Company began operations on January 1 with 10,000 units of merchandise with unit cost of P80. Purchases for the year follow:
Lot No. Units Unit Cost
1 200 100
2 8000 110
3 6000 120
4 9500 100
5 14500 90
The physical inventory reveals 15,000 units on hand on December 31. Required:
Compute inventory cost on December 31 and cost of goods sold following each method listed below:
1. FIFO-periodic
2. Weighted average- periodic
3. Specific Identification (assuming the inventory comes form Lot 3 6,000 units and Lot 4, 9,000 units)
Units Unit cost Total cost 1. FIFO - periodic Lot No. 4 500 100 50,000 5 14,500 90 1,305,000 15,000 1,355,000 2. Beginning inventory 10,000 80 800,000
Purchases: Lot No. 1 2,000 100
200,000 2 8,000 110 880,000 3 6,000 120 720,000 4 9,500 100 950,000 5 14,500 90 1,305,000
Goods available for sale 50,000 4,855,000
Weighted average (4,855,000/50,000) 15,000 97.10 1,456,500
3. Specific identification
Lot 3 6,000 120 720,000
4 9,000 100 900,000
15,000 1,620,000
Goods available Inventory-Dec. 31 Cost of sales
FIFO 4,855,000 1,355,000 3,500,000
Weighted average 4,855,000 1,456,500 3,398,500 Specific identification 4,855,000 1,620,000 3,235,000
PROBLEM 4
The following information pertains to an inventory item of Emcee Company for the month of December of the current year.
Units Unit Cost Unit selling price
1-Dec Beginning 10000 52
7 Purchase 30000 50
12 Sale 20000 90
17 Purchase 60000 45
28 Sale 70000 90
Required:
Assuming the entity uses the periodic system, compute the December 31 inventory and cost of goods sold under:
1. FIFO 2. Weighted average FIFO December 17 10,000 45 450,000 22 20,000 43 860,000 30,000 1,310,000 Average method December 1 10,000 52 520,000 7 30,000 50 1,500,000 17 60,000 45 2,700,000 22 20,000 43 860,000
Available for sale 120,000 5,580,000
Inventory (5,580,000/120,000) 30,000 46.50 1,395,000
FIFO Average
Goods available for sale 5,580,000
5,580,000
Less: Inventory – December 31 1,310,000 1,395,000
Cost of goods sold 4,270,000 4,185,000
PROBLEM 5
The records of Extreme Company showed the following:
Units Unit Cost Total Cost 1-Jan Beginning 10000 40 400,000.00 31 Sale 5000 1-Apr Purchase 15000 50 750,000.00 31-Jul Sale 18000 1-Oct Purchase 25000 60 1,500,000.
00
1-Dec Sale 12000
Required:
Compute the cost of the ending inventory and cost of sales using: 1. FIFO- periodic
2. Weighted average 3. Moving average
Units Unit cost Total cost
FIFO
October 1 15,000 60 900,000
Weighted average – periodic
January 1 10,000 40 400,000
April 1 15,000 50 750,000
October 1 25,000 60 1,500,000
Goods available for sale 50,000 2,650,000
Less: Sales 35,000
Ending inventory 15,000
Weighted average (2,650,000/50,000) 15,000 53 795,000
Units Unit cost Total cost
Moving average – perpetual
January 1 10,000 40 400,000 31 ( 5,000) 40 ( 200,000) Balance 5,000 40 200,000 April 1 15,00050 750,000 Total 20,000 47.50 950,000 July 31 (18,000) 47.50 ( 855,000) Balance 2,000 47.50 95,000 October 1 25,00060__ 1,500,000 Total 27,000 59.07 1,595,000 December 31 (12,000) 59.07 ( 708,840) Balance 15,00059.07 886,160 FIFO Weighted average
Inventory – January 1 400,000 400,000
Purchases 2,250,000 2,250,000
Goods available for sale 2,650,000 2,650,000
Less: Inventory – December 31 900,000 795,000
Cost of sales 1,750,000 1,855,000
Cost of sales – Weighted average perpetual
January 31 Sale 200,000
July 31 Sale 855,000
December 31 Sale 708,840
Total cost of sales 1,763,840
PROBLEM 6
The inventory records of Premiere Company showed the following data:
Units Cost Unit NRV Materials R 1000 110 100 S 2000 250 260 T 3000 300 330 Goods in process X 4000 500 480 Y 5000 650 620 Finished goods A 2000 800 790 B 2000 730 780 Required:
Determine the valuation of inventory following the measurement at LCNRV.
Lower of
Units cost or NRV Inventory value
Materials:
R 1,000 100 100,000
T 3,000 300 900,000 Goods in process: X 4,000 480 1,920,000 Y 5,000 620 3,100,000 Finished goods: A 2,000 790 1,580,000 B 2,000 730 1,460,000
Valuation at lower of cost or NRV 9,560,000
PROBLEM 7
The inventory of HH Company at the end of the current year is to be recorded at the lower of cost or net realizable value. Ending inventory data per unit are summarized below:
Item Units Cost Estimated sales price Cost of sell
A 1000 120 180 30 B 1500 110 140 20 C 1200 150 170 30 D 1800 140 190 30 E 1700 130 200 40 Required:
Determine the inventory value applying the lower of cost or net realizable value.
(Lower of cost or NRV)
Units Unit cost NRV Inventory
value A 1,000 120 150 120,000 B 1,500 110 120 165,000 C 1,200 150 140 168,000 D 1,800 140 160 252,000 E 1,700 130 160 221,000 926,000 PROBLEM 8
Landmark Company purchased a tract of unimproved land for P26,850,000. The land was improved and subdivide into residential lots at a cost of P43,500,000. These lots were all of the same size but owing to differences in location were offered for sale at different prices as follows:
Group Number oflots Sales price perlot 1 20 3,000,000.00 2 40 2,500,000.00 3 100 2,000,000.00 Group 1 5 2 4 3 3 Required:
Compute the cost of unsold lots at the end of the year.
Purchase price 26,850,000
Improving and subdividing cost 43,500,000
Total cost 70,350,000
Sales price Fraction Cost Group 1 (20 x 3,000,000) 60,000,000 60/105 40,200,000 2 (10 x 2,500,000) 25,000,000 25/105 16,750,000 3 (10 x 2,000,000) 20,000,000 20/105 13,400,000 105,000,000 70,350,000
Cost per lot Unsold Cost Group 1 (40,200,000/20) 2,010,000 5 10,050,000 2 (16,750,000/10) 1,675,000 4 6,700,000 3 (13,400,000/10) 1,340,000 3 4,020,000 20,770,000
